Nepal signs US$ 350 million loan agreements with the World Bank to strengthen urban governance

By Laxman Datt Pant

Nepal signs US$ 350 million loan agreements with the World Bank to strengthen urban governance

The government of Nepal has signed two separate loan agreements today with the World Bank to strengthen urban governance and the financial sector in Nepal in an attempt to support the country’s COVID-19 resilience and recovery efforts.

These agreements have been signed at a time when there is lack of coordination among the local, provincial, and federal governments in addressing the urban governance issues that include but not limited to poor health and sanitation services, shortage of drinking water, weak service delivery, haphazard housing developments, inadequate disaster preparedness, and substandard road network.

The agreements for the Nepal Urban Governance and Infrastructure Project valued at US$150 million and the Finance for Growth Development Policy Credit valued at US$ 200 million were signed by Sishir Kumar Dhungana, Secretary at the Finance Ministry of Nepal, and the World Bank Country Director for Nepal, Maldives and Sri Lanka, Faris Hadad-Zervos.

Recognizing several initiatives and strong commitment of the Government of Nepal in strengthening financial sector stability, diversifying financial solutions, and increasing access to financial services, the Bank offered the US$200 million Finance for Growth operation as a budgetary support. This project aims to support enhanced supervision of risks confronting the banking and financial institutions, especially in the context of the pandemic’s impacts. Furthermore, the operation will also help build capital, insurance, venture capital, and private equity and disaster risk financing markets through regulatory reforms. It is expected that this initiative will help open new investment opportunities for market actors and crowd-in private financing.

The operation also focuses on expanding access to finance for households, women, and firms through regulatory and other reforms that will attract additional inflows of international finance and mobilize digital services, credit infrastructure, and literacy programs.

Similarly, the US$150 million Nepal Urban Governance and Infrastructure Project will support municipalities located in two strategic urban clusters located in Provinces 1 and 2 and in Gandaki and Lumbini Provinces. The project will finance strategic infrastructure in the targeted cities, based on the priorities of the municipalities and their citizens. This is Nepal’s’ first dedicated Urban Sector support. Also, the project will support capacity building for the municipalities for improved urban management and with a strong focus on citizen engagement, enabling targeted municipalities to better plan, manage and execute service delivery and urban management activities.

The project aims to finance small-scale labor-intensive public works, thus supporting economic recovery and creating temporary jobs for at least 20,000 people across the country, prioritizing women and other vulnerable communities. The project also includes a contingency emergency response component to allow for the reallocation of project funds to support response and recovery in case of a national emergency.

Upholding that the World Bank support would strengthen urban development and improve financial sector stability in Nepal, Sishir Kumar Dhungana, Secretary at the Ministry of Finance of Nepal said, “The projects support Nepal’s implementation of federalism and the financial sector reform agenda while contributing to the government’s recovery efforts from the COVID-19 crisis.”

Reiterating the World Bank’s commitments to support the government in implementing its relief, recovery, and resilience plan to meet urgent demand, Faris Hadad-Zervos, World Bank Country Director for Nepal, Maldives, and Sri Lanka said, “Through these two new projects, we look forward to working with the government of Nepal to strengthen institutions for effective service delivery as part of the federalism implementation process.” The projects will also build a resilient financial sector to boost economic recovery in Nepal, he added.