Context
Nepal is the second poorest country in Asia (GNI/Capita, 2010). Only Afghanistan is poorer. 40% of under-fives are stunted and a quarter are underweight and one in 22 children do not survive to their first birthday.
However, poverty levels have fallen significantly in recent years: from 41.2% of the population living on less than $1.25/day in 1995 to 24.8 % by 2010. This is largely due to remittance flows and so is vulnerable to the global economic situation. Almost half of Nepali families rely on incomes from abroad.
As poverty rates have fallen, regional inequalities have become increasingly stark, with clear pockets of poverty in the remote Western Hills and Mountains. However, most poor people live in the densely populated plains that border India in the south.
There has been remarkable progress in health (on track to meet the MDGs), forestry (reaching 40% cover), and education (increased enrolment) as well as Government financial commitment to social protection.
This has been possible since the 10 year civil war ended in 2006. The move towards democratic reforms is slow, but positive. The second Constituent Assembly elections were held in November 2013 and were credible with high turn-out. A return to full-scale war is unlikely, but regional and social identities are potential triggers for sub-national conflict.
The Nepal state is highly centralised, with weak accountability. The civil service functions – it raises revenues, manages the macro economy, provides basic services; but it lacks capacity, and is politicised and corrupt. State capacity to implement reforms and promote much needed coordination between the different levels of government is undermined by political impasse.
Nepal has struggled to fulfil its economic growth potential in recent years. The domestic economy is characterised by low productivity and under investment from the private sector resulting from political instability, corruption, poor infrastructure, and insufficient political attention to economic policy. The lack of domestic opportunities has dramatically increased labour migration.
Inequality remains a major challenge: only 6% of women are in formal employment, and only 10% of working women receive payment for their work. Exclusion is not just confined to income poverty: 64% of out-of-school children are from disadvantaged families. The poorest women have less access to health care facilities. Net enrolment rates in secondary school are 57% for the richest but just 8% for the poorest. Which family you are born into matters.
The poor are also highly vulnerable to climate change and natural hazards. As monsoon patterns change, 10 million poor farmers are at greater risk from droughts, flooding and food insecurity in the 4th most climate vulnerable country in the world.
Nepal is highly exposed to earthquakes, with the capital Kathmandu identified as the world’s most at risk city. Vulnerability to a major earthquake is compounded by the country’s inaccessibility and the weakness of national response systems.
Nepal is also important for the wider region, where it has a critical role to play in trade and wealth creation, as a transit route between India and China. Nepal is also regionally important for responses to climate change and energy security, as the source of rivers that support 700 million people and a potential supplier of clean hydro-power to the region.
The UK’s support to Nepal recognises the need to support improved stability and government capacity if progress on poverty, vulnerability reduction and economic development is to be achieved. We also need to deliver tangible changes and economic opportunities for the poor, vulnerable and excluded to reduce the likelihood of a return to conflict.
The three UK departments in Nepal - DFID, the Ministry of Defence (MoD) and the Foreign and Commonwealth Office (FCO) work very closely to ensure a coherent approach through implementation of a joint HMG Business Plan. Plans to make the UK’s work more efficient by sharing services and co-locating are underway.