IN THE AMOUNT OF SDR 31.3 MILLION (US$50 MILLION EQUIVALENT)

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Human Development Unit South Asia Regional Office Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL FINANCING (GRANT) IN THE AMOUNT OF SDR 31.3 MILLION (US$5 MILLION EQUIVALENT) TO NEPAL FOR A HEALTH SECTOR PROGRAM April 2,28 Report No NP This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective = March 26,28) Currency Unit - NPR NPR 1. - US$.155 US$l - - NPR 64.5 FISCAL YEAR July July 15 ABBREWIATIONS AND ACRONYMS AWPB BEOC CB-IMCI CEOC CPR DDA DFID DHO DHS DIR DOA DOHS DOUDBC EDP FCGO EHCS FM FMIAP FMR GAAP GON HIV/AIDS Annual Work Plan and Budget HDI Basic Emergency Obstetric Care HMIS Community-Based Integrated Management of IDA Childhood Illnesses IPR Comprehensive Emergency Obstetric Care JAR Contraceptive Prevalence Rate LMIS Department of Drug Administration MD Department for International Development, UK MDG District Health Office MOF Demographic and Health Survey MOHP Detailed Implementation Review NHSP Department of Ayurveda NPC PDO Department of Health Services PPP Department of Urban Development and Building PPR Construction RTI External Development Partner SDIP Financial Comptroller General Office SDS Essential Health Care Services SHP Financial Management SWAP Financial Management Improvement Action Plan TB-DOTS Financial Management Report Governance and Accountability Action Plan UNFPA Government of Nepal Human Immunodeficiency Virus/ Acquired Immune Deficiency Syndrome Human Development Index Health Management Information System International Development Association Implementation Progress Report Joint Annual Review Logistic Management Information System Management Division Millennium Development Goal Ministry o f Finance Ministry o f Health and Population Nepal Health Sector Program National Planning Commission Project Development Objective Public Private Partnership Post Procurement Review Research Triangle Institute Safe Delivery Incentive Program Service Delivery Survey Sub Health Post Sector Wide Approach Tuberculosis-Directly Observed Treatment Short-Course United Nations Population Fund Vice President Country Director Acting Sector Director Task Leader Prahl C. Patel Susan G. Goldmark John A. Roome Jagmohan S. Kang 11

3 FOR OFFICIAL USE ONLY I I1 Table of Contents... Project Paper Data Sheet Introduction Background and Rationale for Additional Financing... 1 I11. Proposed Changes... 6 IV. Consistency with the 27 Interim Strategy Note... 8 V. Appraisal of Scaled-Up Project Activities... 8 VI. Safeguards and Bank Policies... 9 VI1. Expected Outcomes... 9 VI11. Benefits and Risks... 9 IX. Financial Terms and Conditions for the Additional Financing. 11 Annex 1 Enhanced Results in Selected Output Areas Annex 2 Financial Management Risk Assessment Annex 3. Governance and Accountability Action Plan Annex 4. Financing Plan... 3 Annex 5. Project Supervision Annex 6. Statement of Loans and Credits Annex 7. Nepal at a glance List of Tables Table 1 : Enhanced Project Development Objectives... 9 Table 2: Risks. Ratings and Mitigation Measures... 1 Table 3: Progress to Date. Milestones and Targets for Selected Output Areas of the Nepal Health Sector Program Additional Financing Table 4: Financial Management Improvement Action Plan Table 5: Financial Management Risk Rating Summary Table 6: Governance and Accountability Action Plan Table 7: MOHP Budget and Expenditure. 23/4-27/8 (NR million)... 3 Table 8: NHSP Initial Plan and Status after 4 Years (US$ million) Table 9: Enhanced and Extended NHSP Funding (US$ million) Table 1: Supervision. Monitoring and Evaluation Tools and Timeline This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. 11

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5 Date: April 2,28 Country: Nepal Project Name: Additional Financing Grant for Health Sector Program Proiect ID: P11731 Recipient: Nepal P PROJECT PAPER DATA SHEET Responsible agency: Ministry - of Health and Population - P Revised estimated disbursements (Bank FY/US$m) Team Leader: Jagmohan S. Kang Sector Directormanager: John A. Roome Country Director: Susan G. Goldmark Environmental Category: B - - The project development objective remains to expand access to, and use of, essential health care services. esueciallv bv underserved uouulations. Does - the scaled-up or restructured project trigger - any new safeguard policies? No For Additional Financing [ ] Loan [ ] Credit [XI Grant For LoadCredi ts/grants : Total Bank financing (US$m): 5 Proposed terms: Standard Financing Plan (US$m.) DFID Others Donors (TBD) iii

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7 I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional financing grant of US$5 million equivalent to the Nepal Health Sector Program (PO Credit 398-NEP and Grant H125 NEP). 2. The proposed grant would help scale-up a well performing sector-wide program and enhance its impact. The expansion of essential health care services to the population, central to the program, has been faster than planned and has translated into an early achievement of some targets. In this process, resources were absorbed more quickly than anticipated. The original five-year cost estimate for the overall sector program was US$498 million. More than 85% of this amount will have been used during the first four years. The initial IDA contribution of US$5 million will have been effectively used, leaving no IDA hnds for FY29/1. Further, the Government of Nepal (GON) has sought a one-year extension of the sector program to synchronize its second phase with the country s next Five-Year Plan which is expected to commence from July During the next two years, the geographic coverage of essential services will be expanded, and policies aimed at increasing access by the poor more systematically implemented. As such, additional financing will support the government s response to the people s expectations of inclusive and accountable public services. All the main health donors2 are participating in the sector-wide approach (SWAP). Though only IDA and the Department for International Development, UK (DFID) are currently pooling funds, several other donors are considering pooling funds and some are expected to start pooling even before this program phase ends. The original program objectives, components and key performance indicators will remain unchanged and the planned outcomes will not only be achieved but enhanced significantly, better reflecting the inclusion agenda. 11. Background and Rationale for Additional Financing 4. Country Context: Nepal is emerging out of nearly a decade and half of conflict and political instability. The present seven-party alliance government came to power following the Second Popular Movement of April 26. Apart from managing the peace process, ensuring security and conducting elections for a constituent assembly, the Interim Government is expected to continue developmental activities, improve the delivery of public services and enhance equity across groups. If the Interim Government succeeds in providing better and more inclusive social services, peace will have delivered genuine dividends to the people of Nepal. To meet these expectations, the legislature s 1 The expression essential health care services (EHCS), or essential services for short, used throughout the document, refers to a specific package of cost-effective interventions which seek to improve reproductive, maternal and child health and to control communicable diseases. The list includes AusAID: Australian Agency for International Development, DFID: Department for International Development (UK), GTZ: Deutsche Gesellschaft ftir Technische Zusammenarbeit, ILO: International Labour Organization, KFW: KfW Entwicklungsbank, SDC: Swiss Development Corporation, UNAIDS - UN Joint program on HIV and AIDS, UNFPA: United Nations Population Fund, UNICEF: United Nations Children s Fund, USAID: United States Agency for International Development, WHO: World Health Organization. -1-

8 Parliament promulgated an Interim Constitution which recognizes access to health care as a fundamental right, with a stress on equity, and the Interim Government included health as one of the three priorities of the three-year Interim Plan. 5. Sector Context: Nepal has been increasingly committing its public resources towards improving the health system, with a focus on essential health care services, especially for the underserved. It intends to sustain these efforts and continue expanding the coverage of key services. In FY27/8, health represented more than 7% of the government budget, up from 4.9% in FY23/4, and an increase of 3% over the previous year s budget. The constitutional right to health care is being translated into a policy of free essential health care. In December 26, emergency and inpatient services at the district hospitals and primary health care centres were declared free for the disadvantaged, destitute, underserved, the elderly, the people living with physical and psychological disability, and Female Community Health Volunteers. Also, outpatient care was declared free in 35 low human development indicator districts. In October 27, GON fkrther decided to offer essential care free of charge to all citizens at all health posts and sub-health posts from January 28. The GON has been preparing to implement this policy, fully aware of the potential risks, and the need to ensure sustainable financing and quality of care. 6. The above approach is endorsed by the donors who support a common sector strategy, a jointly developed Nepal Health Sector Program, and who jointly review program performance with GON twice a year. Nepal is one of the seven first-wave countries to benefit from the International Health Partnership. By holding the partnership signatories accountable to their commitments, Nepal can hope to improve aideffectiveness and further strengthen the SWAP. 7. Objectives and Scope: The Health Sector Program development objective is to expand access to and the use of essential health care services, especially by underserved populations. The initial program was based on the Health Sector Strategy: An Agenda for Change developed jointly by the Ministry of Health and Population (MOHP) and the sector s donors. Eight areas of intervention or outputs were consolidated under two components: (a) Strengthened Service Delivery; and (b) Institutional Capacity and Management Development. Strengthened service delivery involved (i) the expansion of essential services; (ii) participation of local authorities in service delivery management, and (iii) use of public private partnerships (PPPs). Institutional capacity and management development was to translate into improved (i) sector management; (ii) sector financing; (iii) physical assets management including drugs and supplies; (iv) human resource development; and (v) monitoring and evaluation. The program s December 27 midterm review concluded that the Program objectives, components and planned outputs remain valid, especially in the context of New Nepal. 8. The original Project was approved by the Board on September 9, 24. The grant of SDR27.3 million and credit of SDR6.9 million (a total of US$5 million equivalent) became effective on February 25, 25. The Project is scheduled to end on July 15, 29. By January 28, the IDA grant had disbursed US$33.8 million equivalent (SDR million), and an additional US$1.6 million equivalent has already been authorized for disbursement. The balance is expected to reimburse FY27/8 program expenditure. -2-

9 9. Impressive Performance on Development Objectives: Nepal is on course to meeting the health Millennium Development Goals (MDGs) related to child and, possibly, maternal mortality, as well as Tuberculosis and Malaria. Remarkably, despite the challenging political and governance context, it outperformed several countries in the region. For instance, infant mortality rate (per 1 live births) has declined from 11 in 1991 to 48 in 26, a faster decline than in India despite India's higher per capita income and female literacy. In fact, Figure 1 shows that while Nepal spends only $4 of public money per capita, it outperforms its neighbors on this dimension (Figure 1). Under-five mortality rate (per 1 live births) has declined from 118 in 1996 to 61 in 26 and maternal mortality ratio from 539 (per 1, live births) in 1996 to 281 in 26. Similar1 the total fertility rate has declined from 4.6 children per woman in 1996 to 3.1 in 26!' These are all impressive results. Independent analysis commissioned for the mid-term review attributed a substantial share of these achievements to specific public health interventions. Data derived from the Health Management Information System, corroborated by the independently conducted Demographic and Health Surveys (DHSs); indicate solid achievements in the four key performance indicators set at the beginning of the Nepal Health Sector Program. These indicators are: contraceptive prevalence rate; skilled birth attendance; full immunization rates; and knowledge of one correct method of preventing HIV/AIDS. These indicators are likely to meet or, in the case of the contraceptive prevalence rate and immunization, exceed their initial targets. Figure 1 : Infant Mortality Rates and Public Expenditure per Capita in South Asia 7 Infant Mortality Rate Public Expenditure per Capita 6 5 4ti I Nepal Bangladesh India Pakistan Sources: Public expenditure per capita, 25, WHO. IMR: Data from DHS 25-7, except for Bangladesh (25: Health, Nutrition and Population Statistics, World Bank). 1. In program implementation, the country has systematically prioritized the expansion of essential health care services whose provision currently absorbs over 7% 3 Data are from the Demographic and Health Surveys. -3-

10 of MOHP budget (from a pre-program baseline of 6%). This first SWAP in the health sector has mitigated the long-standing issues of a fragmented approach to management and different donors interventions benefiting limited geographic areas. The Nepal Health Sector Program has rapidly expanded access to essential services. For example, the community-based integrated management of childhood illnesses has been expanded from 6 to 55 districts and will cover the entire country (75 districts) within a year. Vaccination for Japanese Encephalitis has been integrated with the immunization program in all endemic areas saving hundreds of lives annually. Several reproductive health services have seen similar expansion, including abortion services, legalized after the Program began and an incentive program which supports providers and women to increase institutional delivery and attendance by a health professional. The Program implementation plan targeted 5% coverage by the end of FY26/7, which has been exceeded. Several of these successes were achieved through collaboration with the private sector. However a few reforms did not proceed as planned. For example, in decentralization, after the management of over a thousand facilities was handed over to communities, the lack of elected bodies at the district and village levels stalled the process4. Similarly until recently, frequent MOHP leadership changes and the political context made for delays in ministry-level decision making and implementation, e.g., capacity building studies, service delivery surveys, etc. 11. On the other hand, MOHP has made a strong shift from the administration of vertical projects to a government-led harmonized sector-wide approach. It is increasingly leading the dialogue in an open and transparent manner and successfully steering the SWAP. Donors have been participating fully and several now envisage pooling their funds with MOHP. New policy initiatives, such as the targeted removal of user fees, are being managed in an integrated way; for instance, the possible increase in the demand for drugs following this reform was anticipated and provided for by tripling the drug budget. The technical assistance unit set up in October 27, has started effectively supporting the ministry to further accelerate the system s development. 12. Financial Management: During the first two years, financial management (FM) was rated Unsatisfactory ; it was upgraded to Moderately Unsatisfactory in 27 to reflect recent improvements. The reasons for the previous rating were the delayed receipt of Financial Monitoring Reports (FMRs), the FM unit s non-responsiveness to audit queries and lack of progress in FM capacity building. This situation resulted from a general lack of capacity in the MOHP. However, gradual improvements have taken place and been accelerated with the strengthening of a key coordination unit in the MOHP. For example, the FY25/6 audit report, covering the entire sector, was received on time and the backlog of FMRs has been cleared. The quality of Implementation Progress Reports that include FMRs has improved, and MOHP has started implementing the updated FM Improvement Action Plan, including the training of district and lower level staff in accounting and internal controls. It is now close to obtaining an on-line connection with the Office of the Financial Comptroller General that will further speed up the consolidation of sector-level expenditure and therefore FMR preparation. Similarly, the un-audited report for FY26/7 accounts has been received and the audit report is Table 3 provides more details about achievements to date in the second column progress under NHSP (pp.13 in Annex 1). -4-

11 expected on time. However, notwithstanding these efforts, further improvement in financial management will require time and sustained implementation of the FM Improvement Action Plan. The latter has been assured by the highest levels of the MOHP which has committed to implementing most agreed actions by June 28. It has also agreed to strengthen its FM unit with an additional specialist by April 3, 28. The FM rating will remain unchanged until tangible progress in the implementation of the above Action Plan is observed Procurement: There are no specific issues in procurement at the moment. The procurement rating of one 27 ISR was Moderately Unsatisfactory due to delays, some of which could be attributed to the prevailing political situation, and others to capacity constraints. The Public Procurement Act and Public Procurement Regulations promulgated in 27 are fostering improvements in the national procurement regime. These new legal requirements and the experience slowly gained by the implementing agency have helped improve the procurement rating to Moderately Satisfactory. To implement the new legal requirements effectively, and further improve internal systems and capacity, MOHP will: (a) post its annual and overall procurement plans on its website and update these monthly; (b) establish a system to carry out proper market surveys to prepare cost estimates for each procurement item; and (c) ensure, with support from an expert panel, the regular updating of specifications for goods and pharmaceuticals reflecting current technological advances. The procurement rating will further improve once MOHP strengthens its procurement capacity by hiring, within April 28, an experienced procurement professional, and initiates the above and other procurement related agreed actions indicated in the Governance and Accountability Action Plan in Annex 3 (pp. 25) 14. In conclusion, while there are implementation challenges, MOHP is committed to meeting them. The Nepal Health Sector Program is moving in the right direction and the S WAp is becoming institutionalized. Financial management and procurement are now receiving high priority which should result in further improvements during the next few months. Considering the continuing strong output performance, speedy expansion of essential care health services, and promising outlook, the Development Objectives and Implementation Progress ratings were upgraded from Moderately Satisfactory to Satisfactory after the mid-term review. 15. Justijkation for Additional Financing in light of the Financing Plan: Three factors have led to this request: (a) faster absorption of resources in the first four program years that has resulted in early achievement of targets and clear impact on reproductive health, child health and communicable disease control; (b) continued scaling up of essential health care services; and (c) the decision to extend the Nepal Health Sector Program by one year. Studies undertaken to prepare the initial program showed that providing essential services over five years would require at least US$65 million, and that total public health expenditure over that period should be around US$85 million. Taking into account MOHP implementation capacity and the context, the original target for the program was realistically set at US$498 million for five years, of which GON was expected to finance US$286 million. By the end of the fourth fiscal year, the Program A more detailed Financial Management Risk Assessment is presented in Annex 2, pp

12 will have consumed 85% of the initially planned program resources and MOHP paid 9% of its commitment. To further enhance activities and extend the Program by one year, US$4 million will be required for the next two fiscal years. This will bring the Program total cost to US$823 million for six years, which remains below the initially projected requirement for five years IDA and Other Donors Contributions: The current un-disbursed balance of the IDA Grant and Credit (about US$19 million) is expected to be utilized within FY27/8, leaving no IDA funds for the Program thereafter. IDA resources were disbursed faster also because DFID could initially provide substantially less than its committed contribution to the pool funds. Yet, DFID will have met its initial commitment to the Program by the end of the fifth year. Further, it has increased its contribution for the expanded program. Looking forward therefore, GON will meet half the required US$4 million for the next two years and DFID has committed a total of US$59 million to the Program, US$34 million as pooled funds. GON is requesting US$6 to US$65 million grant from IDA and expects to meet the remaining requirement from other donors who are all supportive of the increased budgetary outlay. So far, IDA contribution to the Program has averaged around 12% of the MOHP annual expenditures. At this rate, IDA would be expected to contribute a total of US$5 million, US$25 million each in FY28/9 and FY29/1. IDA is the lead donor for the health sector program, and the rationale for its continued involvement is strong. Further, providing additional financing in the next two years would be in the spirit of our International Health Partnership commitment to predictable and sustained aid to the health sector. 17. Given MOHP priorities, the funding will be used to scale up and improve mother and child health services and communicable disease control, targeting the poor and socially excluded. It will also be used to promote public-private partnerships and build management capacity Proposed Changes 18. The additional financing will support further investment in the eight initially planned output areas, without any change in the Program Development Objectives or design. Selected priority activities will be expanded to increase the availability of essential health care services, ensuring increased access for the disadvantaged. The additional financing is also an opportunity to accelerate investment in key stewardship functions such as monitoring and evaluation, as well as accountability and transparency in the sector. Progress on these fronts will build confidence across the board and facilitate Nepal in mobilizing stakeholders and ultimately resources in the context of the next phase of the Nepal Health Sector Program due to start in 21 (NHSP-11). Box 1 below indicates the lines along which specific activities will be enhanced; progress to date, detailed revised milestones, and new targets are detailed in Annex 12). Annex 4, pp. 3 presents more details about NHSP expenditure and financing plan. -6-

13 Box 1: Enhanced Activities in selected Output Areas of the Nepal Health Sector Program The additional financing seeks to achieve (i) enhanced availability of and access to essential services supported by expanded activities in Public Private Partnerships, human resources management, and logistics; and (ii) rapid progress on key stewardship functions such as monitoring and evaluation, accountability and transparency. The eight output areas will continue to be financed and monitored as originally planned. In essential health care services (output l), MOHP will scale up interventions presently implemented in selected districts, e.g., community-based integrated management of childhood illnesses, obstetric care, and the prevention and treatment of uterine prolapse (prevalent among the poorest women). A neo-natal health plan will be introduced initially in 1 districts, 7 of which with low human development index. To address malnutrition among children under 2 years of age, MOHP will carry out pilot interventions in three districts and evaluate these for scaling up under NHSP-11. In communicable disease control, the control of Japanese Encephalitis and Leishmaniasis7 will be expanded and the health system s response to HIViAIDS strengthened. To improve the use of essential services by the disadvantaged, two recent initiatives are expected to benefit the poor: the removal of some user fees and the introduction of the Safe Delivery Incentive Program, a conditional cash incentive to increase institutional deliveries and health professional attendance. MOHP will strengthen the implementation and monitoring of these policies and ensure that (i) conditions are in place for the system to be able to meet increased demand and (ii) these policies translate into increased access for and service use by the poor and socially-excluded groups. For example, human resources for maternal health will be deployed as a priority to increase skilled birth attendance (output 7), and the availability of essential drugs in public health facilities will be ensured through adequate procurement and effective logistics management (output 6). Additional output-level indicators have been included to assess implementation, and progress on Program Development Objectives will be monitored for the bottom income quintile of the population (Section VI). Public Private Partnerships (output 3) contribute substantially to improving the availability, quality and access to health services in Nepal, but a systematic PPP strategy is needed and the dialogue with the private sector needs to be better institutionalized. A Private Health Sector Assessment is currently under way and will be used to engage the private sector to achieve the essential services delivery targets, with a focus on underserved areas. In the meantime, beginning FY28/9 (i) the Safe Delivery Incentive Program will be open to women who choose to deliver in the non-state sector with providers receiving incentives; (ii) all the ten medical colleges, all reputed non-state hospitals will be contracted to provide free surgical services for uterine prolapse; by the Program end in July 21, at least 5 districts will be covered with these services; (iii) contracts will be signed with non-state hospitals/clinics in 5 districts to provide comprehensive Zmergency obstetric care to women who require these services (a third of the expansion planned in the next two years). Monitoring and evaluation will be improved through the use of additional surveys (output S), as well as governance and accountability at the sector level (See Annex 3). Lastly, building on the agenda described ibove, and other elements of the sector program, MOHP will elaborate the NHSP-I1 strategy in :onsultation with all stakeholders (output 4). 19. Institutional arrangements for financial management and disbursement will remain unchanged, and implementation of the FM Improvement Action Plan (pp.21) Will be effectively monitored. 2. Procurement procedures, as per Public Procurement Act and related Regulations of 27, will apply to all procurement except for all International Competitive Bidding for 7 Leishmaniasis or Kala-azar: A chronic and potentially fatal parasitic disease of the viscera. -7-

14 which the provisions of the World Bank s Guidelines for Procurement under IBRD Loans and IDA Credits (May 24, revised October 26) will apply. 21. A sector-specific Governance and Accountability Action Plan will be implemented; details are in Annex 3 (pp. 25). As a result of all these efforts, supervision will be strengthened (Annex 5), making use of the information generated (Table 1: Supervision, Monitoring and Evaluation Tools and Timeline). 22. Closing Date: With an extension of one year, the Nepal Health Sector Program will end on July 15,21. IV. Consistency with the 27 Interim Strategy Note 23. Additional Financing for the Health Sector Program supports the strategy articulated in the World Bank 27 Interim Strategy Note. In the current country context, the strategy seeks to protect the reforms already implemented. This health SWAP consolidated fragmented country and donor-supported efforts into one coherent national health sector strategy, and successfully increased public expenditure effectiveness by emphasizing basic health services. It also initiated decentralizatiodde-concentration of management authority to the field level and promoted Public Private Partnerships (PPPs). Although emphasis on the inclusion agenda has been limited, the Program did expand access to and use of essential health care services across the board. It will be important to protect the SWAP and essential services if the transition is stalled, and these reforms, along with decentralization, PPPs and efforts towards inclusion, would need to be accelerated in the transition towards a post-conflict economic program. 24. The Interim Strategy Note highlights three additional elements which should be woven into a post-conflict program: (i) state building, and implementation through existing public sector : (ii) genuine partnerships between the public sector and the private sector/communities ; and (iii) rapid impact... through improved public services. The Program contributes to strengthening the public sector by using country systems for disbursement and implementation. PPPs are one of the eight key Program outputs and the additional financing seeks to specifically promote these partnerships through contracting private sector and NGO providers. Improving public services has been a key Program priority, and the Program has a sound track record of expanded and strengthened service delivery. Lastly, the additional financing will strengthen social service delivery thereby helping cement the peace process and delivering peace dividends. The provision of additional financing for Nepal Health Sector Program is clearly in line with the Bank s interim strategy. V. Appraisal of Scaled-Up Project Activities 25. The economic analysis of the original project examined the government s commitment to the health sector and the financial sustainability of increased public expenditure. It also reviewed the cost-effectiveness of interventions planned under the Nepal Health Sector Program, and the rationale for the public sector to support their provision. On the first set of aspects, Nepal has significantly increased its commitment to funding health during the Program and the three year interim plan confirms that health remains a priority. By FY29/1, the Medium Term Expenditure Framework suggests -8-

15 that the health sector allocation will have doubled compared with its FY2Y6 level (from NPR7.6 billion to NPR13.9 billion), a reasonable target given the steady increase in the sectors absorption capacity (from 73% in FY23/4 to 81% in FY26/7). The Program s continued focus on the provision of cost-effective essential health services and the increased emphasis on improving access for the poor, ensure the program remains economically justified. VI. Safeguards and Bank Policies 26. The activities to be financed under the additional grant do not trigger any additional safeguard policies and do not require any exceptions to Bank policies. MOHP has nominated a nodal officer to implement the Health Care Waste Management Plan and another nodal officer to implement the Vulnerable Communities Development Plan. It is providing specific annual budgets for the safeguard activities under the sector program. VII. Expected Outcomes 27. Higher targets have been set for the extended and expanded Nepal Health Sector Program. The contraceptive prevalence rate and immunization coverage will increase beyond the initially planned levels. Specific targets have been set for the poor and their achievement will bring them closer to the population average (Table 1). Comparison of the Health Management Information System (HMIS) data with the results of Nepal Demographic and Health Survey (DHS) suggests that the former are broadly accurate and sufficient to monitor year to year progress. The HMIS however does not disaggregate information by income level, and household surveys are required. The next DHS, tentatively planned for 21 1, will be used to measure Program achievement when the data become available. Table 3 provides specific indicators that will be used to monitor inclusion on a regular basis (pp. 13). Overall Results Indicators Contraceptive Prevalence Rate, modern method (%)* Baseline Achievement Initial PDO New PDO (DHS in 26 (DHS) target for target for 21) June 29 June * 48 Lowest income quintile I 23.8 [ 3.3 I 35 Lowest income quintile I 3.6 I 4.8 I 1 Lowest income quintile DPT-3 % children immunized against measles % Population with the knowledge of one correct method ofpreventing HIV infection F: 37.6 F: F: 75 M: 5.8 M: M: 85 VIII. Benefits and Risks 28. The additional financing will support the on-going reforms in the health sector and contribute to faster expansion of access to and use of essential health care services, -9-

16 especially for the underserved populations. By the program end, the entire country would be covered by key reproductive and child health services and, as needed, by the communicable disease control interventions. The health system will be strengthened with an emphasis on monitoring and evaluation, physical assets management and human resource development. The investment will help Nepal sustain its impressive achievement in health outcomes and progress towards achieving the key MDGs. 29. Political instability tends to slow down decision making and implementation. This poses some risk to the sector program implementation. Yet, progress has been achieved in the health sector even during the conflict. The following eight key risks are identified for the scaled-up activities under the additional financing and these risks need to be addressed. The overall marginal risk assessment is judged to be Modest. The potential risks, measures for mitigating them and risk ratings are given below in Table 2. Table 2: Risks, Ratings and Mitigation Measures Risk 1.Continuing instability and social unrest 2. Discontinuation of policies by the new government coming in after the elections 3. Weak implementation capacity within MOHP 4. Fraud and Corruption indicators: Low transparency in procurement 5. Inadequate internal financial controls and poor timeliness and quality of audit reports 6. Informal provider payments by poor despite introduction of free basic services 7. Dependence on single source o f information and inadequate systems to track physical assets and progress 8. Vast number of construction sites, works and services not amenable to regular supervision Risk Rating S M S H S H S H Risk Rating: H (High); S (Substantial); M Risk Mitigation Measures Health care is a basic need of all citizens; the renewed focus on delivery for excluded groups should mitigate this risk. Policies developed through wide participation; and increased stakeholders participation in implementation reviews. A systematic capacity development program is part of the Program and a technical assistance unit is in dace in MOHP. Posting of procurement plan on MOHP s website; inclusion of independent members in Bid Evaluation Committees; and Procurement Audit and regular Post Procurement Reviews conducted. Implementation of FM Improvement Action Plan; posting of annual financial information and audit reports on MOHP s website; and Performance Audit conducted. Two service delivery surveys will provide information on informal payments; repeated dissemination of results will help deter informal payments; and specific communication strategy aimed at clients and providers will inform them of their rights and obligations. A Demographic and Health Survey in 211 to measure health outcomes and two service delivery surveys, in 28 and 21, will provide independent information on program implementation. MOHP will involve local communities by constituting local committees to supervise health facility construction, and Bank/donors will commission a third party post supply, installation and completion inspection of a random sample of equipment and civil works for quantity, quality, completeness and use, and GON will act on findings. Modest); and N (Negligible). Residual Risk M M M S M S M S - 1-

17 IX. Financial Terms and Conditions for the Additional Financing 3. The additional financing will be on IDA grant terms, instead of the mix of IDA grant and credit terms applicable to the original operation. The terms and conditions for the Grant will be standard

18 Annex 1 Enhanced Results in Selected Output Areas Additional Financing for Health Sector Program The Nepal Health Sector Program (NHSP) mid-term review concluded that the program objectives, components and the eight initial output areas remain relevant though some milestones need to be revised to reflect contextual changes such as the renewed focus on inclusion and the removal of user fees. Also the indicators need to be revised to reflect the targets for the extended one year period. The following Table 3 presents NHSP progress to date. It also includes targets for key activities which will be used to measure progress during the Joint Annual Reviews (JARS). Further it includes Nepal s health outcome targets (followed by a * ), though it will not be possible to monitor these yearly. Where possible, baseline data is provided and/or the data source and collection methods are identified. For instance, data generated by the Periodic Pro-poor Policy Monitoring System, currently being developed by the MOHP using TA, will be used to assess the results of the removal of user fees. Other important data sources will be the 28 and 21 Service Delivery Surveys (SDSs) and the Demographic and Health Survey (DHS), planned for 211, which will confirm NHSP s achievements and provide a baseline for NHSP

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24 Financial Management Risk Assessment Additional Financing for Health Sector Promam Annex 2 Adequacy of Financial Management (FM) Arrangements: The World Bank commissioned a detailed financial management review of the Nepal Health Sector Program (NHSP) for FY24/5 and FY25/6. Based on it, a Financial Management Improvement Action Plan (FMIAP) was agreed upon in the Joint Annual Review (JAR) of NHSP in June 27. The FMIAP outlines six areas where results are expected: (a) developing performance based planning and budgeting system; (b) improving the fund flow system; (c) timely submission of Implementation Progress Reports (IPR) that includes Financial Monitoring Report (FMR) ; (d) strengthening financial information, monitoring and feedback system; (e) improving quality of assets management; and (f) preparing capacity development plan in financial management. The December 27 mid-term review observed very little progress in these areas, and the agreed time-line were revised. All External Development Partners (EDPs) strongly emphasized the need to improve financial management and MOHP subsequently gave the issue high priority. A committee, chaired by the Joint Secretary of MOHP with participation from all Divisions, now regularly monitors the implementation of the action plan. An assessment of FMIAP implementation at the end of February 28 showed significant progress on initial actions but the achievement of the intended results will require some time. A revised time line has been agreed to ensure that most actions are completed by June 28. Already, the IPR backlog has been cleared. Un-audited accounts for FY26/7 have been received on time. There are no outstanding audit reports or significant audit issues; the action plan has addressed the deficiencies observed in audit reports, but internal control and asset management will need to further improve over time. A consulting firm, RTI, funded by DFID TA is providing technical support in implementing the FMIAP. The FM risk currently remains SubstantiaZ, and the FM performance rating Moderately Unsatisfactory. These ratings will be assessed during the June 28 JAR and could potentially improve if progress is sustained. The seriousness demonstrated by MOHP provides adequate assurances that the FMIAP plan will indeed be implemented and gradually lead to improvements in all the six key results areas. Table 4 (pp.21) presents the FMIAP and progress to date and Table 5 (pp.24) provides the FM Risk Rating Summary. Disbursements: IDA disbursements as of Mid-March 28 under the ongoing Health Sector Program are US$33.83 million or 83% of the total grant allocation of US$4. million, and no funds have yet been disbursed under the credit allocation of US$lO.O million. However, the third trimester report for FY26/7 has been cleared and the remaining balance of grant allocation by be disbursed within two weeks, as well as about US$3.5 million from the credit allocation. The remaining amount under the credit is expected to be fully disbursed during FY27/8, leaving no IDA funds for the last year of NHSP. IDA resources were used faster than initially anticipated not only because implementation was rapid but also because DFID, IDA S pooling partner, was able to meet only a part of its commitment to the pool funds during - 18-

25 the first two years. DFID started to gradually pick up its share from the third year of implementation and will have fully met its initial commitment by the end of year 5. Further, it has increased its contribution to the expanded program. Studies undertaken to prepare the initial program showed that providing essential services over five years would require at least US$65 million, and that total public health expenditure over that period should be around US$85 million. Taking into account MOHP implementation capacity and the context, the original target for the program was realistically set at US$498 million for five years, of which GON was expected to finance US$286 million. By the end of the fourth fiscal year, NHSP will have consumed 85% of the initially planned program resources and MOHP paid 9% of its commitment (Annex 4 - Table 7, pp. 3). To mher enhance activities and extend NHSP by one year, US$4 million will be required for the next two fiscal years. This will bring the NHSP total cost to US$823 million for six years, which remains below the initially projected requirement for five years (Annex 4 -Table 8, pp. 31). At least half of the required amount will be borne by GON. IDA S contribution is expected to be about US$5. million and DFID s contribution about US$34. million through the pool and US$ 25 million of TA and earmarked budget support. Disbursements will continue to be report-based. The pooled partners will continue to disburse their portion of funds as determined by the FMRs to the designated Foreign Exchange Accounts maintained at the Nepal Rastra Bank. External Audit: The Office of the Auditor General audits the accounts of NHSP. There are no pending audit reports. Issues raised by Auditors during FY25/6 audit include the need to strengthen: i) the internal control system to reduce excessive advances, ii) asset management, and iii) the monitoring system to track clearances of outstanding irregularities on time. These issues were noted during the financial management review and incorporated into the FMIAP. Although the Bank s policy requires audit reports to be submitted within six months, an exception was granted to submit the report within 12 months on the grounds that the health sector program covers the entire country. This was been agreed with the other EDPs and reflected in the Joint Financing Arrangement. The FY25/6 audit was submitted within this time frame. FY26/7 unaudited accounts were submitted on time, and the audited accounts are expected within a 1 months time frame. The following audit reports will be monitored in the Audit Report Compliance System (ARCS): Implementing Audit Auditors Agency (with exception NHSP Financial Statements Office of the Auditor General (OAG) end of each fiscal - 19-

26 Implementation Progress Report: Since the beginning of NHSP, the submission of trimester IPRs has always been delayed by 3 to 6 months, which has slowed fund release from the pooled partners. The third trimester IPR of FY26/7 which was due on August 3 1,27 was submitted on February 14,28; the first trimester report of FY27/8, due on December 3 1, 27 was submitted on March 7,28. Actions which support the timely submission of these reports are at the core of the FMIAP, whose implementation has been initiated. The backlog has been cleared and there are currently no pending reports. Generally reports have been of acceptable quality; the current processes and financial reports are adequate. Performance Audit: The Joint Financing Arrangement signed by Pooled Partners and the GON provided for a Performance Audit of NHSP implementation, which still has to be carried out. The MID-TERM REVIEW recommended that the process be initiated as early as possible. MOHP subsequently submitted a request to the Office of the Auditor General and the performance audit is now scheduled to take place in FY28/9. GON, Pooled Partners and OAG will agree on the Terms of Reference and its recommendations will help improve the overall performance of the health sector service delivery. The Government of Nepal will make necessary resources available to the Auditor General to carry out the performance audit. Disclosure of Information and Corporate Governance: With the recent enactment of the Rights to Information Act, 27, disclosure requirements under NHSP are enhanced and key information should be readily available to the public. NHSP will post on its website all available guidelines, procedures, and other key information related to NHSP. MOHP has specifically agreed to disclose the following on its website: Overall Sector Budget, Allocation by Activity and Budget Line, Procurement Plan; Procurement Complaints Mechanism; Trimester Implementation Progress Reports (approved versions); Invitation for Expression of Interest, Bid Documents, Requests for Proposals, Minutes of Pre-bid Conferences, Contract Awards; and Annual Audited Financial Statements. Supervision: In close cooperation, the pooled partners will follow up on the implementation of the agreed FMIAP. The next JAR will also review its implementation. At that time, the FM performance rating and the FM risk rating will be reassessed. If satisfactory results are observed, these ratings could potentially be upgraded. As project implementation moves forward, desk reviews of internal and external audit reports will be conducted. A follow-up FM review will also be carried out during next fiscal year to determine the impact of the implementation of the agreed FMIAP

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31 Annex 3 Governance and Accountability Action Plan Additional Financing for Health Sector Program Context and GAAP Elaboration: The wide-spread fraud and corruption (F&C) indicators and implementation deficiencies found by the recent India health sector Detailed Implementation Review (DIR) have highlighted the importance of planning anticorruption measures as part of program preparation and implementation. The Nepal Health Sector Program (NHSP) is sector-wide program which covers large scale procurement of goods, works and services including some decentralized procurement. NHSP also involves flow of funds to, and their use at, over 35 cost centers across the country. As such, and also because of recognized limitations in the public sector capacity, it is vulnerable to F&C. MOHP is aware of low procurement and FM capacities and weak internal controls, particularly at the field level, and has already initiated procurement and FM training of its concerned field staff. The additional financing represents an important opportunity to further strengthen fiduciary systems. In addition to the activities described elsewhere', this Governance and Accountability Action Plan (GAAP) seeks to address a broader range of potential F&C issues in the health sector. It was prepared jointly with the MOHP, taking into account the design features and fiduciary arrangements of the sector program, and formally agreed for implementation with MOHP. This first GAAP for the Nepal health sector is meant to be a live document. It will be improved based on implementation experience and the findings of the various reviews and surveys planned under it. GAAP Objective and Content: The GAAP seeks to (i) strengthen fiduciary systems; (ii) increase transparency in procurement and financial management; (iii) increase accountability to the community; (iv) encourage the use of independent and multiple sources of information; (v) strengthen supervision; and (vi) use the substantial donor financial and technical resources to strengthen and promote accountability in the health sector. To reduce the potential for F&C, GON and IDA have agreed on a timeline for a series of actions to improve (i) Procurement; (ii) Financial Management; (iii) NGO Contracting; and (iv) Monitoring and Evaluation. These are presented in the following Table 6. IDA has been financing 1% to 12% of MOHP's annual expenditure and, by preparing this GAAP in the context of the proposed additional financing, is leveraging its contribution for a larger impact. Improvements expected from the GAAP implementation will apply to the entire health sector. While the ultimate objective is to benefit the people of Nepal, MOHP will also more directly benefit as increased confidence in the system may lead donors to increase their contribution andor pool funds with the government for NHSP-11. * Paragraph 12-13, pp.5 and Annex

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36 Financing Plan Additional Financing for Health Sector Program Annex 4 The following provides background information on the Nepal Health Sector Program (NHSP) financing to date, compares the current situation with the initial plan and presents, looking forward, the financing plan of the enhanced and extended NHSP. Since this is a SWAP, the additional financing supports the entire health sector and disburses against the entire program expenditure. It is therefore not possible to outline what the additional resources will specifically finance. Table 7 provides background information about NHSP to date and sources of funding. It shows that: MOHP share in the government budget has increased systematically and significantly over the years (it was actually fluctuating from year to year in the previous period). Budget execution has also increased over the years, a sign that management has improved (better planning and budgeting, increased capacity to implement what is expected within the time frame). In terms of sources of funds, pooled partners have been contributing between 15 and 2% of actual expenditure. IDA has accounted for 6 to 8% of pool funding so far, or 12% of the total on average against the anticipated rate of 1% for each year. IDA funds were used faster due to the implementation pace but also because DFID was unable to meet its commitment in initial years, though DFID will have made up for this by year 5 end. Planned budget Share of MOHP in government budget (%) ,354 6,553 7,555 9,23 12, Figures in italic are projections for FY27/8, based on past years realization and plans. *Ministry of Health, except 23/4: Ministry of Finance The figure for 2718 is a slightly conservative estimate based on the 2617 execution rate. -3-

37 Table 8 compares the initial five-year plan and the situation after four years. More than 85% of the resources have been absorbed; the government has already contributed 9% of what it had committed to NHSP and IDA 1%. This is a consequence of a faster than anticipated expansion of services: the NHSP implementation plan targeted 5% coverage by the end of FY26/7, which has been exceeded in many areas and basic services have been added which were not initially envisaged. Table 8: NHSP Initial Plan and Status after 4 Years (US$ million) Sources: NHSP project appraisal document, and actual expenditure Table 9 projects NHSP cost over six years, and outlines the financing plan for the next two years. Studies undertaken to prepare the initial programg showed that providing essential health care services (EHCS) over five years would require at least US$65 million, and that total public health expenditure over that period should be around US$85 million. Taking into account MOHP implementation capacity and the context, the original size for the program was realistically set at US$498 million for five years. To enhance the program and it by a year, US$4 million will be required for the next two fiscal years. This will bring the NHSP total cost to US$823 million for six years, which remains below the initially projected requirement for five years. Table 9: Enhanced and Extended NHSP Funding (US$ million) Other EDPs (TBD) I * Assumption: FY26/7 execution rate is used for FY27/8 +* of which 34 are pooled funds. For a synthesis, see NHSP Implementation Plan 24-29, Ministry of Health, October 24, pp

38 Annex 5 Project Supervision Additional Financing for Health Sector Program The following describes the current supervision strategy and how it will be strengthened to reflect the renewed focus on monitoring and evaluation as well as the governance and accountability action plan. Current Supervision Arrangements: Semiannual Joint Annual Reviews (JARs) are the core of supervision of the sector-wide approach. The October/November JAR reviews the performance of the previous fiscal year, and agrees with MOHP on measures to address weaknesses and improve performance. The May/June JAR reviews and agrees on the work plan, the budget and the Medium Term Expenditure Framework for the following year. JARs, which last one to two weeks, are organized and led by the Government in collaboration with EDPs and are assiduously attended by all parties. In addition, on-going supervision activities by the task team include: Prior-review of procurement and of implementation progress report, including financial management report, as per Finance Agreement; Monthly meetings on implementation of FM Improvement Action Plan (with DFID and interested parties); Health Sector Development Forum quarterly meetings; Follow-up on actions agreed with MOHP and other issues by relevant staff based in Kathmandu. Additional Efforts: The project paper describes how supervision will be strengthened, particularly in the areas of procurement and civil works and thorough the use of independent surveys to monitor various aspects of implementation. The following table pulls together the information contained in the Comprehensive Governance and Anti-Corruption Action Plan, the monitoring and evaluation framework outlined in Annex 1 of the project paper and the Financial Management Risk Assessment in Annex 2. Activities are grouped under (i) supervision and regular monitoring, (ii) procurementspecific monitoring and (iii) use of independent surveys and evaluations. For each activity, a time line is given and the JAR at which the produced information will be discussed is marked. In addition, the table assigns responsibilities for ensuring that the information is collected

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