EU-Nepal Partnership

Over the last two decades, Nepal has achieved significant milestones in its development. The population living below the national poverty line has almost halved from 1995 to 2010. The indices for primary school enrollment and maternal mortality rate also indicate dramatic improvements in the living standards of the Nepalese people. Despite these gains, Nepal remains the poorest country in South Asia and ranks 157th out of 187 countries in the Human Development Index list for 2011. Nepal has received large amounts of international development aid and depends on the international support to deliver basic social services. The European Union has allocated half of its funding to Nepal to support educational reform in the country. Despite some positive political changes since 2006, Nepal has recently experienced governance setbacks. Specifically, political parties could not reach a consensus on the adoption of a New Constitution which was scheduled for May 2012, resulting in the breakup of the Constituent Assembly. After decades of armed conflict and political unrest, Nepal has embarked on a new stage of peace-building and stability which the European Union supports. Funding levels The Nepal CSP 2007-2013 is financed under the EU-Development Cooperation Instrument. The financial allocation for 2011-2013 is €60 million ($77 million) and will be divided among priority sectors of intervention as follows: Nepal will also be eligible for additional financing under other instruments including: - European Instrument for Democracy and Human Rights - Instrument for Stability - Instrument for Humanitarian Aid - Food Facility (€23.5 million has been earmarked for Nepal to run food security related projects) - Regional Country Strategy Paper for Asia (providing support for Nepal’s regional integration in South Asia) Priorities Poverty alleviation and the achievement of the MDGs is the core goal of EU development cooperation with Nepal. To achieve the MDGs related to education, the European Union is providing €30 million ($38.6 million) to Nepal or half of its budget allocation for 2011-2013. Stability and peace-building is another cooperation priority in Nepal for 2011-2013. International donors together with the local partners have drafted a “Peace and Development Strategy 2010-2015.” The Strategy is a five-year reference document which serves as a framework for peace-building and development activities in Nepal. EU, together with the other international and local partners, is supporting Nepal to realize its goals for short-term stabilization and long-term peace. The EU reveals that economic development support is highly contingent on Nepal’s policy and legal reforms such as a transition to democratic system and the establishment of functioning institutions. Nepal is undergoing a process of defining a comprehensive economic development strategy. There is a need for better integration in the international markets and diversification of trade partners. Currently, India accounts for 66.4% of Nepal’s exports and analysts have highlighted the need and opportunity for diversification. The EU has allocated up to 15% of the 2011-2013 budget for the Trade Facilitation and Economic Capacity Building Program to support private sector development and trade facilitation efforts. Devex analysis Despite Nepal’s impressive records in poverty reduction over the last two decades, the country’s economic base remains weak. Political instability, lack of law and order, and other factors like inadequate infrastructure have stunted economic growth. Nepal is highly dependent on agriculture (which is the primary source of employment) and on tourism. Further, remittances account for almost a quarter of Nepal’s GDP. In response to these conditions, EU has increased its financial allocation to trade and economic capacity building over the next two years. The European Union’s support is conditional on Nepal-driven reforms. For example, back in 2005, the European Commission put its programs in Nepal on hold due to King Gyanendra’s political takeover. As long as Nepal remains committed to peace-and state-building activities, it is likely that the European Union will maintain its support for the country’s development in the mid- to longer-term.