Nepal Public Financial Management Multi-Donor Trust Fund

The Nepal Public Financial Management Multi-Donor Trust Fund (PFM MDTF) was formed in 2010 with the goal of improving public financial management performance, transparency, and accountability in Nepal. The MDTF has played a critical role in enhancing Nepal's PFM systems by assisting the government in executing different reforms. 

From December 2010, the PFM MDTF funded six projects to strengthen the country's PFM systems, improve accountability, and increase oversight by civil society. These projects were implemented by the Government of Nepal (GoN). The World Bank has provided regular and extensive implementation support to the GoN to ensure that the projects progress and achieve their intended results.  

Over the years, the PFM MDTF has also supported important PFM analytical and advisory activities, including the Public Expenditure & Financial Accountability (PEFA) Assessments, the Public Expenditure Review (PER), and the Public Expenditure Tracking Survey (PETS).  

Six Development Partners (DPs) continue to support the MDTF, including the United States Agency for International Development (USAID), the Australian Department of Foreign Affairs and Trade (DFAT), the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO), the European Union (EU), the Royal Norwegian Embassy, and Switzerland’s State Secretariat for Economic Affairs (SECO). 

Public Expenditure & Financial Accountability (PEFA) Assessments

With the assistance of the PFM MDTF, Nepal has recently completed its third PEFA Assessment, which evaluates and assesses the progress of PFM across the government since the last assessment in 2015. The reports consist of the PFM Performance Assessment, Climate Responsive PFM Performance Assessment, and Gender Responsive PFM Performance Assessment. 

Notably, Nepal is the second country in South Asia to undertake PEFA Climate and PEFA Gender Assessments. The government and development partners jointly launched the PEFA Assessment Reports on April 30, 2024. 

The third PEFA Assessment highlights the following areas for potential PFM reforms to achieve better fiscal and budgetary outcomes in Nepal:

• Restoring fiscal credibility through a sustainable medium-term expenditure framework, recalibration of fiscal rules, expenditure reprioritization, and risk management. 

• Improving public investment efficiency by reducing inefficiencies and building climate-resilient infrastructure. 

• Applying a climate and gender lens to fiscal decision-making to mainstream climate and gender considerations. 

• Enhancing fiscal transparency and accountability by enforcing fiscal rules and promoting accountability.

Currently, the PFM MDTF is helping the government formulate a comprehensive medium-term PFM Reform Strategy based on the findings of the third PEFA Assessment, and is also conceptualizing a project to support the implementation of the forthcoming PFM Reform Strategy. The PFM MDTF's ongoing analytical and advisory initiatives include the pioneering provincial PEFA Assessment for Gandaki province and technical support for the National Natural Resource and Fiscal Commission (NNRFC). 

Continued Collaboration : Stregthening Public Financial Management in Nepal

Nepal has a demonstrated history of implementing PFM reforms and conducting PEFA assessments, highlighting its commitment to sound financial management practices. Despite these achievements, significant challenges persist in the PFM sphere. Addressing issues concerning public procurement, intergovernmental fiscal transfers, fiscal risk management, and budget reliability within a federal framework is imperative to promote enhanced PFM outcomes. The PFM MDTF partners are committed to supporting the next wave of PFM reforms to facilitate Nepal's green, resilient, and inclusive development.

1. Integrated Public Financial Management Reform project (IPFMRP)

Grant Disbursed: USD 7.7 million

Implementation Period: Jun 2018 to July 2023 

The Integrated Public Financial Management Reform project was designed to reinforce the effectiveness of selected PFM institutions and procurement institutions, systems and procedures at the federal and subnational levels. Through an integrated approach, the project fostered collaboration among key PFM institutions to execute reforms, particularly in addressing shared priorities. Furthermore, it extended support to provincial and local governments in establishing essential PFM systems and processes.

2. Nepal: Strengthening Public Financial Management Systems Project (SPFM II) 

Grant Disbursed: USD 2. 69 million

Implementation Period:  October 16, 2015 – July 31, 2017

Nepal: Strengthening Public Financial Management Systems Project II project aimed to sustain the earlier achieved results and enhance PFM information systems.

3. Nepal: Strengthening Public Financial Management systems Project (SPFM I)

Grant Disbursed: USD 4.24 million

Implementation Period: October 31, 2011 – June 30, 2016

Nepal: Strengthening Public Financial Management systems Project I project’s objective of this project was to improve expenditure controls and enhance government accountability and transparency by strengthening the treasury system, improving financial reporting and building capacity in PFM.

4. Strengthening Civil Society Organization’s Use of Social Accountability to Improve PFM Management in Nepal II

Grant Disbursed: US$ 1.5 million

Implementation Period: Jan 31, 2015 – June 30, 2016 

Strengthening Civil Society Organization’s Use of Social Accountability to Improve PFM Management in Nepal II project aimed to extend the reach to an additional 15 districts of Nepal to apply various social accountability tools with the support of CSOs to enhance transparency, efficiency, and inclusiveness in specific PFM areas.

5. Strengthening civil society organization’s use of social accountability to improve PFM management in Nepal 

Grant Disbursed: USD 1.2 million

Implementation Period: Feb 1, 2011 – June 30, 2014 

The development objective of this project was to enhance transparency, efficiency, and inclusiveness in specific PFM areas by promoting the use of various social accountability tools by Citizen Society Organizations (CSOs) in the 10 districts of Nepal.

6. The Strengthening the Office of the Auditor General (SOAGN) Project

Grant Disbursed: USD 2.22 million 

Implementation Period: Feb 23, 2012 – June 30, 2015

The Strengthening the Office of the Auditor General project was launched to elevate the quality and impact of public sector audit in Nepal by aiding the Office of the Auditor General of Nepal (OAGN) in modernizing audit methodologies and introducing computer-assisted audit techniques in line with international auditing standards and best practices.

Results and Reforms: Public Financial Management Multi Donor Trust Fund 

The following are the consolidated results from the projects supported by the PFM MDTF

Improved Cash Management: The implementation of Treasury Single Account (TSA), as a unified structure of government bank accounts, provides a consolidated view of government cash resources. The TSA allows complete and timely information on government cash resources, facilitates efficient payment mechanisms, and enables efficient cash management. 

Digitization of Transaction Processing: Digitization has vastly improved the government’s expenditure and revenue management processes and transaction efficiency. In addition, implementing Electronic Fund Transfer ensures timely payments to vendors, employees, and social security beneficiaries, while digital revenue collection makes tax payments easier for citizens. 

Enhanced Financial Reporting: The federal and provincial governments’ financial statements are complete, timely, accurate, and consistent with internationally acceptable standards. These reports provide reliable information for decision-making and are crucial for accountability and transparency in the PFM system.

Strengthened Public Scrutiny and External Audits: The Office of the Auditor General of Nepal (OAGN) has implemented international standards and technology to enhance audit quality. Additionally, the OAGN actively promotes citizen engagement in the performance audit process by involving civil society organizations. Furthermore, the Public Accounts Committee has developed operational procedures and a management information system to strengthen its oversight function. These strategic initiatives significantly contribute to effective oversight, ensuring the transparent and efficient allocation of public resources.

Enhanced Procurement Capacity: The enhancement of procurement management capacity at all levels of government has resulted in the efficient and timely awarding of contracts. Furthermore, a sustainable procurement capacity-building mechanism has been implemented to ensure continual advancement. The streamlining of subnational procurement processes has laid the foundation for a more agile and responsive procurement system.

Reduced Carbon Footprint: The successful implementation of information systems and the creation of e-learning modules contributed to a remarkable reduction in paper usage. An outstanding example is the complete adoption of the audit management system, leading to the discontinuation of over 2.2 million pages annually of the OAG’s paperwork. Beyond boosting efficiency, the adoption of information systems has made a significant contribution to reducing the carbon footprint.

Improved Gender Mainstreaming in PFM: At all levels of government, the implementation of Gender Responsive Budgeting (GRB) Guidelines marks a pivotal step towards addressing equality dimensions in budget preparation. These guidelines provide explicit instructions to ensure that gender concerns are actively integrated into the budgeting process. Furthermore, the capacity of female civil servants in PFM has been enhanced through targeted training programs designed specifically for female government staff in PFM institutions.

Mainstreamed Citizen Engagement in PFM: Accountability and transparency have been further enhanced with citizen engagement in the various PFM phases (planning, budgeting, execution, and oversight). The Citizen Engagement Strategy for PFM developed under the IPFMRP project was disseminated to the three tiers of government for implementation. Some of the citizen engagement mechanisms have already been institutionalized, such as public disclosure of the MTEF, the annual budget and its execution status, the monthly fiscal bulletin, and citizen participation in performance audits. The MOF also conducted extensive citizen consultations for the fiscal year (FY) 2024 budget preparation through the Revenue Advisory Committee and sub committees. Similar consultations were done with independent sectoral experts for expenditure budget. The MOF has also initiated monthly public disclosures of virements and allocations from the Miscellaneous Account. The Local Government Institutional Self-Assessment (LISA) also indicates the implementation of several measures at the local level, such as disclosures of periodic plans, the MTEF, budgets, revenue and expenditure statements, public hearings, and so on. Further, based on the Citizen Engagement Strategy recommendations, the Government’s commitment to submitting the Budget Principles and Priorities on time (by mid-March) for adequate discussion has already been included in the FY24 Budget Speech. The OAG has mainstreamed the Citizen Participatory Audit (CPA) through the project. Citizen engagement and live screening of the PAC’s deliberations have also been integrated into the PAC’s operational guidelines.