The total pledged amount exceeds the public sector recovery needs in the medium term, but a much higher sum will be required the long term to build back better with earthquake-resilient public infrastructure.
Just last week, the Nepal government gathered high-level representatives from over 50 countries and multilateral agencies for an international conference for Nepal’s reconstruction (ICNR). The government estimated total pledges to the tune of $4.4 billion, equally spilt between grants and concessional loans. Notably, India and Peoples’ Republic of China committed $1 billion and $483 million, respectively. The World Bank, Japan, the US and the EU pledged $500 million, $260 million, $130 million, and $112 million, respectively. ADB, represented by its president, Takehiko Nakao, pledged $600 million—including $200 million emergency assistance approved by its Board of Directors on 24 June—to cover a part of the need to rebuild school buildings, roads and public buildings.
Aid pledged at ICNR ($ million). Source: author’s compilation.
Nepal’s National Planning Commission estimates that about 57% of the recovery needs or $3.8 billion (including housing) will have to be shouldered by the government. This means the total pledged amount exceeds the public sector recovery needs in the medium term. However, a much higher sum may well be needed in the long term to build back better and for earthquake-resilient public infrastructure throughout the country. Post-disaster needs assessment The total economic cost of losses and for recovery will be much higher than the loss of flow of economic activities in FY2015. According to PDNA estimates, the cumulative damage and loss amounts to 33.3% of GDP ($7.1 billion) and the cumulative need for recovery is estimated at $6.7 billion (31.5% of GDP).
Damages, losses and needs ($ billion). Source: PDNA Secretariat, National Planning Commission.
Of the total estimated need for recovery, about 50% is accounted for by private housing and settlement. Productive and infrastructure clusters account for 17.3% and 11.1%, respectively, of the total estimated need for recovery. It amounts to about 5.5% and 3.5% of GDP, respectively. The recovery requirement for agriculture, education, electricity, and transport is estimated at $156 million, $397 million, $186 million, and $282 million, respectively. Furthermore, recovery of the tourism sector and restoration of cultural heritage are estimated to require $387 million and $206 million, respectively. The way forward The way forward will not be easy given the huge challenges. ADB has indicated five principles of effective reconstruction: (i) building back better; (ii) inclusiveness; (iii) robust institutional set up for reconstruction; (iv) sound governance and fiduciary risk management; and (v) effective donor coordination and government ownership.
As part of that, some of the important tasks are:
- Operationalize the National Reconstruction Authority and fill key posts with competent professionals.
- Ensure the pledged aid is fully spent. For this, the government needs to come up with viable project proposals and address concerns related to the budget execution capacity and governance structure of the proposed authority.
- Ensure swift and effective decision making on the reconstruction program, especially on planning, budget allocation and execution, supervision, monitoring and evaluation. Outsourcing design, supervision and management of reconstruction projects may be needed if government capacity is limited.
- Prepare a time-bound project implementation plan with broad political ownership.
- Continue reforms to increase private sector investment, especially with an aim to initiate some of the reconstruction projects on a public private partnership (PPP) basis. This will require the government to pass the nearly finalized PPP Policy and speedily enact Nepal’s PPP Act. Other policies and acts prepared or updated with the aim to develop the private sector and increase their investment also need to be passed or enacted in an expeditious manner.
- Link the reconstruction activities with the development of a long-term economic development vision, which includes increasing per capita income to the level of a middle-income country by 2030. It is especially important because the PDNA did not include earthquake-resilient reconstruction throughout the country. The cost of rebuilding houses beyond the set size, retrofitting standing buildings in Kathmandu Valley and affected districts, and nationwide resilience (such as ensuring housing and school safety across the country) need to be kept in mind while planning and initiating rehabilitation and reconstruction projects.
- Rehabilitation and reconstruction should primarily aim at increasing productivity-enhancing public capital investment. This is key to ensuring a structural transformation with high value-added and high-productivity sectors more dominant than low value-added and low-productivity sectors in the medium term. Promoting agribusiness, industrial capacity, innovation and high-productivity services need to be at the center of such a structural transformation strategy.