Terms of Reference

Document Sample
Terms of Reference Powered By Docstoc
					Review of Nepal Health Sector Programme:
A Background Document For The Joint Annual Review
Mick Foster and Raghav Regmi
September 2006

Mick Foster Economics Ltd     Development Consultancy Center
9 Admirals Walk                                       (DECC)
                                              GPO Box # 5082
Essex                                  Nayamarga, Newplaza,
CM1 2XS                                          Putalisadak,
England                                     Kathmandu, Nepal
                                      Tel/Fax +977-1-4417361
44 1245 355031

Review Of Progress Nepal Health Sector Programme

ACKNOWLEDGEMENTS ................................................................................................................... 4
ABBREVIATIONS AND ACRONYMS............................................................................................... 5
EXECUTIVE SUMMARY .................................................................................................................... 1
PROGRESS AGAINST NHSP OUTPUTS..................................................................................................... 1
EXPLAINING THE PERFORMANCE ........................................................................................................... 3
SUGGESTIONS ON EXTERNAL DEVELOPMENT ASSISTANCE................................................................... 4
SUGGESTIONS TO THE JOINT ANNUAL REVIEW ..................................................................................... 5
OVERALL JUDGEMENT ............................................................................................................................ 6
REVIEW OF PROGRESS: NEPAL HEALTH SECTOR PROGRAMME ..................................... 7
CHAPTER 1 BACKGROUND ............................................................................................................. 7
2.1 INTRODUCTION .................................................................................................................................. 7
2.2 OVERALL TARGETS AND CURRENT PERFORMANCE ........................................................................ 8
2.3 PROGRAM OUTPUTS .......................................................................................................................... 9
      Output 1 Essential Health Care Services ......................................................................................... 9
      Output 2 Decentralisation ............................................................................................................ 11
      Output 3 Private/NGO sector development ................................................................................... 12
2.3 SECTOR MANAGEMENT OUTPUTS .................................................................................................... 13
      Output 4 Sector management ......................................................................................................... 13
      Output 5 Health financing resource management ......................................................................... 13
      Output 6 Logistics management..................................................................................................... 17
      Output 7 Human Resource Development ....................................................................................... 18
      Output 8 Integrated Management Information System .................................................................. 19
CHAPTER 3 WHAT EXPLAINS THE PERFORMANCE? ........................................................... 19
3.1SPENDING ON THE HEALTH SECTOR ................................................................................................ 19
3.2 AID EFFECTIVENESS AND THE SWAP ARRANGEMENT ................................................................. 20
     Agreed Strategy and Objectives ..................................................................................................... 20
     Process for Allocating Resources to the Strategy .......................................................................... 22
     Monitoring and Course Correction ............................................................................................... 22
     Common understanding of institutional arrangements and their future evolution ........................ 24
3.3 FIDUCIARY RISK .............................................................................................................................. 25
3.4 PERFORMANCE OF HEALTH SECTOR INSTITUTIONS ....................................................................... 27
4.1 POOLED FUNDING ............................................................................................................................ 31
4.2 TECHNICAL ASSISTANCE ................................................................................................................. 32
5. SUGGESTIONS FOR THE JOINT ANNUAL REVIEW ............................................................ 34
6. OVERALL ASSESSMENT ............................................................................................................. 36
REFERENCES (PARTIALLY ANNOTATED) ................................................................................ 37
ANNEX 1 STATUS OF AGREED POLICY REFORM MILESTONES........................................ 41
ANNEX 2: FIDUCIARY RISK MATRIX.......................................................................................... 43
ANNEX 3: GENERIC TORS FOR ASSESSING FUNDING ARRANGEMENTS ............................................. 46
               Background .......................................................................................................................................... 46
               Objectives ............................................................................................................................................. 46
               Scope of Work ...................................................................................................................................... 46
               Costs and benefits ................................................................................................................................. 47

                Assessing performance ......................................................................................................................... 47
                Financial and Accounting procedures ................................................................................................... 48
                Team Composition ............................................................................................................................... 49
(ADAPTED FROM TORS USED BY MOES) .................................................................................. 50
LIST OF PERSONS CONSULTED ................................................................................................... 52

List of Tables
Table 2.1 NHSP ‘Outputs’........................................................................................................................ 7
Table 2.2 NHSP Purpose Level Indicators: Targets and Current Performance ........................................ 8
Table 2.3 MOHP Expenditure Per Capita and as a Share of Government Expenditure ......................... 14
Table 2.4 Government Health Expenditure, 2004/5 Prices, NR Millions .............................................. 14
Table 2.6 Budget and Actual Spending by Source of Finance ............................................................... 15
Table 2.7 Actual Spending as a % of Budget ......................................................................................... 16
Table 2.8 Budget and Expenditure by NHSP ‘Outputs’, 2004/5, NRs Millions..................................... 17
Table 3.1 Financing of MOHP Spending 2003/4-2004/5 ....................................................................... 20
Table 3.2 Differing Expectations of the Sector Wide Approach ............................................................ 24
Table 3.3 Responsibilities and Characteristics of Institutions Delivering Public Sector Health Services
     ....................................................................................................................................................... 28

We are grateful to the many staff in MOHP, MOF, NPC and external development
partners who made time to meet us and who provided information. Particular thanks
are due to Dr B.R. Marasini and Mr Tanka Mani Sharma of MOHP, and to Susan
Clapham, and Purushottam Acharya of DFID. The study was financed by DFID.

Abbreviations and Acronyms
AWPB      Annual Work-Plan and Budget
BP        Business Plan
CB-IMCI   Community Based Integrated management of Childhood Illness
CDP       Community Drug Programme
CFAA      Country Financial Accountability Assessment
CHI       Community health Insurance
DDC       District Development Committee
DFID      Department for International Development (UK)
DoHS      Department of Health Services
EDP       External Development partner
EHCS      Essential health Care Services
GON       Government of Nepal
HP        Health Post
HRD       Human Resources Development
IFMS      Integrated Financial management System
MDG       Millennium Development Goal
MOF       Ministry of Finance
MOHP      Ministry of health and Population
MTEF      Medium Term Expenditure framework
NGO       Non-Government organisation
NHSP-IP   Nepal Health Sector Programme- Implementation Plan
NPC       National Planning Commission
OVI       Objectively Verifiable Indicator
PHC       Primary health Centre
PPP       Public Private Partnership
SHP       Sub health Post
SWAP      Sector Wide Approach
TORs      Terms of Reference
VDC       Village Development Committee

Executive Summary
This study was undertaken in September 2006 to serve as a background document for the
November 2006 Joint Annual Review of the Nepal Health Sector Program.

Progress Against NHSP Outputs
The team reviewed progress against the targets set for the eight ‘outputs’ defined in the
National Health Sector Programme.

 1: Essential Health Care Services
MOHP has prepared 3 year plans for scaling up the outputs of critical EHCS. There was a
continued increase in 2004/5 in the output from most EHCS. Interventions in immunisation,
nutrition, child health, safe motherhood, family planning mostly met or exceeded their
targets, and mostly showed improvement on the previous year1.

The proportion of deliveries assisted by skilled staff remained very low, but increased from
18% to 20%. Out of pocket costs of deliveries are a major barrier, and a subsidy was
therefore introduced on a national level with MOHP and DFID finance. User charges are also
a constraint on outpatient services at primary care level, with new outpatient contacts per
annum stagnating at a low 38% of the population.

The share of the EHCS in actual spending was in line with the budgeted 60% in 2004/5. The
budget share has been increased in 2006/7 to the agreed target share of 70%. Spending on
tertiary hospitals has been reduced since 2004/5, and accounts for just 18% of the 2006/7

The resource allocation between districts is based on the number and type of facilities rather
than on population and need. NHSP-IP includes a commitment to develop and apply a
needs-based allocation formula. No action has yet been taken on this.

2. Decentralisation
Decentralisation is at the core of the NHSP-IP strategy, but has not been fully implemented,
partly due to the continuing absence of elected local bodies, and the uncertainty regarding
the form of decentralisation that will be agreed as part of the political settlement following the
cease fire. No further sub-health posts were handed over to local community management
in 2005/6, the number of facilities handed over2 standing at 1424 in 28 of the 75 districts of
Nepal. There is some evidence of increased utilisation of handed over facilities. Some 17
new district hospitals have been granted increased autonomy under local management
boards, with the right to set and retain user charges, and with increased powers to manage
their own budgets, freeing them from some of the detailed line item control of the budget
system. Including central and regional hospitals, 52 of the 88 public hospitals now operate
under management boards with a degree of autonomy. However, there is a need for a
formal policy to clarify the rights and responsibilities that have been transferred; current
practice is not entirely consistent.

3. Public Private partnerships
A committee has been established, but no other progress achieved. The first and only
meeting of the committee failed to agree on initial steps. Progress has also been hampered
by the inability of MOHP to procure the necessary expertise in contracting and legal aspects
of negotiating PPP arrangements.

4. Sector management
The long delayed organisational reviews are nearing completion. Capacity to pursue the
ambitious reform agenda continued to be handicapped by problems in recruiting local

    Immunisation coverage met the target, but fell slightly from 2003/4.
    Mostly SHPs, but includes also some HPs and PHCs.
consultants to boost the capacity of MOHP in crucial areas including health sector reform,
procurement, financial management, economics, and legal and contractual advice.

5. Health Financing and Financial management
Total health spending in Nepal has been estimated at $16 per head, but 70% of this is in the
private sector. MOHP budgeted health spending is less than $5 per head, but actual
spending in 2004/5 was less than $3.

Actual spending increased by 11% in real terms in 2004/5, less than half of the budgeted
growth, and figures for the first eight months of 2005/6 suggest that the long term problem of
low disbursement of budgeted funds continues to be a constraint. As a share of the
Government budget, health has increased from 4.9% in 2003/4 to 6.4% in 2006/7 (broadly in
line with the agreed target), but the share in actual spending has increased only marginally
from 4.4% in 2003/4 to an estimated 4.5% in 2005/6. Disbursements as a share of the
budget dipped from 79% to 70% in 2004/5. The main cause is that, although funding from
those donors providing assistance outside the pooled fund increased by 47% in real terms in
2004/5, this fell far short of the commitments included in the budget, and accounted for more
than half of the budget shortfall. The increase in GON health expenditure in 2004/5 was less
than the sector budget support provided by the pool fund donors, with the result that the
GON financed contribution to the sector fell.

Our judgement is that the disbursement problem is exacerbated by over-centralisation.
Logistics management, which includes central procurement and has averaged 12% of the
health budget in 2004/5-2006/7, spent less than half of the budget in 2004/5. Results for the
first eight months of 2005/6 suggest an even worse performance. The decentralised budget
on the other hand was fully disbursed in 2004/5, but is a low and declining share of the
budget (down from 5.4% in 2004/5 to 4.2% in 2006/7)).

6. Logistics management
Most of the major procurements planned for 2004/5 were not carried out, due to procedural
and decision-making delays and lack of quality specifications, leading to lack of timely
availability of vaccines, and shortages of medical instruments and equipment3. A number of
improvements have since been achieved. The study on drug stock-outs shows significant
reductions in 2006; drug financing schemes are operating in 48% of districts by end 2004/5,
compared to the target of 50% by end 2006/7; the ‘pull’ system of drug procurement based
on needs is operating in 6 districts, with 8 more preparing to implement it; there has been
some increase in delegation of equipment procurement budgets to hospitals and districts,
though procurement remains far too centralised with examples of basic items of furniture and
stationary being procured centrally for local use.

7. Human Resources Development
Although the health baseline study has not been done, the recent drug tracking study found
65% of facilities are fully staffed, compared with a target of 50% in 2006/7. Staffing at district
hospital level was the biggest problem, with only 25% having the full staff complement.
Government has taken action to require GON supported medical graduates to serve in
districts as a condition of registration. Anecdotal evidence suggests this has had some
effect, although MOHP were unable to confirm the current vacancy position by category of

8. Integrated Management Information System
The management information system produces timely and comprehensive data, with near to
universal coverage from all levels of the Government system. The main gap is incomplete
reporting by the private and NGO sector. There would be a strong case for adding data on
facility level staffing, as this can not at present be extracted from the HURDIS system. DoHS
undertake basic cross-checks and data verification. Most observers believe the information
to be reasonably accurate. The forthcoming Demographic Health Survey will provide an

    MOHP, Implementation Progress report, 2004/5.
opportunity to verify the reliability of many aspects of the data. The information is not
sufficiently utilised for decision-making, partly a reflection of the lack of an evidence-based
management culture, and partly due to the lack of analytical capacity in MOHP following the
collapse of the health economics unit.

Explaining the Performance
Progress Towards a SWAP
NHSP-IP is a costed plan focussed on cost-effective interventions of proven efficacy,
accompanied by commitment to far-reaching reforms. However, EDP support has been
unpredictable, far short of promised levels, with an unknown proportion funding activities that
are parallel to NHSP-IP and do not help to fill the funding gap. The pooled donors have not
kept to the commitment to provide longer term, predictable support, with amounts advised
early enough to inform budget preparation, and with assurance that it would not be
interrupted during the budget year. There has been negligible progress on harmonisation
and alignment, and the cost of managing the SWAP partnership has been additional to an
undiminished burden of dealing with bilateral meetings and reports required in order to keep
donor project funds flowing. The burden of coping with donor procedures has been a
significant contributor to the low disbursement that has constrained performance in several
areas, notably immunisation.

The Joint Annual Reviews of NHSP have loaded MOHP with recommendations without
taking sufficient account of the capacity of MOHP to implement them. Many of the measures
require complex decision-making processes to be facilitated by staff that are already over-
burdened. Progress on the reform agenda has been slower than expected or than might
have been feasible, but part of the problem may be that, when there are too many tasks to
accomplish, none of them get the attention they need.

The JAR has been parallel to MOHP’s internal review process, and should in future be
combined with it. This will sharpen the JAR focus on service delivery, while helping to raise
MOHP and DoHS awareness of the SWAP.

Fiduciary Risk
Although World Bank and DFID have provided pooled funding via the budget, fiduciary
concerns have led them to add procedural requirements on top of normal Government rules
(particularly with respect to procurement), while other development partners have continued
to rely on their own procedures to disburse and account for funds, resulting in a significant
additional burden on Government.

International comparisons suggest that the corruption environment in Nepal is no worse than
in low income countries that are major recipients of budget support. This suggests that it
should be feasible to manage the fiduciary risks of providing budget support.

Financial management systems in Nepal are strong, the main problems being a relatively
poor level of compliance4. Financial irregularities in the health sector have been relatively
high, but have come down from 13.6% of expenditure in 2003/4 to 8% in the as yet
unpublished audit of 2004/5. This compares to a Government wide average of 4-5% of
expenditure. Most of the irregularities relate to failure to comply with financial procedures,
less than 2% were of a nature that occasioned any loss to the exchequer, and nearly half of
this 2% is reported to have been subsequently repaid.

The main risk areas in financial management in the health sector in Nepal are the same as
in many low-income countries, namely procurement, and problems of capacity to comply
with procedures, especially at lower levels of the system.

 Nepal, Financial Accountability Review Mission, (A Joint HMGN, DFID, And World Bank Assessment Update),
May 9 – 24, 2005, Aide Memoire

The NHSP-IP, and the ‘Action Plan’ attached to the CFAA envisaged a number of measures
to verify the quality of financial management, including citizen audits, service delivery
surveys, and extension to internal audit to include physical verification of up to 25% of
expenditure by value5. These safeguards have not been put in place.. We believe it would be
a valuable confidence-building measure to follow the example of the Ministry of Education
and put in place a system for tracking a sample of expenditures through to utilisation, and
relating them to the immediate outputs obtained. This would ensure that fiduciary and
performance concerns are identified and can be addressed.

Institutional Performance
Major organisational reviews were underway but had not reported at the time of drafting. A
significant problem has been the difficulty experienced in seeking to increase MOHP
capacity. It is always difficult to get agreement to new established positions, but the Ministry
has also been unable to recruit contract staff or local consultants on the terms and with the
working conditions offered.

At operational level within DoHS, there is a strong focus on service delivery and good results
have been achieved, but the focus on results has depended on unsustainable funding
routes, and there is a lack of commitment by some staff (and some EDPs) to the NHSP
vision of decentralised services supported via the budget.

At service delivery level, there is uneven allocation of staff and other resources based on
facilities rather than need. There are well documented problems of absent & poorly
motivated staff, and over-centralised & inflexible management. The problems of recruiting
and retaining staff in remote areas dictate a continuation of the policy of building up the role
of low-level staff to deliver the EHCS. The performance could be strengthened by
decentralised recruitment and management, increased accountability of staff to the
communities they serve, and increased attention to effective supervision and support.

The policy and institutional reforms being supported under NHSP are intended to address
these constraints through a range of measures including decentralisation, public private
partnerships, increased accountability to the community, and performance incentives (being
piloted for SHP staff in 3 districts in 2006/76). The existence of these problems is not a
reason for aid cuts or the use of parallel routes outside Government, so long as the MOHP
puts in place measures to accelerate the recent disappointing rate of progress in
implementing the agreed strategy for tackling them.

Political and Security Concerns
There has been some disruption during the conflict, and there are continuing problems in
distributing supplies due to a high level of strikes and roadblocks. Nevertheless, health
services continued to function, and service delivery has continued to improve. The main
implication of the current situation is the difficulty of pursuing significant reform in the
absence of a Government able to provide clear leadership. Particular uncertainty surrounds
the future structure of devolved Government, and the policy on user fees and public private
partnership. It may also prove difficult to implement major organisational change in the
current atmosphere in which a wide range of groups have been able to use strikes and
roadblocks to express their grievances and create pressure on the government to accept
their demands for better service conditions and careers which will be otherwise difficult to
achieve through standard rules and procedures.

Suggestions on External Development Assistance
Pooled Funding

 Government of Nepal, Ministry of health and Population, (2006), Piloting of performance-based management
system in MOHP

To ensure additionality and make it easier to manage pooled funding with more donors, the
pooled funding JFA could be re-visited. One approach would be to define pooled fund
contributions in cash terms, subject to not exceeding 100% of the increase on the 2003/4
baseline. This would avoid the risk of pooled funding substituting for lower GON funding.

 Technical Assistance
The DFID funded consultancy contract is based around tightly defined and timetabled
‘deliverables’ for which the consultants will be held accountable. This is inappropriate for any
consultancy aiming to support capacity building and policy reform, but is particularly
inappropriate in the current fluid situation. The consultancy should be redesigned to be more
flexible. Short term priorities that could be put to MOHP could include:-

   i.      Detailed review of the causes and possible remedies for poor disbursement
           performance ;
   ii.     Study of current EDP support to the health sector followed by facilitation in
           support of movement towards greater alignment with NHSP and GON
           procedures (see outline terms of reference at Annex 3);
   iii.    Sample verification of reporting on physical and financial performance, to build
           confidence in GON and MOHP systems, based on the approach successfully
           used in the education sector (Annex 4).

It is important to put the MOHP firmly in the driving seat with regard to technical assistance,
with no risk of divided loyalties. One way to do this while meeting EDP concerns to ensure
quality control would be by means of a pooled technical assistance fund. MOHP would retain
full control, subject to quality control of TORs and contract award by a small steering group.

Suggestions to the Joint Annual Review
We have deliberately decided not to add to the long list of recommendations, but we have
some suggestions for the conduct of the review, and for policy issues that should receive

i. Focus attention on a limited agenda of reforms that could reasonably be accomplished in
the six months before the next ‘eve of budget’ joint review. Our suggestion is that MOHP be
invited to propose to the review what that limited and achievable list of actions should be,
consulting with DoHS and possibly with donors providing critical technical and financial
support in order to ensure that the proposed actions are achievable.

ii. Address low disbursement, the most important single constraint on the NHSP-IP. We
suggest that the technical assistance advisers should support MOHP in a detailed review of
where the bottlenecks in disbursement are occurring. This needs to look at all stages and
levels of the system from MOF down to sub health post, and at all funding routes including
the utilisation of GON, pooled fund, and EDP resources. There is a strong case for
completing at least a preliminary analysis before the JAR, and making the findings and
recommendations a key focus of the review.

iii. Consider alternative routes to building sustainable capacity within MOHP. Resource
centre arrangements might be one way to give sustainable access to capacity in such areas
as health economics, public private partnerships, technical support to procurement, and the
development and implementation of capacity building programmes.. The technical
assistance team could be tasked with facilitating MOHP to review the options and develop

iv. EDPs should clarify their future pooled and non-pooled commitments at the JAR,
preferably covering the three year MTEF period 2007/8- 2009/10.

v. The JAR may wish to consider endorsing our proposals for consultancy support to
facilitate progress on EDP alignment (Annex 3), and for independent verification of financial
and physical performance (Annex 4)..
vi. The JAR could be an opportunity for a discussion of service delivery priorities over the
next three years, linked to presentation of figures on the likely funding envelope over the
coming MTEF period.. The SWAP could add real value if it helped to focus the growth of
Government and donor spending on credible plans for maximising progress towards the

Overall Judgement
The NHSP sets out a vision of a mixed system, in which the state focuses on financing a
basic package of public health interventions with a strong rationale for Government
subsidised or free provision, using a range of public and non-public agents to deliver them,
while services beyond the basic package are privately financed with minimal state subsidy.
This remains appropriate, and the results achieved are creditable in difficult circumstances.

The quality of the policy and plans, and the undoubted needs, would merit significantly
higher support by GON and donors when the political & security situation permits, not least
because Nepal’s progress towards the MDGs will be limited by the constraint of less than $5
per capita public spending. Recognising the need to make faster progress on the reform
agenda, any promise of scaled-up aid could reasonably be made contingent on prior
implementation of commitments to reform, especially decentralisation & stronger local
accountability. It also requires evidence that the disbursement constraint is being overcome.

Review of progress: Nepal Health Sector programme
Chapter 1 Background
This review of the Nepal Health Sector Programme was financed by DFID on behalf of the
Ministry of Health and the external development partners who are supporting the
programme. The objective is to serve as a background document for the Joint Annual
Review of the programme that is scheduled to take place in November-December 2006. It
was undertaken in September 2006, and was based on interviews in Kathmandu and review
of documents and data on the operation of the programme. The consultants were unable to
visit the districts due to on-going protests by some health sector staff. Fortunately, Raghav
Regmi has worked extensively on health sector problems in Nepal at all levels of the system,
and has recent experience of conditions in the districts.

Health sector strategy has been articulated and developed in successive documents dating
from the National Health Policy (1991), the Second Long-Term health Plan (1997-2017), the
Tenth Plan and Poverty Reduction Strategy (2002-2007), the 2003 Health Sector Strategy
and, most crucially, the Nepal Health Sector Strategy- Implementation Plan 2004-2009,
which is the key document describing the objectives and strategies to be implemented via
the health sector programme.

The principles to be applied by Government of Nepal and external development partners in
health are set out in a ‘Statement of Intent to Guide the Partnership for Health Sector
Development in Nepal.’ This was signed in February 2004, and is intended to be consistent
with the 2002 Government Aid Policy.

Chapter 2 reviews the performance of NHSP. Chapter 3 seeks to explain the performance
achieved. It considers:
    the financial resources provided,
    the progress towards sector wide working and improved aid effectiveness,
    public finance management issues, including a summary assessment of fiduciary
    institutional reform and capacity building;
    the implications of conflict and political uncertainty.

Chapter 4 draws out the implications of the analysis for pooled funding and for technical
assistance to NHSP. We have deliberately chosen not to add to the long list of
recommendations that have been generated by annual reviews of the programme, but
Chapter 5 proposes some issues for consideration in the JAR.

Chapter 2, Sector Performance: is NHSP achieving its
2.1 Introduction
This section discusses progress in terms of the eight outputs defined in the NHSP-IP and
summarised in Table 1. It also reviews progress against the NHSP-IP ‘policy reform
milestones’, some of which cut across more than one output.

Table 2.1 NHSP ‘Outputs’
Output                Description
Program Outputs
1. Essential Health   EHCS costed, allocated the necessary resources and implemented. Clear system in
Care Services         place to ensure that the poor and vulnerable have priority for access.
2. Decentralisation   Local responsible bodies are capable of managing health facilities in a participative,
                      accountable and transparent way with effective support from the MOHP and its sector
Output                    Description
3. Private/NGO sector     The role of the private sector and NGOs in the delivery of health services is
development               recognised and developed with participative representation at all levels which ensure
                          consumers get access to cost-effective high quality services that offer value for
Sector Management
4. Sector management      Coordinated and consistent sector management (planning, programming, budgeting,
                          financing, and performance management) in place within MOHP supported by the
                          EDPs, to support service delivery with the involvement of NGOs and private sector
5.Health financing        Sustainable development of health financing and resource allocation across the whole
resource management       sector including alternative financing schemes in place
6. Logistics              Systems established and resources allocated within MOHP for the effective
management                management of physical assets and procurement, distribution and rational use of
                          drugs, supplies and equipment
7. Human resource         Clear and effective HRD policies, planning systems, and programs developed and
development               functional
8. Integrated MIS         Comprehensive and integrated management information system for the whole health
                          sector designed and functional at all levels as well as quality assurance mechanism in
                          place for public and private sectors
Other Expenditure
Beyond essential          MOHP expenditure on services not included in EHCS package, mainly secondary and
health care services      tertiary

2.2 Overall Targets and Current Performance
The services to be provided by NHSP have been costed, and the targets included in the
NHSP-IP are based on estimates of the expected impact on the major causes of mortality
(Table 2.2 ). Information on the outcome indicators is available at five yearly intervals from
the Demographic and Health Survey, information from the latest round will become available
shortly and will enable impact since 2001 to be assessed. A wide range of information is
collected each trimester from health facilities, enabling progress on the intermediate outputs
to be reported. Although the MIS produces regular reporting for management purposes, the
DoHS are reluctant to release it for publication until it has been checked, verified, and
discussed in the regional and national review meetings. The latest data made available to us
is for 2004/5, which means we are only able to report on intermediate outputs in the first year
of the programme.

Over the long term, Nepal has achieved steep declines in infant and under five mortality,
impressive immunisation coverage, and developed some programmes that are regarded as
among the best in the developing world (Vitamin A, TB)7.

Table 2.2 NHSP Purpose Level Indicators: Targets and Current Performance
Indicator                                     1990           NHSP            Target   Actual      Target   MDG
                                                             Baseline        2006     (2004/5)    2009     2015
MMR/100,000 live births                       850            539             325                  300      207
IMR/1000                                      100            64              50                   45
<5MR/1000                                     162            91              70                   65       48
Total Fertility Rate                                         4.1             3.8                  3.5
Selected Intermediate Outputs Contributing
to Outcomes
CPR                                           24%            39%             43%      41.3%       478%

  ‘Vitamin A distribution … has been regarded as the most effective in the developing world…reaching
out to 3.3 million children under 5 in all 75 districts.’ DFID and World Bank, Gender and Social
Exclusion Assessment, Chapter 11.
  BP has 50% for 2009
Indicator                                      1990          NHSP             Target   Actual      Target   MDG
                                                             Baseline         2006     (2004/5)    2009     2015
Skilled attendance at birth (%)                7%            13%              22%9     20.2%       35%
% of ANC patients receiving 4 visits                         37%              100%     44.1%       100%     100%
% Measles/DPT immunisation                                   71%              78%      79%         85%
Knowledge of a method to prevent
Women %                                                      38%                                   75%
Men %                                                        51%                                   85%
DOTS treatment success rate                                  85%              87%      87.9%
% case finding of TB patients                  11.1%         71%              80%      70%         90%
                                               (1997)        (2004)
Sources: 1990 figures from Anita Alban and Tanka Mani Sharma (2005), taken from World
Bank MDG home pages: other figures from NHSP-IP, DoHS Annual Report 2004/5, and
from MOHP

2.3 Program Outputs
Output 1 Essential Health Care Services
EHCS costed, allocated the necessary           Status
resources and implemented. Clear system
in place to ensure that the poor and
vulnerable have priority for access.

50% of health facilities provide prioritised   Baseline study of facilities able to offer services not carried out
elements of EHCS by 2006/7, rising to 75%      (Dec 05 JAR). A 3 year scaling up plan has been prepared for
in 2009                                        safer motherhood, FP, child health, communicable disease control
                                               interventions presently implemented only in selected districts
50% of population utilising prioritised        New OPD contacts per head of population are 38.1% in 2004.5, %
services by 2006/7, rising to 75% in 2009      not increasing since 2002/3.
% of poor using EHCS with CHI with             Very few operating schemes, mainly NGO, coverage negligible.
subsidised premium

The EHCS is the core of the strategy, and the program stands or falls on whether it is
successfully expanded to those not currently reached by health service interventions. The
components of the EHCS have been clearly identified, and are consistent with international
best practice on the most cost-effective health interventions. There are targets and
strategies for scaling up each of the interventions comprising EHCS.

Although there are occasional inconsistencies between documents, and it is difficult to relate
the high-level log frames provided in NHSP-IP to the dense detail provided for some
programmes in the Sub-Sector Business Plans and in the AWPB and budget documents, the
major interventions and the approach to delivering them is generally clearly articulated in the
programme documents.

The poverty impact of NHSP is strongest for those programmes that are free to the user, and
that are being rolled out to achieve national coverage. Free services include immunisation,
behaviour change communication, integrated management of childhood diseases,
communicable disease interventions and treatment, family planning, and nutrition
programmes. Primary health level consultations and basic drugs are free of charge for anti-
natal care and PNC visits, for children under 5, and for the elderly, but other patients are
required to pay registration fees as well as the cost of drugs, tests and consumables.

    BP 27%
The 2004/5 data show that most of the free services increased outputs and indeed exceeded
their targets in 2004/5. In addition to the purpose level indicators given in Table 1, the DoHS
Annual Report shows more than 100% achievement of targets for Vitamin A, de-worming,
anaemia, iodisation, ORS, while growth monitoring was maintained. The successful
measles campaign reduced the number of outbreaks from 138 in 2004 to just 1 in 2005.
ANC and PNC visits continued their upward trend while remaining short of the target of
100% of contacted women completing four ANC visits by 2006.

However, services that are charged for continued to experience low utilisation. The policy is
that nobody should be denied treatment because of inability to pay, but GON does not
provide central funding for exemptions, which need to be financed from cross-subsidisation,
and are therefore only extended to a small percentage of the population.

Deliveries conducted by health workers increased to 20.2% in 2004/5 from 18.3% in 2003/4,
but this remains a low proportion by international standards. High patient charges are
recognised as a major constraint preventing increases in skilled birth attendance. A national
programme began in 2005/6 to subsidise out of pocket costs of maternal deliveries. This is
being carefully evaluated. Skilled birth attendance has increased by 30% in the 24 districts
where the subsidy was operating in the first trimester of 2005/6. The causes of this increase
need further investigation, but these initial results suggest that the programme may already
be having a significant impact, one that should increase as the availability of financial
assistance becomes more widely known.10

A combination of user charges and perceptions of low quality services contributed to the
continuing under-utilisation of health services, although the conflict also had some impact on
outpatient numbers by reducing the number of outreach clinics in some areas11. New
outpatient contacts continued at a low level of 38% of the population. The low level of
utilisation of services is reflected in very low numbers of patients being seen per member of
staff. PHC staff on average see only 10 patients per day, for staff in health posts and sub
health posts the numbers range from an average 1 patient per day in mountain areas to 3
per day in the Terai12. On average, only 13 patients are seen at each outreach clinic, with
only the far West region achieving significantly higher numbers13.

We are unsure whether the figures quoted in the previous paragraph include all contacts
with patients or just outpatient contacts but, even after adding in immunisation and other
activities that may not be captured, the average workload is very low. If the demand-side
barriers could be overcome, there is scope to expand services offered in most areas without
increasing the number of posts.

The NHSP envisages addressing the demand side barriers by extending community health
insurance, with subsidisation of premiums for the poor. Little has been achieved on this
beyond two small-scale pilots.

There appears to be relatively good coordination of planning and resources around the
central programmes comprising EHCS. Programmes such as community based integrated
management of childhood illness have grown out of project pilots and been extended with
good practical coordination between DOHS and development partners. Non-salary costs
were initially reliant on donor support, but the introduction of pooled funding has enabled
DOHS to extend the CB-IMCI programme to new districts using the GON budget.

   Options Consultancy Services, February 2006, Status Report of Cost Sharing Scheme for Safe
Delivery Services.
   Devkota, Dr Madhu Dixit (2005), An Assessment of the Impact of Conflict on Delivery of health
Services, Nepal health Sector Programme, June.
   Government of Nepal, Ministry of health and Population, A survey of availability, distribution, use
and management of drugs, vaccines and medical supplies in Government health facilities, Full Bright
Consultancy (Pvt) Ltd, July 2006
     Annual Report 2004/5
Although health services are organised around subject-specific central vertical programmes
down to District level, there is reported to be effective integration of services and staff below
that level. The main inefficiencies that may be caused by the centralised and vertical
organisation above district level relate to:-
 a lack of responsiveness to local needs. For example, the recent study of drug utilisation
    found that none of the 75 facilities surveyed received the drugs and supplies they had
    requested: 79% received a higher supply of programme commodities than the demand,
    94% received more vaccine than the demand, while hill and mountain facilities reported
    receiving lower quantities of essential drugs than their demand.
 lack of integration of training, which results in staff not systematically acquiring the critical
    skills to deliver all of the EHCS services that they could;
 possibly as a consequence, we were told that contacts with patients under individual
    programmes are not always fully exploited to deliver other relevant interventions. Given
    the low number of contacts in total, it is important to make full use of them.

Output 2 Decentralisation
Local responsible bodies are capable of     Status
managing health facilities in a
participative, accountable and
transparent way with effective support
from the MOHP and its sector partners.
5 year rolling plan for extending           Not produced. Health sector decentralisation strategy was approved
devolved health service management,         by Cabinet, but not implemented partly due to lack of elected local
taking account of the security situation,   bodies. Proposed analysis to develop clear definitions of roles and
endorsed by July 2005                       responsibilities and related training plans not done.
Deconcentration of management to 15         No progress. A plan to develop workplans for 14 proposed devolved
Districts by 2006, 30 by 2009               districts not carried out due to lack of comprehensive policy and
1800 SHP managed by LHMC by 2006            1424 facilities in 28 districts, no new ones added in 2005/6

5 autonomous District Hospitals by          A total 17 District hospitals granted increased autonomy under a
2006, 10 by 2009                            Management Board. In total, 52 of the 88 public hospitals of all types
                                            have semi-autonomous status, though the extent of their autonomy
                                            varies. No progress on public private partnerships to run hospitals, of
                                            the 2 cases, 1 predated NHSP, 1 added in 2004/5 (Dec 05 Aide
                                            Memoire Annex 5). Revised proposal to contract out two more district
                                            hospitals by May 2006 not implemented..

The NHSP-IP envisages a major shift to decentralised, integrated services planned and
delivered at local Government level. The logic of this approach is that local Government
agencies should be responsible for achieving district specific health targets, and should be
held accountable for producing improvement in the health indicators of the district within the
agreed time frame. However, the approach to decentralisation as currently being introduced
is limited to the handing over of health institutions and devolution of some procurement
responsibilities, but is not linked to agreement on targets to be achieved.

One reason for limited progress is that the elected local bodies to which services would have
been devolved have been suspended, leaving largely appointed members to serve on local
bodies that lack legitimacy and can not deliver bottom-up accountability. There has also
been some resistance from those responsible for managing and financing central
programmes. Some of this may be self-motivated, although there are also genuine concerns
that capacity and accountability is weaker at local level, while there are economies of scale
and quality control advantages from retaining some functions such as vaccine procurement
at the centre. In the absence of a clear agreement on the future organisation and function of
local Government, it has been difficult to resolve more technical issues concerned with the
organisation of health services and the allocation of responsibilities.

The DFID funded decentralisation study asserts that line agency budgets at the district level
remain very tightly tied to earmarked headings and pre-assigned programming parameters

conceived at the central level14.. Proposals coming from local level planning processes
normally exceed the sums available by a large margin, with the result that central line
ministry officials are in practice able to decide what gets included.

The handing over of sub-health posts and other facilities to local communities is widely
thought to have had limited impact in a situation where communities do not control the
budget or the staff. Resources allocated to SHPs continue to be centrally determined and
heavily earmarked. Nevertheless, the DFID study reports some evidence of increased
involvement from local people after the handover, including some VDCs and local
communities financing improved physical facilities15. Another study of 24 handed over SHPs
in four districts found evidence of an 18% increase in utilisation following the handover, and
some modest increases in staff attendance, although utilisation by Dalits appears to have

The scope for autonomous action is greater in those districts where the community drug
programme is operating, giving the LHMCs access to a significant source of additional
revenues, and improving the quality of services by improving the availability of medicines to
those able to pay for them. One concern is that introduction of the CDP greatly increases the
administrative and financial record keeping responsibilities of SHP in-charges, and needs to
be supported with adequate training.

There has been significant progress in forming autonomous boards to manage district
hospitals, although the proposal to contract out hospitals to private or NGO management
has not progressed. The responsibilities delegated to Management Boards are said to differ.
MOHP identified to us the need to develop a clear policy and guidelines.

Output 3 Private/NGO sector development
The role of the private sector and NGOs in the delivery of health services is           Status
recognised and developed with participative representation at all levels which ensure
consumers get access to cost-effective high quality services that offer value for
money. More harmonised EDP procedures for partnership with NGOs and private
Strategic plan, timeframe, regulatory framework for MOHP, NGO, private                  Committee formed and
partnerships produced by MOHP and key stakeholders, endorsed by July 2005, 1            met once, lack of
wave implemented with private and NGO partners by July 2006                             consensus on way
Coordinating body with legal and contract management capacity established in            Not done, procurement &
MOHP and meeting monthly by Sept 2004                                                   contract consultants not
                                                                                        able to be recruited.
Number of service delivery agreements with private sector/NGOs                          Nothing new since start
                                                                                        of NHSP
At least 5 hospitals fully transferred to NGO/private sector operation                  Not done
Service provider agreements, including those enabling transfer of public resources to   No progress
NGOs and private sector, designed and endorsed by July 2008, operational by July

Lack of progress is partly a capacity issue, with the envisaged contracting and legal support
not having been procured, but it may also reflect a lack of consensus on the best way
forward. Without a clear consensus, officials are constrained in pushing forward in the
absence of a Government with a strong enough mandate to approve a ‘strategic plan.’

  Jagadish C. Pokharel, PhD, Surya Saran Regm, Usha Pokharel, Sharmila Ghimire. Report on Health Service
Decentralization in Nepal, Prepared for: Department for International Development (DFID) Nepal, May 2006.
Development Resource Mobilization Network (DRMN)
 Ishwar Shrestha, Outcome Assessment of Sub Health Post Handover:, A Study of Selected Health Institutions,
Submitted to National Health Training Centre, Department of Health Services, Teku , January 2005

2.3 Sector management outputs
Annex 1 summarises progress in implementing the sector reform action plan.

Output 4 Sector management
Coordinated and consistent sector management (planning,                 Status
programming, budgeting, financing, and performance management) in
place within MOHP supported by the EDPs, to support service delivery
with the involvement of NGOs and private sector
MOHP restructuring, strengthened planning, programming, budgeting,      Inability to recruit staff and consultants
monitoring, and deconcentration to Regional & District level planned,   for health sector reform unit, health
agreed, implemented                                                     economics and financing unit,
                                                                        procurement support.
Detailed MOHP organisational analysis commissioned by July 2005,        Relevant consultancy studies on re-
restructuring plan produced and endorsed by July 2006, Phase 1          organisation nearly complete.
implemented by July 2007
Partnership policy and framework document agreed (timing                ‘Statement of Intent’ signed Feb 2004

MOHP has been handicapped by loss of key staff (including all of the capacity created in
health economics), and by inability to progress the procurement of local consultants to
bolster capacity in key areas such as procurement. Most of the MOHP responsibility for
taking forward NHSP has fallen on two people, with little administrative back-up, one of
whom has been promoted and will be leaving his present role. It is unclear how the financial
reporting function will be maintained, with the likelihood of a continuation of delayed and
imperfect reporting (and delayed disbursements) unless a core team of motivated finance
staff can be allocated to the task, and given the limited training required to complete it
successfully and on time.

The large technical assistance programme funded by DFID is only now mobilising, two
months into the third year of a five year programme.

There has been little progress on partnership with the EDPs, and little attention paid to the
issue. The overwhelming majority of JAR recommendations are directed to Government17,
with negligible attention to fostering principles of ‘good donorship.’ MOHP, DoHS, and EDP
officials all conceded that the NHSP-IP had made little difference to EDP ways of working
beyond the introduction of pooled funding. The main difference perceived by DoHS staff has
been an increase in transaction costs in order to respond to EDP pressure to present output
oriented plans and budgets, together with new requirements to provide detailed procurement
plans to the pooled funding donors.

Pooled funding has reportedly enabled the MOHP to expand some key programmes faster
than would otherwise have been feasible, but the funding has been unpredictable at best,
with DFID cutting budget support (pooled funding plus earmarked pooled funding for safe
motherhood) from a promised £10mn to a probable £5mn per annum in 2006/7 and 2007/8.
This is a major cut, equivalent to 14% of actual health spending in 2004/5, and 25% of actual
non-salary expenditure. There has been an even more significant shortfall in non-pool EDP
funding, with reported expenditure in 2004/5 reaching only 44% of the levels included in the
2004/5 budget.

Output 5 Health financing resource management
Sustainable development of health financing   Status
and resource allocation across the whole
sector including alternative financing
schemes in place
% of HMGN Budget for Health increased         6.4% of 2006/7 budget
from 5% (year?) to 6.5% in 2006/7, 7% in
Number of EDPs using harmonised               WB and DFID the only donors providing pooled funding. No
reporting and management procedures, and      progress on wider harmonisation agenda

     For example, all 19 of the recommendations of the Dec 2005 JAR are directed to GON.
making financial contributions to
partnerships directly through MOHP budget,
even if earmarked.
At least 10% of health spending born by               No elected local bodies in place. Requires field survey to collect
elected local bodies by 2006/7                        data, but no PER undertaken since May 2004 due to lack of
                                                      HEFU capacity.
At least 5% of health expenditure born by             No progress on CHI, but CDP operated in 27 districts in 2004/5.
local communities in public health facilities         NRs 17.1mn raised by CDPs in 2004/05. 2004/5 annual report
by 2006/7, e.g. CDP,CHI                               gives local income of 23mn from medicine sales, 10.7mn from
                                                      registration fees, 7.8mn other, total 41.5mn (0.9% of national
                                                      budgeted expenditure in 2004/5).
Efficiency savings from organisational                Organisational review not completed
review factored into MTEF by July 2005
Tertiary share of spending frozen, EHCS               EHCS 70% of 2006/7 budget, as envisaged in NHSP-IP, and was
increased from 2006                                   60% of planned and actual spending in 2004/5.
Needs based resource allocation system                Not done
designed and piloted by 2008
Alternative financing and safety net                  Not done, but demand side subsidy for safe deliveries was
arrangements for most vulnerable piloted by           implemented nationwide from 2005 and impact is being
2007                                                  evaluated
National guidelines for user fees produced            Study was to have been completed by November 2006, not yet
and adopted by 2007                                   started at September 2006
Different models of community health                  No progress
insurance designed and piloted by 2007

The NHSP-IP estimated that 70% of health sector expenditure was in the private sector. In
urban areas there is a strong preference for private sector health providers by those that can
afford it. In less remote rural areas, curative services are dominated by private sector drug
sellers, many of whom also offer diagnostic services. Some of the private pharmacies are
run by public sector health staff. The poor remain largely beyond the reach of curative
services, tending to delay seeking treatment because of the high and unpredictable costs for
uncertain outcomes.

Government has focused the limited resources available through the budget on the provision
of essential promotive, preventive and primary health care interventions, while allowing cost
recovery at secondary and tertiary level. This is a sensible strategy in a situation where
budgeted public expenditure on health is less than $5 per capita, too low to finance even
basic curative care, while actual expenditure is less than $3 per head18.

The health sector budget share has increased to 6.4% in line with the targets, but actual
expenditure has barely increased and was just 4.5% of the GON budget in 2004/5.

Table 2.3 MOHP Expenditure Per Capita and as a Share of Government Expenditure
                                          2003/4               2004/5             2005/6               2006/7
                                          Budget      Actual   Budget   Actual    Budget   Rev. Est    Budget
MOHP as % of Government Expenditure         4.93        4.44     5.87    4.48       5.95      5.09          6.41
MOHP Expenditure, US $ per capita               2.6      2.0      3.4       2.4      3.7         2.8        4.4

The budget for health in 2006/7 is more than 50% higher in real terms than the budget of
2003/4. However, the MOHP has so far proved unable to mobilise and disburse the
budgeted amount. Actual health expenditure increased by about 11% in constant price terms
in 2004/5, less than half of the budgeted increase of nearly 25%.

Table 2.4 Government Health Expenditure, 2004/5 Prices, NR Millions
                                          2003/4              2004/5               2005/6          2006/7
                                      Budget Actual       Budget   Actual     Budget Rev. Est      Budget
Total MOHP                             5249     4127       6553      4597      7027       5309      7948
HMG Funded                                      3589       3812      3116      4036                 3889
Aid Funded                                       538       2742      1481      2990                 4059

  The figures in Table 2.3 are based on budgeted MOHP spending, including donor contributions
included in the Red Book. Including spending by other central ministries and contributions from local
Government increases budgeted spending to roughly $5 p.c.
                                             2003/4           2004/5             2005/6            2006/7
                                         Budget Actual    Budget   Actual   Budget Rev. Est        Budget
Growth Rates
Total MOHP                                         3.67    24.85    11.40      7.23       15.50     13.12
HMG Funded                                         9.61            -13.18      5.88                 -3.65
Aid Funded                                         4.51    9.95       275         9                 21.90
Health % of domestic financed spending             4.89     4.80     3.95      4.63                     4.37

Actual expenditure for 2005/6 is not yet available. The revised estimate for 2005/6 implies a
faster rate of disbursement, with real expenditure growth accelerating to over 15%. If this
has been achieved, it means that actual spending over the two years to 2005/6 increased by
29% in real terms, not far short of the budgeted 34%. However, expenditure in the first two
trimesters of 2005/6, for which actual data is available, was actually lower in real terms than
in 2004/5. The revised estimate total will only have been achieved if 55% of total expenditure
fell within the last four months. If this did not happen, and spending followed the seasonal
pattern of 2004/5, then real expenditure in 2005/6 may have been only 97% of the level of
2004/5, and the percentage of the budget that is actually disbursed may have declined
further, to just 63%. Adjusting for population growth of 2.4% per annum, this lower figure
would imply that real health expenditure per head in 2005/6 was only 3% higher than in the
last pre-NHSP year of 2003/4. This is of course just speculation. Actual figures should be
available by the time of the JAR.

               Table 2.5 MOHP Budgeted and Forecast Expenditure By Trimester

                                          2004/5                   2005/6 Budget                  2005/6       2005/6 if 46% of
                             Budget                Actual                                 Revised Estimate     is disbursed in T3
                         NRs Mn %             NRs Mn %l            NRs Mn      %l         NRs Mn %             NRs Mn %
 Trimester1                 2101     32          1233      27         2180           29      1250        22         1250        26
 Trimester2                 2373     36          1231      27         2681           35      1336        23         1336        28
 Trimester3                 2166     33          2133      46         2695           36      3123        55         2203        46
 Total                      6640    100          4597     100         7556          100      5709      100          4789       100
 Total at 2004/5
 Prices                      6640                  4597                 7027                  5309                 4454
 Disbursement as %
 Budget                                            69%                                            75%              63%

The non-pool donors account for over half of the total shortfall in 2004/5, with reported
disbursement just 44% of the amount included in the budget. Government disbursed 82%,
partly because of responsibility for salaries and allowances. Turning to 2005/6, the slow
reported rate of disbursement is again most marked with non-pool donors, with just 13%
reported disbursed in the first two trimesters from a reduced annual total.

Table 2.6 Budget and Actual Spending by Source of Finance
                                          2004/5               2005/6    2005/6 1st 8 months
                                                                                 % of
 Source of Finance           Budget      Spent     % Spent     Budget    Spent Budget
 GON                            3812      3117          82%      4340     1861          42%
 Pooled Fund                     953       690          72%      1630      517          32%
 Non-Pool                       1789       791          44%      1585      207          13%
 Total                          6553      4597          70%      7555     2586          34%

Trying to interpret these figures, what appears to have happened is that the sharp increase
in non-pool donor aid that was reflected in the budget has not been reflected in actual
expenditure. In constant 2004/5 prices, non pool donor spending went up from 538mn in
2003/4 to 791mn in 2004/5 (a 47% increase), but (based on figures for the first two
trimesters) appears likely to have fallen in 2005/6.

The lack of predictability of the budget, and the difficulties in disbursing it, reflect the failure
to make significant progress on the harmonisation and alignment agenda.

The problem of low disbursement is long-standing. The January 2002 version of the MOHP
MTEF comments that the health budget had increased but could not disburse above 65% in
recent years, attributing the cause to the inability of district accountants to submit statements
of expenditure as required, leading to low EDP disbursements. Low disbursement probably
still reflects mainly systemic problems of financial management making it difficult to fully
utilise the budget. We were told of difficulties in complying with unfamiliar procurement
requirements introduced with pooled funding, as well as continuation of the long standing
problem of delayed reimbursement requests. These procedural constraints seem to be the
root cause of low disbursement, rather than a more fundamental absorptive capacity
problem, a hypothesis that is supported by the evidence of low levels of staff utilisation and
the evidence that output went up in 2004/5 despite the relatively modest increase in
We are unable to judge what proportion of the EDP shortfall in 2004-5 to 2005-6 reflects
disbursement problems and what proportion represents EDPs not fulfilling their
commitments. The shortfall in non-pool donor spending may partly reflect genuine failure to
disburse committed funds, but there may also be failures in reporting donor expenditure that
has actually taken place (a common problem in other countries).

An earlier start was made with budget releases to spending programmes in 2006/7, and staff
are gaining experience with preparing procurement plans. In principle, higher disbursement
should be achievable, although the vulnerability of the financial reporting system is illustrated
by the problem that the one person experienced in preparing consolidated financial reports is
leaving his present job, without a successor having been trained.

Table 2.7 Actual Spending as a % of Budget
                                        2003/4               2004/5               2005/619
HMG Financed                                                              81.74

EDP Financed                                                              54.01

TOTAL                                                78.62                70.15                 63-75%

The NHSP-IP envisages that local revenue raising will make an increased contribution to
financing curative health care. The potential negative impact on utilisation of modern health
services was envisaged to be moderated by the positive impact on quality of care (for
example, availability of reasonably priced drugs through the community drugs scheme), and
by the extension of community health insurance to help to spread the cost of catastrophic
illness. The poorest were to receive subsidised care. In practice, community health
insurance has not progressed beyond small pilot schemes, and the poor continue to be
largely excluded from access to curative services, other than those that are offered for free.
Local revenue raising has increased modestly with the spread of the community drug
programme, but remains far short of the target.

Table 2.8 shows trends in budgeted and actual spending in terms of the eight ‘outputs.’ The
attribution of expenditure to specific outputs is somewhat misleading (the reform areas
include spending on business as usual related to procurement of drugs and supplies and
normal administrative functions, and do not give a true indication of expenditure on the
reform agenda). Nevertheless, some interesting points emerge from this table:-

      i.       Roughly 60% of both budgeted and actual expenditure was spent on the EHCS in
               2004/5. The budgeted share of EHCS fell slightly in 2005/6, but has been
               increased to nearly 70% in 2006/7, in line with the target. If central procurement
               and other support costs were allocated pro rata to those services benefiting from

     Actual expenditure based on revised estimate.
              the expenditure, EHCS would represent over 80% of the total, which is high by
              low-income country standards.
    ii.       Decentralisation has been a small and declining share of MOHP expenditure,
              despite the fact that decentralised spending is fully utilised.
    iii.      The inefficiencies of over-centralisation are reflected in inability to disburse the
              ‘logistics’ budget, which includes central procurement expenditures:- less than
              half of the budget was utilised in 2004/5. The budget for 2005/6 was substantially
              increased (partly to make up for draw-down of stocks), but expenditure for the
              first two trimesters of 2005/6 suggests even lower disbursement.
    iv.       The budget share for curative services (defined as ‘beyond essential health care’)
              has been steadily reduced. This is not reflected in actual expenditure shares,
              which are considerably higher due to better disbursement outturn, partly
              reflecting the better disbursement performance of semi-autonomous hospitals
              that are able to manage their own budgets.

Table 2.8 Budget and Expenditure by NHSP ‘Outputs’, 2004/5, NRs Millions
                                      2004/5                                   2005/6                     2006/7
                    Budget   Actual   %        % of     %        Budget    %       Actual      % 1st      Budget    %
                                      budget   actual   spent              budget 8            8                    budget
                                                                                   months      months
 EHCS                4011    2768      60.4     60.1      69      4256       56.3     1524       58.9      6432         69.7
 Decentralisation     358     357       5.4      7.8    99.7       373        4.9      202        7.8       392          4.2
 Private/NGO           25      25       0.4      0.5     100        27        0.4       18        0.7        28          0.3
 Sector               251      126       3.8     2.7    50.2        313       4.1        78        3.0      239          2.6
 Health                96       36       1.4     0.8    37.5         79       1.0          1       0.0      141          1.5
 Logistics            715      347     10.8      7.5    48.5      1209       16.0       132        5.1      807          8.7
 HRD                  145       75      2.2      1.6    51.7        253       3.3        48       1.9       165          1.8
 Integrated MIS       151       75      2.3      1.6    49.7        140       1.9        22       0.9        81          0.9
 Beyond               888      797     13.4     17.3    89.8        906      12.0       561      21.7       947         10.3
 essential health
 care services
 TOTALS              6640    4606       100     100     69.4      7555 100.0          2586      100.0      9230

Output 6 Logistics management
Systems established and resources allocated within              Status
MOHP for the effective management of physical assets
and procurement, distribution and rational use of drugs,
supplies and equipment
Stock outs of EHCS indicator commodities fall                   Drug availability stock out study completed, and
                                                                shows some improvement.
Drug financing schemes in 50% of districts by 2006/7            On track. By end 2004/5, 27 districts operating, 5
                                                                more initiating activities, 4 endorsed a district plan
                                                                of action to introduce CDP, a total of 36 from 75
LMIS with decentralised data processing at district             Will be implemented as decentralisation proceeds..
implemented by 2008
Procurement decisions are based on LMIS by 2006/7               Procurement plan for 2006/7 not prepared and
                                                                shared with EDPs by June 2006
Procurement systems reformed by 2008                            Some modest decentralisation of equipment
                                                                procurement to hospitals and districts in 2006/7.
                                                                Buffer stock established for medical stores.
Essential drug procurement converted from ‘push’ to ‘pull’      Started in 6 districts in 2004/5, training started to
by 2006                                                         extend to a further 8 in 2005/6.

National drug policy developed and implemented by 2007         Draft is awaiting Cabinet approval.
Plans for disposal of biomedical waste developed and           National Waste management Steering Committee
implemented by 2008                                            formed T2 2006/7
Equipment in all facilities maintained to MOHP norms and       November 05 JAR agreed annual building
standards (included in purpose column, but no OVI              maintenance plan be prepared and budgeted

Procurement is over-centralised, leading to low disbursements, shortages and surpluses,
inappropriate supply based on central norms rather than local requirements, and wastage.
Most of the procurement actions planned for 2004/5 were not carried out ‘due to procedural
and decision implementation delays and lack of quality specifications…delays and inactions
resulted low performance in immunisation, lack of timely availability of vaccines and lack of
medical instruments and equipment’.20 ‘The auditor draws attention to inappropriate central
procurement of basic items such as furniture and stationary, with the inefficiency
compounded by materials spending a long time in store before distribution to the field. Some
hesitant steps have been taken towards decentralising equipment procurement to districts
and hospitals. Although there is reported to have been some reduction in drug stock-outs in
2006, the recent MOHP study confirms earlier reports showing that supplies reaching
districts are based on central norms and do not reflect what they ask for or need21. The case
for decentralisation is reinforced by continuing problems of distribution related to disruptions
caused by civil disturbances.

The community drug programme plays an important role in overcoming drug shortages in
areas where it operates, although the conflict has damaged the schemes in some areas by
taking of drugs by combatants from both sides, and through Maoist resistance to charging.
The introduction of charging for drugs may have improved their supply, but the social impact
is unclear:- the study of the handover of sub health posts found evidence of reduced use by
Dalits, which may be an indicator of the poor being excluded by inability to pay22.

Output 7 Human Resource Development
Clear and effective HRD policies, planning systems,      Status
and programs developed and functional
% (unspecified) of public health facilities will have    Baseline study not implemented by Dec 2005 (Aide
appropriate mix of HR by 2006/7                          Memoire). Proposed study of staffing skill mix and actual
                                                         deployment not started.
HR master plan produced, endorsed by MOHP,               Consultancy being procured.
implemented by July 2006
HRD unit reformed and re-located within MOHP by          Done, with additional officers
Training information management system                   TIMS introduced, begun to populate it with data, though
redesigned to capture all major training course data     only training included in the budget ‘Red Book’ is being
by 2005                                                  captured.
% (unspecified) of transfers and postings in line with   Percentage turnover has reduced, though the reasons
published policies and rules                             are unclear and may not be sustainable.
Medium term training strategies for AWPB by all          Under procurement, though response to the invitation to
Divisions and centres by 2005, reviewed for              bid was disappointing.
consistency with HNSP-IP
All training facilities appraised by 2006
A ‘mechanism’ established to respond to projected
health personnel needs by 2007

Although the health baseline study has not been done, the recent drug tracking study found
65% of facilities are fully staffed, compared with a target of 50% in 2006/7. Staffing at district
hospital level was the biggest problem, with only 25% having the full staff complement.
There is a national surplus of trained Doctors, and salaries for Doctors in Government
service are competitive, with significant inducements for service in the districts. However,
working and living conditions make it difficult to attract staff to leave Kathmandu.
Government has taken action to address this, requiring GON supported medical graduates

   MOHP, Implementation Progress Report, Fiscal year 2004/5.
   Full Bright Consultancy, July 2006.
   Shrestha, op cit.
to serve in districts as a condition of registration. Anecdotal evidence suggests this has had
some effect, although we were unable to confirm the current vacancy position by category of

MOHP is unable to provide data on the number of positions that are vacant by category of
staff and location. The HR function remains split, and there is a lack of clear policy, with the
‘master plan’ taking a supply-driven approach that does not address the difficulties of
attracting staff to stay in rural areas. Recruitment is over-centralised, with no procedure for
local recruitment of even the most junior categories of staff.

Output 8 Integrated Management Information System
Comprehensive and integrated management            Status
information system for the whole health sector
designed and functional at all levels as well as
quality assurance mechanism in place for public
and private sectors

Comprehensive & integrated MIS in place at all     Achieved for public sector, with monthly reporting
levels by 2007                                     consolidated centrally, annual report with summary and
                                                   district level detailed statistics published within 6 months of
                                                   year end. Main gaps are non-reporting from private and NGO
                                                   service providers, and lack of integration of performance and
                                                   financial data.
Quality assurance policy for public and private    Process underway for agreeing draft QA policy involving all
sectors created and implemented (date              stakeholders. District QA teams have been established, there
unspecified in Log Frame)                          are plans to train them.

The management information system produces timely and comprehensive data, with near to
universal coverage from all levels of the Government system. The main gap is incomplete
reporting by the private and NGO sector. There is a strong case for also using IMIS to collect
data on staffing, as this is not at present possible to extract from the personnel record based
HURDIS system. DoHS undertake basic cross-checks and data verification. Most observers
believe the information to be reasonably accurate. The forthcoming Demographic health
Survey will provide an opportunity to verify the reliability of many aspects of the data,
including consistency of figures on immunisation, family planning, and utilisation of maternal
and child health and other services. Several people in Government and the EDPs
commented that the good information that is available is not sufficiently utilised for evidence-
based decision-making, partly a reflection of the lack of an evidence-based management
culture, and partly due to the lack of analytical capacity in MOHP following the collapse of
the health economics unit.

Chapter 3 What explains the performance?
This chapter presents our findings and conclusions on the factors that have influenced the
performance achieved. It seeks to address the specific questions raised in our terms of

3.1Spending on the Health Sector
The substantial increase in the budget has not been matched by an equivalent increase in
actual expenditure, which grew by just 11% in 2004.5. Outputs have continued to show
modest improvement, but the increased pace of improvement required in order to reach the
MDGs will require significant improvements in financial management at all levels, to both
increase the level of disbursement, and improve the efficiency with which funds are spent.
Decentralisation of the budget would address both problems, but the trend of the budget
appears to be in the wrong direction, with the share allocated to district level declining.
Concerns about value for money and quality control under a more decentralised system
have been addressed in other countries by giving the budget to decentralised units, but
allowing them to purchase drugs and supplies that have been centrally procured by the
Ministry or an autonomous public sector agency set up for the purpose. Similar proposals

are under discussion in MOHP, for possible introduction in 2007/8, and deserve to be

The introduction of pooled fund sector budget support was intended to help finance
increased spending by MOHP, to achieve the plans set out in the NHSP-IP. The intention
was that pooled funding would finance 15% of total expenditure expected to increase by
substantially more than that in 2004/5, rising to 20% in the current year. The definition of the
budget for calculating pooled fund disbursements is slightly odd, since it includes
expenditures that have been financed by non-pool EDPs, expenditures that clearly can not
be financed twice. In practice, the main growth in MOHP spending in 2004/5 was financed
by non-pool donors, the expenditure financed by HMGN plus pooled donors increased by
just 10% in cash terms (Table 3.1). Pooled funding accounted for 18% of this total of HMGN
plus pooled fund expenditure, implying that funding financed from domestic revenues
actually fell from NRs3.451bn in 2003/4 to NRs 3.117Bn in 2004/5. This was not deliberate,
but was simply a consequence of MOHP disbursement problems and the way that the
formula for pooled fund disbursements is calculated. Nevertheless, it is a matter for some
concern. Although the pooled fund donors were not seeking a direct relationship between
their funding and the increase in health sector spending, the expectation reflected in the
NHSP-IP financing plan was that spending would rise sufficiently to absorb donor
commitments plus a rising contribution from domestic revenues. This did not happen in
2004/5, and the disbursement figures for the first two trimesters of 2005/6 suggest that
actual spending is again lagging far behind the budget. For the first two years, donor pooled
fund contributions may therefore be substituting for lower GON spending on health.

Sustaining commitments to the programme from pooled funding donors will be difficult if
GON can not overcome the disbursement problem and demonstrate strongly rising
expenditures that can fully absorb pooled funding plus reasonable growth in the domestic
contribution. We suggest that overcoming the disbursement problem should be the major
focus of the next JAR, informed by a study of where the bottlenecks are occurring.

Table 3.1 Financing of MOHP Spending 2003/4-2004/5

Source of Finance                                 2003/4                    2004/5
                                                        Spent           Budget            Spent
GON                                                      3451             3812             3117
Pooled Fund                                                                953              690
GON plus Pooled Fund                                     3451             4765             3807
Non-Pool                                                  517             1789              791
Total                                                    3968             6553             4597
% increase in spending, GON+pool                                                          10.32
Pool% of GON+pool spending                                                                18.12

3.2 Aid Effectiveness and the SWAP Arrangement

This section reviews the NHSP-IP partnership arrangements. It is loosely based on a
framework for assessing the quality of a SWAP arrangement that has been proposed by

Agreed Strategy and Objectives

There is a clear strategy and objectives (the NHSP-IP), agreed between the partners, with
targets clearly specified and derived from costed programmes capable of achieving them.

  Veronica Walford, Defining and Evaluating SWAPs, A paper for the inter-agency group on SWAPs
and development, Institute of health Sector Development, 2003
The measures have been roughly costed, and the costs related to the expected impact on
mortality. NHSP-IP estimates a required MOHP financing envelope of $7 per capita in 2004,
rising to $9 by 2008, in order to fully implement the NHSP-IP strategy and achieve the
targets24. The technical assistance from RTI will further refine the current estimates, which
have acknowledged weaknesses in some areas due to lack of data. They attempt to capture
all costs from a public sector perspective, but assumptions with regard to labour costs,
central overheads, and transport are rather broad brush. The cost estimates are based on
‘best practice’, and may have an inbuilt bias towards optimism, given the probable cost and
difficulty of improving the management and motivation of health workers across the sector.
They may also under-estimate the costs of overcoming demand-side barriers to access,
which may require increased public sector subsidies in order to reduce both the direct out of
pocket costs of some EHCS services such as deliveries, and the indirect costs of transport
and lost earnings in accessing services.

Although the NHSP-IP strategy is clear and has been costed, the pool funding EDPs have
asked for a clearer articulation of the linkage between NHSP and the annual plans and
budgets through which it is implemented.

The cost centre, programme, and line-item presentation that is used for preparing the Annual
Work-plan and Budget (AWPB) is fundamental to the input-based financial management
system, but does not lend itself easily to a more strategic presentation. Many of the 57 sub-
heads of the MOHP budget that are shown in the ‘Red Book’ span several of the outputs,
while the outputs are delivered from many of the sub-heads. It is particularly difficult to relate
the reform outputs to the budget, and the attempt to do so has been criticised as misleading
because it includes spending on ‘business as usual’ as well as specific reform spending25.

The attempt to move towards ‘output based budgeting’ that has been introduced by MOF
and the NPC has not been concerned with relating the budget to strategic outputs of the sort
set out in the NHSP-IP. The approach is applied at the level of individual line items within
budget heads, a level of detail at which ‘outputs’ are often defined simply in terms of what
was bought with the money. In-year budget releases depend in principle on the submission
of statements showing actual expenditure to date and the immediate ‘outputs’ achieved.
Links to the more strategic NHSP-IP outputs are presumably there, but would require
exhaustive analysis to check whether the detailed line-item allocations within individual
programmes are consistent with the NHSP-IP targets. This is in our view a level of detail that
EDPs do not need to be involved with, their attention should instead be directed to
monitoring whether the NHSP-IP targets are being achieved (for which purpose the IMIS
provides more than sufficient performance data). The point is a general one, but monitoring
of expenditure by NHSP ‘output’ is particularly pointless with respect to the reform-based
outputs. They are not primarily dependent on the budget allocated, and monitoring should
focus on progress against the reform matrix without trying to monitor expenditure.

The donor concern to see clearly what is intended to be achieved as a framework for future
monitoring may perhaps be met by the new Ministry of Finance requirement for line
ministries to prepare a Business Plan, to be annually updated and rolled forward, and
covering the same three years as the MTEF. The health sector business plan aims to
‘present clearly the health sector vision, mission, goals, outcomes and required strategies,
especially the necessary reform areas as specified in the HSS and NHSP-IP’ (Business Plan
for Health Sector, 2006/7-2008/9). It includes a matrix presentation summarising intended
actions against each of the eight NHSP-IP output areas over the three year period with a
little more detail on the first year, and includes some quantified targets for key outcomes and

   The figures summarised in Alban and Mani Sharma, based on the study on which the NHSP figures are based,
are lower (at 2003 prices, they rise from $4.88 to $6.14 per capita over the 2004-2008 period, including a 35%
overhead, and would reach $8.15 per capita by 2015). There may have been some double-counting of overheads
in the NHSP figures. If so, it would offset some of the optimistic biases discussed above.

     Dr Martin Allaby, Public Health Consultant, June 2005, Review of Nepal MOHP Annual Work Plan and Budget

intermediate indicators. It is supported by ‘sub-sector business plans’, giving more detail for
each of the programme areas comprising NHSP-IP. It would not be a major exercise to build
on the existing presentation in order to give a little more detail on quantified targets in next
year’s Plan, building on Table 6 of the current year BP, and this should satisfy the donor
concern. Going beyond this risks donors involving themselves in attempting to micro-

Process for Allocating Resources to the Strategy
Although the strategy is in place and has been costed, there are significant weaknesses in
the budget and aid coordination processes for allocating the required resources. The Annual
budget and the AWPB process does seek to allocate resources to the EHCS programmes,
and this appears to work relatively well at programme level, with contributions to national
programmes such as EPI or CB-IMCI reflected in the ‘Red Book’, and donors participating in
planning at the programme level. The MTEF is broadly reflective of the priorities, though
planning and budgeting capacity within MOHP is relatively weak, and the EDPs have
requested greater involvement in budget formulation with respect to the programmes they
are helping to fund. This is desirable to benefit from their expertise and to ensure
coordination between GON and EDP inputs.

Many of the critical service delivery inputs have been reliant on parallel donor funding, which
is unsustainable, though the introduction of sector budget support (‘pooled funding’) has
contributed to increased use of HMGN budget systems and has been credited with enabling
MOHP to extend the geographical reach of the CB-IMCI programme.

The JAR process has not been effective as a vehicle for identifying financial resources and
allocating them to the funding of the NHSP-IP.

The main point of budget support to a sector is to provide an assured source of finance to
permit Government to plan and implement a more ambitious sector program with confidence
that the expected resources will be made available. The potential benefit to the sector
ministry is twofold, an increased budget from MOF, and an incentive for MOF to release it
earlier and make it easier to spend. However, these potentially important incentives have
been fundamentally undermined by the pooled donors not indicating their disbursement
intentions in time to inform the budget preparation process, and more fundamentally by DFID
failure to honour its commitments.

Commitments by non-pool donors that have been included in the budget bear so little
relationship to actual disbursements that they are of very limited value for planning and
budgeting purposes. An unknown but probably significant share of EDP funding is not
captured in the Government figures, and it is unclear whether the expenditures that are
being financed with this aid contribute to filling the financing gap, or are devoted to spending
beyond the intended scope of NHSP-IP.

Monitoring and Course Correction
The MOHP has established fairly effective processes for tracking progress and taking
corrective action when performance diverges from plan. The MOHP internal review process
focuses on progress against service delivery outputs and targets. Based on regional reviews
with participation of district level staff, it culminates in preparation of a detailed Annual
Report. This gives a clear summary of the status of performance indicators, a good account
of progress against individual programmes that comprise the EHCS, and on some aspects of
the management reforms, though these are not easy to relate to the NHSP ‘outputs.’ It
includes brief accounts of the activities of each development partner, as well as detailed
district-level performance statistics. There are some important gaps, for example there is no
reporting of the human resource situation, and the limited finance data is presented in a
separate chapter and is not easy to relate to the discussion of outputs. A particularly strong
feature is that reports on the individual programmes explicitly identify the causes of any
shortfalls in performance, and include recommendations on how to address them.
The arrangements for monitoring and review of the sector wide approach are at present
additional to this MOHP led review process, taking place at a different time, and relying on a
different set of progress reports, albeit one that draws on the same fundamental sources
(MOHP financial reporting and the IMIS returns). This adds to management costs and is not
in the spirit of the SWAP approach, which is intended to be a mechanism for joint support to
a single, Government led programme that is jointly monitored.

There are two specific Joint Annual (sic) Reviews between MOHP and EDPs. There is a
review of progress at which financing indications are also given in November (in time to
inform the setting of ceilings for budget preparation); and a forward-looking review of the
Business Plan and Annual Workplan and Budget in May, at which time EDPs are expected
to confirm their financing for the coming budget (and preferably for the three year period of
the MTEF). There are language issues that might necessitate the need for some separate
consultations with EDPs, but there would be a strong case for combining the November JAR
with the MOHP national review.

The JAR focuses heavily on the reform agenda, with the majority of recommendations
relating to planning, budgeting, and institutional reform. The December JAR aide memoire
includes a brief discussion of performance, but none of the 19 recommendations directly
address issues of service delivery priorities, constraints, or opportunities, other than the
recommendation to prepare three year scale-up plans for ECHS services. Although the
emphasis is heavily on process targets and indicators, the reporting of progress in the
trimester and annual reports provided to the EDPs is in the form of a few words in a matrix
box, it is not systematic and lacks the detail required to assess progress. For example,
references to ‘extra staffs being provided’ need more detail and quantification for their
significance to be clear.

Each six-monthly JAR has assessed performance on the management reform agenda and
on progress since the previous one, and includes a further list of recommendations to add to
the list of recommendations not implemented since the previous JAR. There appear to be
several major problems:-

   i.      A genuine scarcity of capacity to implement what would be a complex and
           challenging agenda of reforms for any organisation to undertake in a very short
           period covered by the NHSP-IP.
   ii.     An apparent lack of appreciation by the EDPs of the difficulty of the
           recommendations that they endorse. Recommendations on recruitment of staff
           and consultants are repeated despite previous failures to recruit suggesting some
           fundamental constraints need to be overcome; recommendations to contract out
           within six months the management of two district hospitals to NGO or private
           sector operators take insufficient account of the lack of skills or precedent, or of
           the legal and contractual difficulties. Although only seven from 22
           recommendations of the December 2005 aide memoire had been complied with,
           the June JAR added a further ten, many of which required quite complex
           processes to be set in motion and brought to completion.
   iii.    A reluctance by MOHP to challenge the donors and ensure that accepted
           recommendations are consistent with political realities and with the available
           capacity to ensure that they are implemented.

Although the document includes the signatures of MOHP as well as the EDPs, the MOHP
officials agreed that they have been relatively passive partners, and have signed documents
knowing that the recommendations would be very difficult to implement within the timetables
proposed. The danger is that the reluctance to challenge unrealistic demands may result in a
progressive souring of the relationship between MOHP and the EDPs, with the emergence
of an unhelpful and unfair donor consensus that the programme is failing. There are
examples of SWAPs with a very high rate of implementation of previous recommendations,
but the appearance of better performance is due to a robust discussion of what can feasibly
be achieved before the Aide memoire is signed, rather than waiting to explain the reasons
for predictable non-performance after the event.

Common understanding of institutional arrangements and their future
There is a perception on both sides that the SWAP is not widely understood. This partly
reflects differing expectations, characterised in Table 3.2.

Table 3.2 Differing Expectations of the Sector Wide Approach

Govt Expectations                                     EDP Expectations

   Agree and finance a joint strategy                    An opportunity to influence MOHP strategy,
                                                         while retaining freedom to allocate and manage
                                                         their own funding without being bound by it.

   Long term predictable support for a                   Short-term commitments, cut without notice,
   comprehensive plan & budget                           EDPs choose how much to provide, what for, &
                                                         what to report
   Balanced partnership, mutual accountability           Recommendations focus on what MOHP should
                                                         do, EDPs escape any accountability for their

   Build Govt institutions & capacity by using them      Govt institutions are in practice weakened by
                                                         adding SWAP management to an unchanged
                                                         burden of donor missions, reporting, etc, and by
                                                         donor poaching of MOHP staff.

MOHP hoped that the SWAP would represent a significant step towards realising the
objectives of the foreign aid policy (Box 1), with assured and coordinated financing for their
NHSP-IP, provided through funding arrangements aligned with those of Government. This
has not materialised, and the main noticeable difference has been a more intrusive donor
role in policy, planning, and budgeting. No significant new donor is contemplating joining the
pooled fund (UNFPA may do so, but the funding available is inconsequential). The aspects
of donor coordination that are working well are those programme level arrangements that
mostly pre-date the launching of the SWAP.
Box 1, Objectives of 2002 Foreign Aid Policy
     Convergence of foreign-aided development activities with nationally determined
        development priorities, so that aid-supported activities become an integral part of the
        overall development process.
     Improve the quality, effectiveness and efficiency of foreign aid operations.
     Enhance the contribution to poverty reduction through improved linkages with civil
        society organizations and the private sector, making aid complementary to other
        economic policies, and utilizing foreign aid more effectively to address issues such as
        governance, gender and the environment, among others.
     To facilitate the transition to a more equal partnership between Nepal and donor
     GON leadership, channel aid to national priorities, joint programming and review,
        reflect all aid in the budget, ensure conditionality helps and doesn’t hinder
     Harmonise & standardise procedures, avoid PIUs and parallel structures, encourage
        budget support, sectoral/program support, basket funds, balance investment and
        operating costs
     GON to address fungibility effectiveness and accountability concerns, speed up re-
        imbursement claims and other processes limiting disbursement
     Preference for local TA
     More aid

The DoHS staff at programme level are ambivalent regarding the desirability of pooled
funding for the sector budget, not surprisingly given that the aid benefits the general budget
rather than MOHP, with the impact on their own budget dependent on MOF allocating a
higher budget as a consequence of the pooled fund commitment, and MOHP actually
succeeding in spending more of that increased budget. As we have seen, the pooled funding
has been accompanied by increased budgets, but has not in practice resulted in significantly
higher actual spending. It is therefore not surprising that DoHS staff at operational level
continue to show a preference for donor projects or indirect support. Programme directors
have an interest in maximising the budget they receive from MOF, and then adding to it as
much parallel donor support as they can attract, especially if it is in practice easier to access
than budget funds.

Drawing on such resources boosts short-term output, but is unsustainable and makes the
health system highly vulnerable to future aid cuts. Sustainable improvements in public
finance management are unlikely to be achieved while health sector managers can avoid the
worst of the problems by drawing on parallel donor resources. The prospects for changing
attitudes towards improved alignment in future will depend on GON demonstrating improved
rates of disbursement, while also convincing donors that fiduciary concerns can be

3.3 Fiduciary Risk
The 2005 country financial accountability assessment rated fiduciary risk in Nepal as high
but improving26; a recent DFID update also rates the fiduciary risk as high, but with less
evidence of an improving trend27. Both sources agree that many aspects of financial
management in Nepal are good in theory. Financial controls & basic systems are strong if

International rankings suggest Nepal has a serious corruption problem. On transparency
international’s corruption perceptions index (based on interviews with business people),
Nepal ranks joint 117 from 158, having improved rank in 2005. It receives a better ranking
than Bangladesh or Pakistan, or (surprisingly) Ethiopia, and the same rank as Uganda. In
the more broadly based control of corruption index that forms part of the World Bank World
Governance Indicators, Nepal just falls into the most corrupt 30% of countries, but scores
better than a number of major aid recipients including Bangladesh, Zambia, Vietnam,
Tanzania, Uganda, and only marginally worse than Mozambique. Of course, no level of
corruption can be regarded as acceptable with regard to the utilisation of development
assistance, and the judgement that the corruption environment in Nepal is no worse than in
other aid recipients is no argument for complacency. However, it is relevant that the potential
risks of providing budget support have been judged to be manageable in several countries
where the overall fiduciary environment is assessed to be no better than in Nepal, and in
some cases is judged to be worse. This suggests that there should be potential for
Government and EDPs to take a close look at the nature and extent of the risks, and jointly
consider how they can be managed to the satisfaction of all partners.

Annex 1 provides our assessment of fiduciary risk, based on the DFID criteria and proposed
indicators28. It needs to carry the strong caveat that it is based on our reading of documents
and brief discussions based in Kathmandu, and can not be definitive.

Positive points that should be emphasised are:-

       i.      Sound budget systems and financial controls are in place, the main weakness in
               the systems is that they are over-centralised, leading to problems in fully utilising

 Nepal, Financial Accountability Review Mission, (A Joint HMGN, DFID, And World Bank Assessment Update),
May 9 – 24, 2005, Aide Memoire
     Alan Waites, DFID, Fiduciary Risk Assessment – Stock Taking Exercise, Nepal, March 2006
  We considered using the PEFA assessment framework, but concluded it would be too onerous for
the short time at our disposal.
            the budget, and the risk of waste as a result of centrally procured items not
            getting to the right place in time.
     ii.    Improving basic resource allocation, with 70% of the budget spent on essential
            health care services, and a reduced share going to tertiary care. The proportion
            of the public sector health budget that primarily benefits better off urban residents
            is relatively low and compares favourably with many other low-income countries.
     iii.   Audited accounts show a sharp reduction in irregularities in the health sector,
            from 13.6% of expenditure in 2003/4 to 8% in 2004/529. Although this is above the
            5% average for Nepal, the majority of the ‘irregularities’ found by the auditors
            relate to failures to follow financial regulations. Only 2% of the irregularities
            occasioned any loss to the Government, and nearly half of this amount has since
            been recovered.

Less positively, there has been no action to follow up on measures to reduce fiduciary risk
that were envisaged in the NHSP-IP, and the ‘Action Plan’ attached to the CFAA. These
included a number of measures to verify the quality of financial management, including
citizen audits, service delivery surveys, and extension to internal audit to include physical
verification of up to 25% of expenditure by value.

There have been some conflict-related problems, including diversion of drugs, vehicles &
fuel by combatants and use of vehicles for non health purpose by the administrators during
the royal regime. Many of these incidents are not reported, and it is difficult to trace formal
evidence, making it hard to assess their significance. They are not in any case a current
problem following the cease fire. The main current risk areas in financial management in the
health sector in Nepal are the same as in many low-income countries, namely procurement,
and problems of capacity to comply with procedures, especially at lower levels of the

Procurement concerns should partly be allayed by the passing of the new procurement act
based on international best practice, and by the increased scrutiny that has accompanied
pooled funding, with MOHP required to submit procurement plans, and with larger
procurements conducted by ICB and requiring ‘no objection’ from World Bank. It is reported
that recent action against civil servants suspected of corruption has instilled an over-cautious
attitude in which procurement decisions are unreasonably delayed.

The overall judgement remains that the financial management and procurement systems are
sound, but that there are risks due to them not being consistently applied. The audit reports
provide some evidence on the extent of non-compliance with financial procedures, but are
unlikely to have detected all abuses, since physical verification below district level has not
been possible due to security concerns An audit of the books will not in itself detect abuses
such as the giving and accepting of bribes, and may fail to detect abuses in contract awards
in situations where the formal procedures have been complied with, but slanted to produce a
biased result.

It is in the interests of all stakeholders to have better information on the nature and extent of
the risks, in order to plan action to address them. We therefore propose:-

     i.     As a confidence building measure, independent tracking of financial flows and
            verification of administratively collected data on a sample basis, following the
            model successfully adopted in the education sector30.

   We have been unable to read the 2004/5 audit report, which is completed but not yet released.
These figures were reported to us in discussions with MOHP officials..
   Ministry of Education and Sports, Technical Review of School Education, Draft Final Report
(?date); and terms of reference for technical Review, Revised 8 June 2005.

   ii.       As soon as is practicable, re-introduction of proposals for downward
             accountability to communities through decentralisation, social audits,
             transparency and encouragement of communities to hold officials to account.

3.4 Performance of health sector institutions
Three organisational and functional reviews have been commissioned by MOHP and are
nearing completion, and are expected to identify approaches to improving both system
performance and personnel performance.

Policy Management Level
The Ministry is responsible for policy management functions, including health policy,
management of NHSP, and public finance management. There is a clear overall policy
direction, but performance is seriously constrained by:-

            A single person unit for Health Sector Reform, with minimal logistic facilities or
             support, but facing increasing transactions.
            A collapsing Health Economics and Financing Unit mainly because of lack of
             trained staff, all of those trained with DFID support having left or transferred to
             other offices.
            MOHP appears to have sufficient capacity for meeting regular GON accounting
             and financial management procedures. Low disbursement of EDP funding, and
             delays and problems in preparing financial reports for pooled donors, suggest
             that there is a problem with respect to capacity to meet the requirements of
             development partners, including a need to make the routine reporting and
             reimbursement requests less dependent on particular individuals.
            Overall human resource management strategy is not clearly articulated and there
             is no significant reform process in this area.

The slow progress in implementing the policy reform components of the NHSP-IP reflects
the simple fact that the number and complexity of expected outputs are far beyond what
could be delivered with the existing management capacity. The problem is exacerbated by
the scarcity of senior managers in other divisions with a clear understanding of the sector
wide approach.

Attempts to boost capacity at this level by recruitment of contract staff or local consultants
have failed. An alternative approach is needed, perhaps including reliance on resource
centres outside Government to provide some policy and analytical support on a contract
basis (see Chapter 4).

Operational Management Level (Departments, National Level Institutions)
The Departments of DoHS, supported by national level institutions with specific functional
responsibilities, are responsible for enabling service delivery by coordination, facilitation, and
providing logistic support. Although services are relatively well integrated below district level,
planning and resource allocation for EHCS is mainly undertaken by national programmes
managed by DoHS.

Planning, monitoring and reporting systems have experienced gradual improvement, with
donor projects increasingly coordinated inside national programmes. This process pre-dated
and has been largely independent of the introduction of the SWAP. Non pool-fund EDPs
focus their main efforts at this level. There is a strong focus on service delivery, reflected in
the MOHP Annual Review and the Annual Report that follows it. There has been far less
focus on sustainability. Implementation has been through ‘business as usual’, with DoHS
and the EDPs relying on parallel donor procedures to by-pass the delays inherent in GON
budget management processes. Excellent results have been achieved, with some
programmes internationally recognised as among the best of their kind. The NHSP-IP
envisages a major shift towards integrated, decentralised services organised on a
geographical (‘horizontal’) basis. This will present major challenges to the central
programmes, but decentralisation has so far been limited, with procurement largely
centralised and budgets earmarked to centrally planned programmes. Expansion of
functions undertaken at local level has yet to challenge the role of the centre.

The key issues at this level are:
       The ownership of the NHSP-IP and Sector Wide Approach is low among both
           programme managers and the EDP staff who support them. There is little
           commitment to decentralisation or to moving towards forms of aid that are better
           aligned with GON budget systems. This may be partly due to the self-interest of
           those who will lose power and resources, but it also reflects concern not to
           damage approaches that have contributed to significantly improved health
           outcomes. The key policy issue is how to balance the priority given to immediate
           improvements in service delivery against the building of sustainable institutions
           for the long term.
       The NHSP-IP commitment to decentralised, integrated services planned and
           delivered at local level has been narrowly interpreted as the handing over of
           health sector institutions. There is no clear agenda of change towards increased
           local responsibility for planning, budgeting, procurement, and monitoring. There
           are some genuine concerns regarding the need to secure quality control and
           value for money in procurement, though these concerns need not imply
           centralised budgeting:- a number of models are in operation in other countries
           that combine delegated budgets with centralised procurement of some critical
           items. Strengthening the decentralized procurement system still needs
           development of and agreement on a suitable model.
       There is an insufficient interface between the operational and policy level, and too
           little engagement of operational staff in the policy level management issues of
           NHSP. Combining the MOHP Annual Review (which involves operational and
           local level staff) with the Joint Annual Review undertaken with development
           partners would be mutually beneficial, bringing more policy awareness to the
           Department level, while ensuring that the JAR discussions do not lose the focus
           on service delivery as the fundamental rationale for the SWAP.

Service Delivery Level
Table 3.3 , drawn from a UNICEF report, summarises the responsibilities of public sector
institutions delivering health services at different levels.
Key constraints are:

       1. Uneven access to services. The better off in urban areas have access to a highly
          profit oriented private sector, as well as readier access to public sector curative
          care. Where NGOs are providing services, they are normally of better quality
          compared to the government health institutions, but they are high cost,
          temporary, and achieve low coverage with a high level of un-sustainability31.
          Shortages of drugs in public sector facilities have encouraged people in more
          densely populated rural areas to rely on private drug sellers for consultations as
          well as drugs. The community drug programme aims to reverse this trend.
       2. Poor allocation of public sector staff and other resources based on facility norms
          rather than actual demand. This results in underutilised staff and facilities, and
          wastage of materials, in some low population locations, but inadequate supplies
          and operating resources to cope with rising demand in others. These problems
          are exacerbated by unplanned and uneven distribution of support from EDPs and
       3. Human resource management, with many vacant and absent positions (only 65%
          of institutions have full staff strength with only 25% at district hospitals)32.

   Cindy Carlson and Raghav Regmi et al, [An Evaluation of Health Sector programme of NGOs
supported by CFA, Dutch Government Funding, A country study of Nepal as part of a three country
study, 2005]
   MOHP Full Bright Consultancy, July 2006, op cit
                Effective strength is further reduced by staff absence (authorised or not), with no
                system for replacing staff during authorised absences. Recruitment is highly
                centralised, with no simple and flexible policy for local recruitment even of village
                health workers or peons33.
           4.   The quality and level of skill of the majority of staffs at district level and below is a
                serious concern. This is not an argument for upgrading formal qualifications,
                which would raise costs and further exacerbate the problems of staffing remote
                areas. It remains appropriate to deliver services at the lowest possible level.
                However, to be effective, staff require more intensive training and support,
                preferably organised to cover the full range of their responsibilities rather than
                being organised via vertical subject-specific programmes..
           5.   Quality Assurance is minimal mounted on a week supervision practice.
                Supervision visits are said to be concentrated on more accessible facilities, MIS
                reporting is suspected of exaggerating the frequency of supervision in more
                remote locations34.
           6.   Lack of local accountability. Local Health management Committees are reported
                to have achieved some improvements in utilisation, but are constrained by their
                lack of functional autonomy, and committees need further training in their
           7.   Difficulty in improving the access of poor and marginalized groups to the health
                services, with some risk that cost recovery through the drug programme may
                further reduce their access.

The key issues at this level are:
               Effective Supply and Sustainable Management of Human Resources.
                  This is likely to be best achieved with more decentralisation of human
                  resource management functions, and integrated training and more
                  intensive supervision to enable services to be delivered effectively by staff
                  with limited formal medical training. This needs to consider the
                  appropriate future role of the 48,000 FCHVs, currently the unpaid bedrock
                  on which many of the most effective EHCS interventions rest. Human
                  resource policy is impossible without access to basic management
                  information on staffing levels by staff category: the quickest way to
                  provide this data is to add it to the existing IMIS returns filled in by all
                  health facilities.
               Training and supervision can focus on supporting staff to consistently
                  apply approved quality and service standards and protocols, together with
                  guidance on rational use of drugs to control over-prescribing.
               Capacity development of Staff and LHMCs on Decentralized management
                  of health institutions, including clear definition of their roles..
               Decentralized, uninterrupted, sufficient supply of quality drugs and
                  medical supplies. The key EHCS interventions need to continue to be free
                  at the point of delivery if they are to reach the poor and marginalised, and
                  need to be more effectively supported with timely and sufficient supply of
                  drugs and other consumables. The community drug programme does not
                  address this problem, but may help improve the availability of drugs for
                  curative care at primary level, but with some risk that the poor will
                  continue to be excluded by cost.
               There is some requirement for physical rehabilitation of health sector
                  institutions, and to supply basic diagnostic equipment to t PHC and
                  District Hospitals, to achieve minimal acceptable standards.,
               Coordination and regulation of private sector and NGO sector service

     Development Consultancy Centre (DECC) (2006), Draft Report on the Vertical Function Analysis of MoHP
     DECC, ibid
Table 3.3 Responsibilities and Characteristics of Institutions Delivering Public Sector
Health Services
Institutions             Level        Services                        Numbers        Characteristics
Female Community         Primary      Promotion, prevention, FP,      48381          Unpaid community level
health Volunteers                     organisation of outreach and                   volunteers, serve 600
                                      immunisation.                                  population on average but
                                                                                     wide variation. Widely
                                                                                     regarded as the foundation
                                                                                     of many of the most effective
                                                                                     EHCS interventions.
Sub Health Posts         Primary      Promotional Health, Primary     3129           Understaffed, run by poorly
                                      health care, Preventive                        trained paramedics and
                                      services (MCH, Immunization                    health volunteers, lack
                                      etc)                                           supplies, Serve max 6000
Health Posts             Primary      Promotional Health, Primary     698            Run by trained paramedics,
                                      health care, Preventive                        absence of staff is common,
                                      services (MCH, Immunization                    under supply, poor physical
                                      etc), some clinical services,                  conditions, serving 5000-
                                                                                     20000 population.
Primary Health Care      Primary +    All above and curative          185            Run by professional health
Centres                  Secondary    services of primary level                      persons, absence of staff is
                                                                                     common, under supply, poor
                                                                                     physical conditions, serving
                                                                                     50000-150000 population
District Hospitals       Secondary    Manly curative service of       75 districts   Trained medical persons,
                                      secondary level.                               absence of staff is common,
                                                                                     under supply, poor physical
                                                                                     conditions, Serves the entire
Regional/City Hospital   Tertiary     Traditional hospital services   5 regions      Better conditions, more staff
                                      of all level with some                         still under staffed, service
                                      specialist services mainly                     quality is not to the quality
                                      curative.                                      standards. Mainly located in
                                                                                     major cities
National Hospitals       Tertiary +   Traditional hospital services   8              Highly trained staff, more
                         supper       of all level with specialist                   facilities, conditions and
                         speciality   services mainly curative.                      qualities vary, located mostly
                                      Some institutions only                         in Kathmandu
                                      provide super speciality
                                      services (heart, Paediatric,
                                      gynaecological services etc.)
Source: UNICEF 2006

3.5 Political and security issues and their impact on health sector
The conflict had a number of impacts on the health sector:-
    Interruption of supplies and transportation of drugs from one place to another. This
      problem continues and has become more intense following the establishment of the
      SPA Government and the widespread use of strikes and road blocks by a wide range
      of different groups. Flexible support from EDPs and INGOs has been important in
      finding innovative ways to overcome the problems and get medical supplies to where
      they are needed.
    Health infrastructure was not deliberately targeted during the conflict, but there has
      been some destruction of health institutions that were in proximity with VDC buildings
      or other Government infrastructure.
    There have been informal reports of seizure of drugs and vehicles by both sides in
      the conflict.
    Voluntary withdrawal of some Government staff from health sector institutions, and
      restricted movement for supervision purposes. Some health service staff were put
      under threat from both parties of the conflict, facing an impossible task in those areas
      where control of territory was contested.

         Community drug programmes and other cost recovery mechanisms were disturbed in
          some health institutions by opposition from the Maoists, but in many such places
          were restarted by the communities following consultations with Maoists.
         More positively, presence of staff at post has improved during the conflict period in
          many of the health institutions because of the pressure from the Maoists. The
          Maoists actively supported and helped to facilitate the national measles vaccination
         Overall, despite some disruption, the health sector continued to function and to
          increase service outputs during the conflict.

The current political situation is very fragile and unpredictable. The present Government
knows that it has a limited role in negotiating a future political agreement, and is in no
position to implement major reforms. For the health sector, critical areas of uncertainty

   i.        The relationship between central Government and local authorities under what
             could become a federal state. The uncertainty makes it difficult to proceed with
   ii.       Policy on cost recovery. The current administration takes the view that health
             services, including curative care, should be free at point of delivery, and the
             Minister announced free hospital care, though this has not been implemented.
             The main implication of free curative services would be to take funding away from
             health services that benefit the poor and move it towards services benefiting the
             wealthy. This is not a result that the current Government or the Maoists would
             wish to see, but the debate on the implications of different policy choices has yet
             to start.
   iii.      The NHSP-IP envisaged major re-organisation of the MOHP, expecting this to
             result in significant cost savings that could be re-directed to service delivery.
             Irrespective of whether cost savings can be delivered, the envisaged
             decentralisation of functions would impact on staff within the Ministry. In the
             current atmosphere of continual protests, it seems unlikely that significant
             reforms can be achieved. They will need to wait for a new Government and
             Minister with the authority to impose change in the face of opposition from
             Kathmandu based civil servants.
   iv.       The attitude that a future Government may take to public private partnership is
             unknown. The procurement process is unfamiliar, and fraught with risks that the
             contract may be judged to be too expensive or unenforceable. Civil servants are
             already showing signs of extreme nervousness about being associated with any
             procurement that could attract criticism (hence the long delay in procuring JE

The implication is that, although MOHP can push on with service delivery, some aspects of
the reform agenda may need to be put on hold pending resolution of the political uncertainty.

If there is a peaceful settlement, there could be a real opportunity to scale up support to the
health sector, especially if the new Government is committed to social change, and to creating
the space for real decentralisation to institutions accountable to local communities.

4. Suggestions on External Development Partner Support
4.1 Pooled Funding
Pooled funding has not resulted so far in additional funding for the health sector. This is a
serious risk to the long term sustainability of this funding source. The current design based
on re-imbursement of percentage shares is difficult to manage for those donors who manage
their expenditure on a disbursement basis, and will add unnecessary complications for
donors wishing to join or to increase their contributions to utilise ‘windfalls’ of unexpected
additional funding. There could be merit in re-examining the JFA, in order to:-
   Define a threshold level for the GON financed contribution. This could be based on
    actual GON financed expenditure in 2003//4, the last pre-NHSP year, possibly adjusted
    to the equivalent value in 2006/7 prices.
   Define the contribution of each donor in terms of a maximum annual cash disbursement,
    subject to the combined total of donor contributions being less than or equal to 100% of
    the increase in HMGN budget expenditure compared to the 2003/4 baseline (excluding
    non-pool donor contributions).
   Donor funding could be paid at least two trimesters in advance, and can be carried
    forward across budget years if not fully utilised, with the commitment for the following
    period adjusted accordingly.
   The JFA more generally could be re-visited in order to attract more donors through the
    process described in the next section and in Annex 4.

4.2 Technical Assistance
We were specifically asked to consider the implications of our review for the DFID financed
technical assistance to the NHSP-IP. Our review was timely: the consultancy team were in
the inception phase, beginning to hold discussions with MOHP and EDPs in order to update
the proposal in the light of current circumstances, and prepare an initial work plan.

The proposal envisaged support from a team of long-term resident advisers in areas
     Health economics and financing;
     Social inclusion;
     Service delivery;
     Institutional reform;
     Public private partnerships;
     Decentralisation.

Need for a Flexible Approach
The approach set out in the proposal and confirmed in the contract is very deterministic:- all
activities are programmed, and the consultants are held personally responsible for delivering
specific ‘outputs.’ This approach is inappropriate. The success of the technical assistance
does not depend on deliverables that the consultants control. The number of reports, training
courses, and workshops that are produced are largely irrelevant. The value of the
consultancy is the building of sustainable capacity within MOHP, and successful
implementation of processes of institutional change and policy reform that require careful
negotiation. The consultants can not determine either the pace or the extent of change with
respect to these less easily defined outputs.

A rigid plan is particularly unhelpful in the current fluid situation, when the political
uncertainty makes it difficult to make progress on the major reform areas. It will be essential
for the technical assistance programme to be opportunistic and flexible, taking advantage of
opportunities to make progress as and when they occur, often by drawing in short-term
resources. This suggests the need for a reasonably sized contingency of unprogrammed
technical assistance funds that can be drawn on in order to meet needs or take advantage of
opportunities that could not have been anticipated.

Capacity Building in MOHP
A critical objective must be to develop the ownership and trust of MOHP. There must be no
suspicion that the consultants are responding to an agenda that has been determined by the
donors. DFID need to stand back, ensuring that their contacts with the consultancy team are
conducted indirectly via MOHP, the client. With the exception of necessary contractual
discussions, bilateral DFID-consultant discussions should be avoided.

The consultants will be unable to build sustainable capacity in the absence of a team of
committed and trainable staff with whom they can work. It has proved difficult to recruit and
retain analytical and policy staff to work within MOHP:- the health economists that were
trained with earlier DFID support to HEFU have all left, there is effectively one person
dealing with the whole of the policy reform agenda, and scattered and poorly coordinated
responsibility for organisational change. There is no alternative to building policy and SWAP
management capacity within MOHP, probably by strengthening the reform unit, but it may be
easier to establish policy analysis capacity within a resource centre outside the Ministry.
There are many examples around the world of resource centres providing services to central
Government under a variety of different contractual arrangements. A University environment
offers major advantages for a health economics unit, for example, providing opportunities to
link policy analysis to teaching and research, and a natural source of new recruitment to
manage staff turnover. There may also be advantages in linking the broader task of
designing and delivering capacity building across the system to an institutional home with
acknowledged expertise in training. Obviously, the resource centre relationship requires
mutual trust and respect and a willingness to work together, and can be easier to manage if
both partners are within the public sector. An early task for the consultants could be to work
with MOHP to explore innovative institutional arrangements for building sustainable capacity
that will outlive the consultancy support.

Some Suggested Priorities
In terms of priorities for the consultancy, there are three specific tasks that could be
accomplished in the next six months, and that would make a major contribution to building
the sector wide approach:-

i.     Detailed examination of the causes of low disbursement. This would involve
       identifying every stage in the planning, budgeting, fund release, disbursement,
       reporting, and accounting cycle, checking where the delays are occurring, and what
       can be done to speed up the process. This needs to look at all levels of the system
       from MOF, NPC, MOHP and DOHS down to sub health post, and at all funding
       routes including the utilisation of GON, pooled fund, and EDP resources. A
       preliminary analysis should be completed in time to inform the JAR.

ii.    Support progress towards sector wide working by ‘mapping’ where EDP funds to
       health are used at present and how they are managed, and facilitating discussion of
       what would be required in order to ensure that all funding is helping to finance the
       NHSP-IP, and that real progress is made towards alignment with GON financial
       management systems. Outline terms of reference, based on an approach that was
       used with some success in the education sector in Rwanda and Kenya, are at Annex

iii.    In order to build the necessary confidence to encourage EDPs to rely on MOF
       financial systems when supporting the education sector, development and
       implementation of proposals for independent sample verification of the reliability of
       physical and financial reporting. Annex 4 provides outline terms of references
       adapted from those that are used for the similar exercise that is undertaken to
       support the joint annual reviews in the education sector. The MOES originally
       envisaged undertaking the exercise twice per year, for presentation at the JAR
       meetings. For NHSP-IP, we would suggest an annual exercise, normally timed for
       the results to be presented to the November Annual Review., in time to influence
       commitments for the following year’s budget. For the first exercise, if feasible (and
       the timing is tight), there would be merit in trying to accelerate this timetable in order
       to influence the May meeting when donor commitments for 2007/8 will be finalised.

Overall Management of Technical Assistance
The DFID funded technical assistance is just one from a number of sources of technical
assistance and capacity building support made available to MOHP, much of it at programme
level (including substantial DFID-funded support to safe motherhood), but with donors also
offering technical assistance at policy level. On one hand, donors can usually secure MOHP
acceptance for studies that EDPs wish to finance (the current report being a case in point).
There are dangers of poor use of funds and of duplication. On the other hand, MOHP have
faced difficulties in commissioning local consultancy support using GON procedures that are
time consuming and often fail to obtain good proposals for the terms offered.

One approach to overcoming these problems that has been used with varying degrees of
success is to establish a pooled technical assistance fund. A purist might argue that such a
fund is unnecessary:- any required technical support can and should be budgeted in the
same way as other expenditures, and financed from HMG and sector budget support. The
main problem with this approach is that public finance management procedures have shown
themselves to be particularly inflexible with respect to consultancy. This might argue for
public finance management reform, but there is a catch 22 that the unreformed system is too
inflexible to recruit the necessary technical assistance to reform it. It is reasonable to argue
that lack of sustainability of parallel systems is of limited concern when the system is being
used to procure one-off support to change management rather than expenditures of a
recurrent nature. A possible model for a technical assistance fund might have the following

   i.      MOHP produces an annual capacity building or technical assistance plan to
           accompany the AWPB. This would identify technical assistance needs and
           targets for the coming year. It would need to retain some contingency provision,
           perhaps by organising around areas where results are expected without pre-
           determining how every last rupee will be used. It would be discussed with and
           approved by funding donors.
   ii.     A technical assistance fund is established to finance the annual technical
           assistance plan, financed by pooled contributions from interested donors. MOHP
           would have discretion to utilise the fund for any technical assistance activity that
           supports the NHSP, subject to the quality control provisions in iii and iv below,
           and subject to preparing an annual report showing progress, explaining the
           rationale for deviations from the TA plan, and rolling forward the plan to the
           coming year.
   iii.    A managing agent is contracted to manage the fund, taking responsibility for
           procurement, recruitment, contractual arrangements, logistical support, and
           reporting and accounting. On the assumption that some parallel TA is likely to
           continue, the agent could also be given responsibility for advising MOHP on
           coordination of TA, including identifying pool or non-pool sources for financing
           activities identified in the plan.
   iv.     A small steering committee of MOHP staff supported by members nominated by
           the EDPs would supervise the agent and exercise quality control, approving
           terms of reference and contracts. To ease management, this could be a ‘virtual
           committee’, commenting by e-mail, approving on a ‘no objection’ basis, and only
           meeting as necessary to resolve disagreements.

5. Suggestions for the Joint Annual Review
We have deliberately decided not to add to the long list of recommendations, but we have
some suggestions for the conduct of the review, and for policy issues that should receive

Focus on a Limited but Achievable Reform Agenda
The most important suggestion is that a way needs to be found to focus attention on a
limited agenda of reforms that could reasonably be accomplished in the six months before
the next ‘eve of budget’ joint review. Our suggestion is that MOHP be invited to propose to
the review what that limited and achievable list of actions should be, consulting with DoHS
and possibly with donors providing critical technical and financial support in order to ensure
that the proposed actions are achievable.

Address Causes of Low Disbursement
The most important single constraint on the NHSP-IP is in our view the low rate of
disbursement. MOHP needs to demonstrate that it is capable of utilising increased funding
before it can make a strong case to Ministry of Finance or to EDPs. We strongly recommend
that an immediate task for the technical assistance advisers should be to support MOHP in a
detailed review of where the bottlenecks in disbursement are occurring. There is a strong
case for completing at least a preliminary analysis before the JAR, and making the findings
and recommendations a key focus of the review.

Supplementing MOHP Capacity
We propose that the review should also give serious consideration to alternative routes to
building sustainable capacity within MOHP. Resource centre arrangements might be one
way to give sustainable access to capacity in such areas as health economics, public private
partnerships, technical support to procurement, and the development and implementation of
capacity building programmes. The most appropriate partners would need to be considered,
but the institute of medicine might be a possible partner for technical support, and the staff
college for support to human resource development. The newly appointed technical
assistance team could be tasked with facilitating MOHP to review the options and develop

Clarity on EDP Commitments
As was originally envisaged, we suggest that the pooled fund donors should take necessary
measures to enable them to come to the JAR with a clear statement of their future pooled
fund disbursement, preferably covering the three year MTEF period 2007/8- 2009/10. There
is a case for considering a simpler pooled fund arrangement, with commitments in cash
rather than as a percentage of total budget spending. This will make it easier to
accommodate additional commitments from new donors without complex calculations,
especially if new donors enter the arrangement with ‘earmarked’ pooled funding. It will also
make the donor commitment easier to manage from a budget perspective, and may make it
less subject to being cut.

Non pool donors should also be asked to update MOHP regarding their future funding
intentions, preferably liaising with NPC to provide information in a form permitting inclusion in
the White Book of sources and in the Red Book budget estimates..

Focus Resources on Service Delivery Priorities
A frequent, and often justified, criticism of sector wide approaches is that they focus
excessively on the management of disbursement, and give little attention to what the funding
is intended to achieve. Although NHSP-IP sets out a clear vision of how the impact on health
outcomes is to be achieved, the discussion in the partners forum has tended to focus on
process issues, while the discussion of service delivery and content has been mainly
conducted at the programme level. The JAR could be an opportunity for a discussion of
service delivery priorities over the next three year period, linked to presentation of figures on
the likely funding envelope over the coming MTEF period. In addition to the existing
‘baseline’ of commitments and existing plans to roll out services such as CB-IMCI to more
districts, there may be scope for further extending the services offered, and a discussion
needs to take place on where those additional resources can have most impact. There have
been proposals to develop and extend interventions for reducing newborn mortality, based
on scaling up promising pilot experiences, but there may be other candidates. The SWAP
could add real value if it helped to focus the growth of Government and donor spending on
credible plans for maximising progress towards the MDGs.

Start A Process For EDP Alignment
The JAR may wish to endorse our proposal for a study mapping EDP support, linked to a
facilitated process to explore the prospects for moving towards more donor alignment behind
the NHSP and GON systems (Chapter 4 and Annex 3).

Verification of Financial and Performance Data
Linked to this, we propose a confidence-building annual review to track financial flows and
verify physical progress to a sample of health institutions, based on the independent reviews
that are being conducted to support the education SWAP (Annex 4).

6. Overall Assessment
The results achieved in very difficult circumstances are good enough to justify the funds
disbursed. Our judgement is that GON remains the best route to support health. This does
not mean supporting a monolithic State health system, which would be absurd in a country
where 70% of health expenditure represents out of pocket spending by households. The
NHSP envisages the state focusing on financing a basic package of public health
interventions with a strong rationale for Government subsidised or free provision, using a
range of public and non-public agents to deliver them, while services beyond the basic
package are privately financed with minimal state subsidy. This remains appropriate.

Nepal’s progress towards the MDGs will be limited by the constraint of less than $5 per
capita public spending on health. It would be foolish to deny the challenges of achieving
results through supporting Government health spending in Nepal, but the quality of policy
and plans, the achievements to date in difficult circumstances, and the undoubted need,
would justify increased commitments by GON and donors when the political & security
situation permits. Recognising the need to make faster progress on the reform agenda, any
promise of scaled-up aid could reasonably be made contingent on prior implementation of
commitments to reform, especially decentralisation and stronger local accountability. It also
requires evidence that the disbursement constraint is being overcome.

References (partially annotated)
Cockcroft Anne, World Bank Nepal Office, The citizen voice in health services in Nepal, Review
of existing data sources and description of a social audit to track health service reforms

Department for International Development and World Bank, Unequal Citizens, Gender Caste
and Ethnic Exclusion in Nepal

From the long version of the same report, Chapter 11, Improving Access for Women Dalits and
Janajatis in Nepal’s Sector Wide Health programme,

Development Consultancy Centre (DECC) (2006), Draft Report on the Vertical Function
Analysis of MoHP

Devkota, Dr Madhu Dixit (2005), An Assessment of the Impact of Conflict on Delivery of health Services,
Nepal health Sector Programme, June.

Government of Nepal (2006), Ministry of Education and Sports, Technical Review of School
Education, Draft Final Report

Government of Nepal, Department of Health Services, Annual Report 2004/5

Government of Nepal, Ministry of Finance, Estimates of Expenditure for Fiscal year 2006-07

Government of Nepal, Ministry of Finance, Estimates of Expenditure for Fiscal year 2005-06

Government of Nepal, Ministry of Finance (2006), Budget Speech of Fiscal year 2006-07

Government of Nepal, Ministry of Finance (2006), IFMS and Financial management Information
Action Plan

Government of Nepal, Ministry of Finance (2005), Public statement on income and expenditure
of the fiscal year 2005-2006

Government of Nepal, Ministry of health and Population, A survey of availability, distribution,
use and management of drugs, vaccines and medical supplies in Government health facilities,
Full Bright Consultancy (Pvt) Ltd, July 2006

Surveyed 75 facilities, all 5regions, 3 districts in each, 5 facilities. Average sanctioned posts 6.2
per facility, of which 5.5 currently working.90% of posts are filled in terai, 84% in hills. 72% of
staff are health personnel. On average, PHC staff attended 265 patients in last month, mountain
and Terai the numbers are even lower, 405 per staff in FWDR. In HPs, 1 staff is attending to an
average 44.5 patients per month nationally, (26 mountain, 35 hill, 66 terai.). At SHP, numbers
per staff are 31, 73, 57.

Stocks to annual consumption 95% at survey time, essential drugs 83%, contraceptives 48%,
key commodities 28%, vaccine 11%.

Under stock: ORS, saline, vaccines (but can’t store)

Moderate (4-14months): contraceptives, vit a, iron tablets, antibiotics, ibuprofen,
Gloves syringe etc

Pull system introduced in CDP areas only. Push system, they get drugs as per quota. Demand
based on stock out, last year supply, last year demand. They do not always get what they
demand, 10 from 75 ordered more than they need in expectation of cuts. .RMS and DPHO
supply. PHC consumes 48% of the distribution of health commodities, HP 34%,
SHP18%.Problems in stock management & record keeping.

Government of Nepal, Ministry of health and Population, Nepal Health Sector Programme –
Implementation Plan 2004-2009

Government of Nepal, Ministry of health and Population (2006), Business Plan for the health
Sector, FY 2006/7-2008.9

Government of Nepal, Ministry of health and Population (2006), Annual Workplan and Budget
for FY 2006/7 (draft)

Government of Nepal, Ministry of health and Population, Nepal health Sector program, Progress
report, 1st Trimester 2062/63 (2005/6)

Government of Nepal, Ministry of health and Population, Nepal health Sector program, Progress
report, 2nd Trimester 2062/63 (2005/6)

Government of Nepal, Ministry of health and Population, Nepal health Sector program, Progress
report, 3rd Trimester 2062/63 (2005/6)

Government of Nepal, Ministry of health and Population, Nepal health Sector program,
Implementation Progress Report, Fiscal year 2004/05

…LMIS has info on 28 program commodities and 56 essential drugs to help LMD make an
estimate of future procurement…2004/5 stockout rate for key family planning commodities was
10%, 10-52% for listed drugs (when, how defined?)..unfamiliarity in doing procurement plan this
1st year, late disbursement from pooled fund…none of the procurement works were carried out
2004/5…(refers to health goods, including drugs, vaccines, contraceptives, furniture, biomedical
& other equipment…pool fund reached forex account at end of year, some confusion as to
apportioning pool fund spending and ..orientation of program and mid management on SWAP
was not done…lack of understanding on procurement plan and IDA prior review
documentation…Govt paid cost of pool donor spend to begin with, later on it was agreed to
charge the 15% of total health sector expenditure as pool donors contribution. T1 and T2 was
charged as % of Red Book, T3 adjusted and charged as 15% of total expenditure. A 20%
pooled fund share agreed for 05/6 of which 4% DFID, not earmarked. .

Government of Nepal, Ministry of health and Population, Operational Guidelines on Incentives
for Safe Delivery Services, Unofficial Translation, 2005

Government of Nepal, Ministry of health and Population, (2006), Piloting of performance-based
management system in MOHP

Government of Nepal, Ministry of health and Population, Policy paper on Health Sector, 2004
Government of Nepal, Ministry of health and Population, medium term expenditure program
(MTEF) to operationalise 1st three years of 10th five year plan’s health programmes 28 January

Comments that health budget increased, but could not disburse above 65% in recent years
because ’district accountants cannot submit the statements of expenditures as required’ to
donor agencies, leading to low EDP disbursements. In 2001/2 expenditure of 5190mn NRs,
priority 3 was 1215, priority 2 is 665, =36%. Commitment to introducing a common FM reporting
framework for all EDPs based on steps taken in sub-sector TB, leprosy, and reproductive health
programs. The MTEF looks towards integration of vertical programs. It comments that donor
projects have usually not become sustainable, that easy money may be part of the problem, and
requests that donors should provide their resources within the GON financial framework,
facilitating capacity to do so.

Government of Nepal, Ministry of Law, Justice and parliamentary Affairs, Local Body (Financial
Administration) regulation, 1999

Financial responsibility rests with the VDC secretary, monitored by the chairman. Spending has
to be within the budget, and within monthly allocation received. Unlike national budget, there is
provision for carry-over with MOF approval, amounts and categories to be agreed between
ministries by November. Foreign grants can be spent if the amounts have been received
(unclear if need to be within the budget, it does not seem to say so, though projects do have to
be formally approved). Monthly and Trimester statements of income and expenditure to VDC,
and have to be displayed on VDC notice board. Pre internal audit by internal audit section if
amounts are above NRs 25,000. Some 60 separate books of accounts are required to be kept,
formats are prescribed. Procurement regulations and thresholds are specified. Spending from
local revenues is reported and accounted for to MOLD. Income is reported by source, identifying
foreign source by name in accounts. Budget is given by sector, it is not clear if expenditure is
reported by sector, it seems to be by line item and department.

Family health Division, Department of health Services, MOHP. Information Kit and Fact Sheet.
Fact sheet on subsidy scheme for attended delivery. The estimated cost of a normal delivery is
NRs 5000, a C section costs 11000. Total cost of the programme is 158mn in 2005/6 growing to
224mn by 2009/10

Institute of Child Health, University of London, Maternal Health Cost-Sharing Scheme in Nepal,
Evaluation Protocol, August 2006

Borghi Jo, Tim Ensor, Basu Dev Neupane and Suresh Tiwari, Nepal Safer Motherhood project,
Coping with the burden of the costs of maternal health, April 2004

In hospitals, patients pay admission charge, lab tests, X-rays, single room supplement in
advance, .op theatre, delivery, bed charge sometimes on discharge. Price lists are for each
item, so the patient does not know the total cost. Ad hoc exemptions, the household survey
says most patients pay, staff interviews for the study say more exemptions are provided. In 2
zonal level hospitals, user charges finance 26% and 39% of total expenditure.

Options Consultancy Services, February 2006, Status Report of Cost Sharing Scheme for Safe
Delivery Services.
Initiated in 38 districts, 24 have distributed incentive to women, though shortage of funds has
prevented many from providing intended incentives to SBAs. Institutional deliveries increased
by 30% (raising the percentage of expected pregnancies by 3.5%) in Q1 2005/6 c.f. the
previous year. Implementation started June 05, cost 163mn in 2006/7 rises to 224mn by 09/10.
Some 12,200 mothers benefited, though many expectant mothers are still unaware of the

Nepal health Sector Program, Program Status Report, January 2006

OCHA Nepal Situation Review Issue No 5 July Kathmandu 11 August 2006

Author (unknown, not stated but presumably authors of ‘Unequal Citizens, op cit), Presentation
on Gender and Social Exclusion Assessment, conceptual framework and some key findings on
poverty and health outcomes, April 16 2006, PowerPoint presentation

Jagadish C. Pokharel, PhD, Surya Saran Regm, Usha Pokhare, Sharmila Ghimire. Report on
Health Service Decentralization in Nepal, Prepared for: Department for International
Development (DFID) Nepal, May 2006.

UNICEF, Situation of Women and Children in Nepal, 2006

Verulam Associates (December 2004), Proposals for the Planning and Review Cycle, Nepal
Health Sector programme

Whaites, Alan, DFID, Fiduciary Risk Assessment – Stock Taking Exercise, Nepal, march 2006

World Bank Report No. 29651-NP, Project Appraisal Document on a Proposed Grant to the
Kingdom of Nepal for a Health Sector Programme, August 4, 2004

‘FCHVs acknowledged as the prime contributors to the success of programmes such as
measles vaccination and Vit A distribution which has been regarded as the most effective in the
developing world…reaching out to 3.3 million children under 5 in all 75 districts…poor families &
those in remote locations have more trust in FHCVs…Half of LHMC members are female, there
is representation of lower castes which is progressive

Vaux, Tony, Alan Smith, Sirjana Subba, Education for All, Nepal: Review from a Conflict
perspective. March 2006.

Annex 1 Status of Agreed Policy Reform Milestones
  Policy Reform                      Year 3                                                                                              Year 5
                                     Mid Term (2006-07)                                                                                  End of NHSP (2009)
  MOHP lead the                      Target                                            Actual                                            NHSP Successfully
  implementation of the Nepal                                                                                                            completed and follow on
  Health Sector Strategy 2002        MOHP leads Mid Term Review of NHSP and            MOHP leads the Annual Reviews, but                phase of program support
                                     Annual Review of Health Sector Strategy.          constrained by major capacity problems in         for the Health Sector
                                     Agreement over expansion of NHSP in areas         MOHP, the Year 1 target to overcome critical      Strategy in place
                                     where success has been achieved and               understaffing problems in HSRU and HEFU
                                     process for preparing next phase of program       not achieved. MTR plans may need to await
                                     support agreed                                    political resolution.
  MOHP establish a new               Health Sector Development Partner Forum           A ‘Statement of Intent’ was signed February       Expansion of harmonization
  partnership relationship with      operational; system of joint annual reviews in    2004, no EDP ‘code of practice.’ The              at the financial modality
  Health Sector EDPs based           place; and an action plan to implement the        principle of developing a prioritised spending    level with increased
  on the Aid Integration             Statement of Intent 2004 together with a          framework based on the estimate of financial      programmatic financial
  Process adopted at the             Code of Practice for EDP operational              resources likely to be available has not been     support
  Nepal Development Forum            procedures. Full harmonization at the             achieved. A large share of donor activity still
  2004                               program level with joint planning, review and     not captured in GON plans and budgets, and
                                     reporting lead by MOHP and a single annual        both pooled fund and other EDP
                                     work plan and budget for the sector               disbursements have fallen far short of
                                                                                       commitments. DFID failure to provide
                                                                                       promised pooled funding undermines
                                                                                       planning and budgeting. DoHS and EDP
                                                                                       staff say SWAP has not significantly
                                                                                       changed pre-existing joint planning of
                                                                                       national and vertical programmes.
  Equity based resource              Year 1: Plan for phased implementation with       No progress on resource allocation, still         75% of facilities at District
  allocation (human and              staffing norms, equity based resource             based on health facility norms taking little      level and below have
  financial) to District level and   allocation, and capacity building agreed          account of population or poverty. Based on        appropriate staffing mix and
  below to support EHCS              Poverty related health indicators agreed          those norms, two thirds of facilities are said    are able to provide
  implementation to ensure           Year 3: 50% of facilities at District level and   to have the appropriate staffing mix.             Prioritized elements of
  improved access to the poor        below have appropriate staffing mix and are                                                         EHCS
                                     able to provide Prioritized elements of EHCS
  Devolution of the entire           All key management functions delegated to         Elected bodies not in place, so has not           Management fully de-
  health system through              Regional level; District level models in place    happened.                                         concentrated to District
  decentralization to local          Decentralization implemented in partnership                                                         level operational in at least
  bodies and de-concentration        with MOLD and respective DDCs and VDCs                                                              30 Districts
  of MOHP management                 (subject to elected bodies being in place)                                                          Decentralization process
                                                                                                                                         reviewed and evaluation of
                                                                                                                                         support needs to ensure
                                                                                                                                         equity and pro-poor focus

Policy Reform                    Year 3                                                                                           Year 5
                                 Mid Term (2006-07)                                                                               End of NHSP (2009)
A mixed economy of health        Year 1:                                          Little progress on PPP. Committee               All tertiary level facilities
provision; MOHP adopting a       Mechanisms for dialogue with all                 established and met once. Support to NGOs       contracted out
new public sector role with      stakeholders established (private sector,        not captured in sector plans. Two district      At least 10 District Hospitals
an enabling and quality          NGOs, civil society, and local elected bodies)   hospitals contracted out (1 preceded NHSP).     operating autonomously; at
assurance role particularly at   EDP and other support for NGOs and civil         More progress on hospital autonomy, 51          least 5 district hospitals
secondary and tertiary           society included in sector planning Year 3:      operating with hospital boards including 17     under management contract
levels.                          Contracting out of tertiary level facilities     district hospitals, though degree of autonomy   with NGOs / private sector.
                                 At least 5 District Hospitals operating          varies and guidelines are needed.               Partnership working
                                 autonomously                                                                                     established at all levels
                                 Partnership models established with NGOs,
                                 private sector and community based
MOHP structures, planning,       Year 1: Approval of plan for restructuring of    Consultants working on plan for MOHP            District based planning,
budgeting, and performance       MOHP at all levels, clarifying the roles         restructuring. No progress in other areas       budgeting, performance
management re-structured to      Ministry and Department, Region and District;                                                    management, quality
reflect and effectively          removing vertical management and                                                                 assurance and monitoring
implement the Sector             emphasizing support and servicing role to                                                        established in at least 50
Strategy                         decentralized service delivery and de-                                                           Districts.
                                 concentrated management of the Sector                                                            Regional Directorates,
                                 Strategy outputs                                                                                 Department of Health and
                                 Year 3: District based planning, budgeting                                                       Ministry have appropriate
                                 and performance management system                                                                staffing and skill mix for
                                 developed                                                                                        their respective roles to
                                 Regions and Centre restructured including                                                        further implement the
                                 new Human Resource, Information and                                                              Health Sector Strategy
                                 Communications; and Partnerships functions.
                                 Human Resource Development Policy
                                 finalized and resource implications
                                 incorporated into the MOHP budget.
Proportionate shift in           a) Phased reduction in tertiary level            a) Done for FY 2004/05 budget, further          Expenditure on P1:P2:P3
expenditures from secondary      expenditure agreed                               reduction in 2006/7, central zonal and          categories moves towards
and tertiary to EHCS and         b) Plans for increasing autonomy of District     regional hospital budget down from NR1.9bn      70%:20%:10%
proportion of total HMGN         level hospitals agreed                           in 2005/6 to NR1.65Bn in 2006/7, 17.9% of       Spend on EHCS 70%
budget allocated to health       c) Proposals for PPP management of tertiary      the total. EHCS already 70% in 2006/7. Of       Proportion of HMGN budget
increased over the lifetime of   hospitals agreed                                 the 71% of MOHP budget shown as                 allocated to MOHP reaches
the Health Sector Strategy                                                        allocated, P1:P2:P3 shares 76%, 18%, 6%.        7%
                                                                                  Health share of budget (6.4%) on target.        Of MOHP recurrent budget,
                                                                                                                                  35% allocated to non salary
                                                                                  b) Not done                                     costs

                                                                                  c) No progress on PPP

Rating scale: A= consistent with good practice principle B=some improvements required to be consistent with good practice C= major weaknesses
Arrows indicate improving (), deteriorating, or no change.

Annex 2: Fiduciary Risk Matrix
Good              Practice Benchmarks                           for Rating Current situation                                                                   Risk     mitigation
Principle                  Assessment                                                                                                                          measures

1. A clear set of rules        1. A budget law specifying fiscal    A      The budgeting and financial management system is governed by the
governs the budget process     management responsibilities is in            constitution and by relevant legislation, and is clearly described in three
                               operation                                    operational documents: the Budget Formulation Guidelines, Financial
                                                                            Administration Regulations, and Local Government Financial Administration
                               2. Accounting policies and           B      A possibly over-elaborate system of account codes is applied. Monthly
                               account code classifications are             financial reporting reconciled to bank statements is required in order to
                               published and applied                        support requests for reimbursement of treasury accounts. High but reducing
                                                                            percentage of irregularities in health sector (8% of spending in 2004/5).

2.   The     budget       is   3. All general government            B      In the health sector, the budget is comprehensive apart from:-
comprehensive                  activities are included in the               i. An unknown share of donor support is delivered via parallel routes and is
                               budget                                       not captured in Government accounts, leading to distortions in resource
                                                                            ii. Locally raised revenues from fees, drug funds, local authority contributions
                                                                            are not routinely reported.

                               4. Extra budgetary expenditure is    B      Public expenditure is defined as the subsidy from central Government.
                               not material                                 Health institutions, especially the tertiary and secondary hospitals, finance a
                                                                            significant share of their operating costs from user charges. Lower level
                                                                            facilities collect fees for service and drug sales. Although these revenues
                                                                            and the expenditure they finance is not captured in the national budget, it is
                                                                            accounted for and audited in the accounts of the relevant institution.
3. The budget supports pro-    5. Budget allocations are broadly    B      Budget allocations reflect the priorities of the agreed NHSP. 70% of
poor strategies                consistent with any medium term              expenditure is on an essential health care package that reflects international
                               expenditure plans for the sector             consensus on the most cost-effective health interventions, A far lower
                               or for the overall budget.                   proportion of the budget is spent on curative care than in many low income
                                                                            countries, (made possible by the positive aspect of off-budget cost recovery
                                                                            at that level). The main reservation is that the geographical allocation does

     The symbols indicate trajectory of positive progress (), no progress () and negative progress ().
Good             Practice Benchmarks                            for Rating Current situation                                                                 Risk     mitigation
Principle                 Assessment                                                                                                                         measures

                                                                            not reflect differential needs, while charges limit access by the poor to
                                                                            curative care, though addressing the issue would require higher funding.
4. The budget is a reliable    6. Budget outturn shows a high       C      A persistent problem of low budget outturn, particularly for donor support
guide to actual expenditure.   level of consistency with the                using parallel channels, though GON disbursement is also around 80%.
                               budget.                                      More positively, under-spending of budget has not been associated with
                                                                            distortion of priorities.

5. Expenditure within the      7. In-year reporting of actual       B      Budget releases at all levels depend on monthly reporting of expenditure and
year is controlled.            expenditure.                                 ‘output’, with funds withheld if reports are not received or if output is less
                                                                            than 80% of budget. The detailed system of control makes it difficult to fully
                                                                            utilise the budget, especially when funds are released late.
                               8. Systems operating to control      B      Virement controls are in place and probably too inflexible (e.g. reports of      Integrated financial
                               virement, commitments and                    centrally set fuel budgets constraining output on key service delivery           management system to be
                               arrears.                                     programmes). No reported problem of commitments exceeding budget                 implemented from 2007/8
                                                                            ceilings, pre-audit system effective in preventing commitments for which
                                                                            there is no budget provision.
6. Government carries out      9. Appropriate use of competitive    C      Procurement is over-centralised (e.g. procurement of furniture for districts     New procurement law is
procurement in line with       tendering rules and decision-                that then sat in store), with problems of quality control, and some risk of      compliant with WB practice.
principles of value for        making is recorded and auditable.            corrupt influence on contract award, though the current political climate has    (?) Technical support to be
money and transparency.                                                     generated the opposite problem of reluctance to award any contracts that         procured.
                                                                            could attract criticism. Pooled donor support has required procurement plans
                                                                            and scrutiny of contracts valued at more than X, which should improve
                                                                            practice, but has occasioned delays due to unfamiliarity and lack of capacity
                                                                            in writing acceptable specifications. MOHP will need support in innovative
                                                                            procurement, e.g. for private public partnership contracts.

                               10. Effective action taken to        C      The well regarded OAG identify irregularities in MOHP equivalent to 8% of        OAG has been given
                               identify and eliminate corruption.           total expenditure, but only 2% of this represents financial loss to GON, half    authority to refer cases of
                                                                            of which has since been recovered. The rest relates to errors that reflect       misappropriation for
                                                                            lack of skill or motivation rather than attempted fraud. Action is taken to      investigation.
                                                                            discipline staff. Cases of corruption are referred to CIAA, and staff perceive
                                                                            the risks of being suspected of corrupt practice as relatively high. A more
                                                                            serious problem than corruption has been diversion of drugs, vehicles, and
                                                                            supplies by combatants from both sides, a problem we can not quantify, and
                                                                            that has been halted while talks continue.

Good             Practice Benchmarks                        for Rating Current situation                                                                     Risk     mitigation
Principle                 Assessment                                                                                                                         measures

7. Reporting of expenditure   11. Reconciliation of fiscal and     B   Reconciliations are required as part of the system in order to release both
is timely and accurate.       bank records is carried out on a          GON and pooled fund donor moneys. There have been delays in submitting
                              routine basis.                            financial monitoring reports, reflecting lack of capacity and the problems of a
                                                                        system that is not yet fully computerised down to district level.
                              12. Audited annual accounts are      B   Audited accounts for 2004/5 have been completed, not yet published
                              submitted to parliament within the        pending legislative approval for their submission to the prime Minister rather
                              statutory period.                         than, as previously, the King.
8. There is effective         13. Government accounts are          B   The OAG is regarded as professionally competent and independent.2004/5
independent scrutiny of       independently audited.                    audited MOHP accounts submitted on time to pool donors.
government expenditure.       14. Government agencies are          C   The SWAP has focussed more attention on central MOHP and DOHS
                              held to account for                       performance. Service delivery results are in some respects very good, for a
                              mismanagement.                            system spending less than $5 per head and faced with very difficult terrain
                                                                        and political turmoil. Problems of absent and poorly motivated staff are
                                                                        endemic, may have improved as a result of scrutiny by the Maoists, and
                                                                        following formation of LHMCs and handover of health posts. Good reporting
                                                                        from all levels provides a framework that could be used for performance
                                                                        management, but currently is not. Lack of accountability to democratic
                                                                        institutions and lack of progress on social audits and decentralisation is a
                                                                        constraint on effective performance management.
                              15. Criticisms and                   B   OAG attempts to follow up audit reports, writing to the relevant Secretary in
                              recommendations made by the               advance of publication of the report. It is reported that action is usually taken,
                              auditors are followed up.                 encouraged by publication of OAG reports, and possibly including demotion
                                                                        or dismissal. OAG now have the authority to refer cases for investigation by
                                                                        the scrutiny bodies such as CIAA. Plans to move from compliance to
                                                                        performance audits are at an early stage, but OAG has undertaken
                                                                        performance audits of the block-grant funded tertiary institutions, and plans
                                                                        to focus on HIV/AIDS and public private partnership in 2006/7.

Annex 3: Generic TORs For Assessing Funding Arrangements
It has been agreed by Government and External Development Partners that future support
to the health sector will be based on the program as described in the Government National
Health Sector programme – Implementation Plan.

At present, the programme has a number of sources of funding. Government finance uses
Government systems as described in the Financial Administration regulations to disburse
and account for the funds. Pooled funds are also disbursed using Government systems, but
with some additional requirements relating to procurement and to financial and performance
reporting. EDP support to projects and programmes also finance part of the expenditure
programme, but subject to specific agreements and procedures differing in some respects
from those of Government. There are also EDP and INGO expenditures supporting public
expenditures on health, but not forming part of the Government plan for the sector:
Government wishes to ensure that all future project commitments for financing public sector
health spending are used to finance activities drawn from the NHSP-IP, and reflected in the
Annual Budget and Work Plan.

The objective of the consultancy is to work with Government and donor partners to develop
procedures for future support to the sector that meet reasonable requirements for ensuring
funds are efficiently used for implementing the agreed programme and can be accounted for,
whilst minimising the burden of compliance on Government and development partners. This
will be achieved by, to the extent possible, using Government procedures, while putting in
place measures to increase the reliability of those systems. If additions or deviations from
Government procedures are unavoidable for some donors or some types of transactions,
they should be designed to minimise the costs.

Scope of Work
In order to carry out the exercise, the consultants will review the procedures that are applied
by Government for its own funds and by donors accounting for at least 80% of external
finance of public expenditure in the sector in order to:-
     Compile evidence on the costs and benefits of current approaches used by
       Government and major development partners, to support dialogue on the need for
     Review the procedural requirements and objectives of major development partners
     Review the extent to which these requirements are met, or could be met, by: -
            o Government procedures as presently applied;
            o Government procedures if fully complied with;
            o Government procedures with minor changes or additions;
            o Existing procedures used by the donor.
     Assess what would be required to enable each donor to use Government
       procedures, distinguishing between changes for which there are precedents in other
       countries, and more fundamental changes that would require an agency-wide change
       in policy.
     Make outline proposals for progressing towards increased use of budget support
       using Government procedures, in the form of suggested amendments or additions to
       the Joint Financing Agreement with respect to pooled funding.
     Facilitate discussion and local agreement on a revised JFA for extending the use of
       budget support to incorporate more donors.
      Facilitate discussion and local agreement on a code of conduct for those donors
       unable to comply fully with the procedures set out in the JFA, aiming at minimising
       the costs of deviation from the budget support procedures.
      Local agreement will need to be subsequently finalised with inputs from legal,
       procurement and accounting and audit staff in HQs. The consultant will make follow-
       up inputs to facilitate revision and final agreement in the light of these comments.

Costs and benefits
The starting point for the study will be to review current arrangements by which Government
and donor funds are supplied to the health sector. While recognising the practical limitations
and difficulties in obtaining meaningful information, the aim will be to provide an improved
evidential basis for reaching judgements on the costs and benefits of alternative procedures
for managing donor funds. To the extent feasible with the information that is available or can
be obtained at reasonable cost, the study will examine: -
Commitments & Conditions How donor financing decisions are coordinated with
Government planning and budget processes, and the implications of policy agreements and
conditions for the predictable flow of funding to finance budget expenditures. The review will
cover all of the major routes by which donor funding contributes to public expenditure in the
sector. It will identify any problems of timing of commitment decisions, clarity and
consistency of agreements and conditions between sources of funding, and responsibility for
compliance with conditions, paying particular attention to how compliance is ensured for
conditions that may be outside the responsibility of the MOHP (e.g. budget conditions or
matters delegated to local Government). The scoping study will suggest improvements for
Transactions costs. It will not be possible to quantify costs, but some comparative
indicators should be given to permit assessment of the relative burden of meetings,
missions, reporting, disbursement, accounting, and audit procedures under the different
routes, and of the potential for cost savings from a more harmonised approach based on
Government procedures, for example by closing project implementation units.
Fund flow. Extent to which funds (or physical supplies if centrally procured) using the
different routes are reaching their intended destination in full and on time, and being used for
the intended purpose.
Cost-effectiveness. Where alternative routes are being used to fund similar activities, what
evidence is there of differences in unit costs? Comparisons should as far as possible include
management overheads, including technical assistance and agency costs, and should take
account of differences in quality or impact when making comparisons.
Capacity and ability to be scaled up to meet the targets of the strategy.
Accounting and audit. Timeliness and adequacy of accounting and auditing, including any
evidence from audit reports or tracking studies of the extent of misuse or leakage of funds.

The consultant will use this scoping analysis to inform broad judgements regarding the costs
and benefits of the approaches currently in use relative to the use of Government systems.
The aim will be to shed light on the extent to which additional costs of complying with donor
requirements are balanced by an equivalent increase in benefits through, for example,
reductions in waste or misuse of funding, improvements in value for money, improvements in
the quality or impact of activities. To the extent possible, benefits to the donor-funded activity
should take into account the consequences for Government funded activities, for example as
a consequence of diverting Government time to meet donor needs. The study will also
consider whether equivalent benefits could be achieved at lower cost and with greater
sustainability through improvements in Government systems.

Assessing performance
Budget support donors provide their finance in support of Government spending in total or in
the sector, using Government procedures to disburse and account for the funds, and with
donors financing a proportion of the total budget rather than individual transactions. An
agreed set of goals, targets, and indicators is particularly important for those donors

providing budget support, since they can not attribute their funds to specific activities, and
the overall monitoring system for the NHSP-IP is the sole means of assessing the
effectiveness of their funding.

The consultants will:

      [Briefly review with Government and development partners the indicators and
       procedures used in monitoring the program and in progress reporting, including the
       extent to which Government expenditure can be linked to intermediate outcomes.
       This task will as far as possible use Government monitoring and reporting
       procedures, and will include proposals on a process for reducing duplication of
       reporting for different purposes – optional, MOHP may feel existing arrangements
       cover this aspect.].

      Propose a mechanism and procedure for independent verification of performance
       indicators mentioned above, based on adapting the approach used successfully by
       the Ministry of Education ( see next Annex). To the extent possible it should be linked
       to or build on other regular surveys (like general poverty assessments, social audits,
       etc.) which can then accommodate the need for independent, continuous and timely
       assessments linked to the cycle of progress reporting proposed in the MOU.

Financial and Accounting procedures
With respect to the disbursement model and financial monitoring, the tasks include (but are
not necessarily limited to) the following:

      Review of Government financial procedures in order to ensure that the proposed
       procedures in the amended JFA to be developed during the consultancy are, to the
       extent possible, in compliance with them.
      Review of Governments own compliance with these procedures in order to identify
       possible areas that would need special attention and support from donors.
      Review the financial and accounting requirements of major donors, the extent to
       which they could be met using Government procedures, and the progress required in
       designing and implementing improvements.
      Propose measures to strengthen financial management capacity and improve
       compliance in areas as identified in above tasks.
      Propose additional financial safeguards in order to monitor compliance with financial
       procedures, to enable any continuing problems to be identified and remedial action
      Facilitate a process of discussion aimed at achieving local agreement to procedures
       that will permit a significant increase in the proportion of external finance that is
       disbursed and accounted for using Government procedures.
      For those development partners who are providing significant financial support to the
       sector but who are not able to provide budget support, make recommendations for
       changes that could be made that would enable these agencies to move towards
       procedures that are closer to those used by Government and impose lower
       transactions costs.
      Proposed measures under all the above tasks to be reflected in a draft MOU, agreed
       as far as possible between local agency staff, though subject to finalisation based on
       HQ inputs.

The consultant will draw upon the broad analysis of costs and benefits in developing
proposals and in making the case to Government and development partners for changes.
Review of financial procedures will draw upon existing diagnostic work as far as possible.
Proposals for improvements will be coordinated with existing action plans for improving
public expenditure management, and will avoid duplication or inconsistency of approach.

Team Composition
The team members will require skills in facilitation and negotiation, and will develop and
agree their recommendations with MOHP and EDPs in a participatory manner likely to
require a combination of workshops, one to one negotiation, and e-mail exchange. The team
will include specialist skills in: -
      Monitoring and evaluation applied to the health sector;
      Financial management, with experience of similar budget support arrangements,
         donor financial requirements and the financial management system of Government;
      Procurement, with experience of the system and regulations of Government and
         donor agencies;
      [Legal requirements of donors and drafting of similar budget support arrangements].

Annex 4 Outline TOR For Independent Technical review of
NHSP (Adapted from TORs used by MOES)

The objective of the enhanced Technical Review is to provide an independent assessment
of the information produced by the monitoring and reporting system, and to recommend
possible improvements.

The Review will track placement of funds, to what extent the HMG/N implements its policy
and strategic decisions, and has efficient means of delivering the health services without
losing track of administrative governance through reviewing (i) Overall fiscal discipline of the
Government, (ii) Implementation of strategic plans and priorities and (iii) Efficiency of service

The Review will facilitate further development of monitoring and analytical capacities for
health planning at central and district level through innovative approaches and improved

Scope of Work

The scope of work entails assessment and consistency check of information produced by
the monitoring and reporting system with regard to:
     Financial progress of the programme, including overall financial management and
      transparency, relations between budget and actual school allocations
     reported outputs of the programme
     reported outcomes and processes of the programme

Assessment will consist of:
    Mapping of planned and actual issuance of budget warrants and release of activities
      involving all levels, tracking the flow of funds and the timing (From MoF/FCGO to
      health facilities)
    Tracking of possible deviations and changes from the approved budget and planned
      activities to actual activities, including justifications and remedial measures taken
      (From MoF/FCGO to health facilities).
    Assessment of possible gaps between what should have been received and what
      was actually received, in terms of cash and in-kind supplies (From MOHP to health
    Assessment of output-based reporting to verify reported expenditure data on
      salaries, construction, equipment and supplies against actual staffing, physical
      progress, and stock records.
    Assessment of performance data reported in the IMIS against records and
      observations at facility level.

The assessments will provide information on the problems and challenges in data collection
and presentation, and in programme implementation. It is expected that the Review Team
will suggest measures to improve the monitoring and reporting system.

It is foreseen that in order to obtain more complete picture of, and to suggest feasible
remedies for identified problems and bottlenecks in NHSP implementation, monitoring and
reporting, there is a need to carry out additional, more qualitative case studies. Topics of
these case studies will be identified on the basis of quantitative information collected by the
Review and separate Terms of Reference will be prepared for them.

The Review will be conducted as a survey, based on the stratified random sampling
approach, collecting data from [insert number of health facilities] in approximately [insert
number of districts.] Comment: the MOES reporting collects data from 700-1000 schools in
20 districts. This is considerably more ambitious (and more expensive) than was originally
envisaged. We recommend that the technical review should be conducted on a smaller scale
(the initial education proposal was ‘five districts plus Kathmandu)’, but be annually repeated
with a different geographical and subject focus.

The survey will build on available information produced by existing planning, monitoring and
reporting mechanisms, including the Annual Work-Plan and Budget, the IMIS, reports from
health facilities, DHOs and DPHOs, DTCOs, FCGO, MOHP, and DoHS. Data from health
facilities and communities combined with secondary data obtained from ministries, agencies
and civil society will contribute to a comprehensive picture.

The Review will include an ex-post assessment of procurement.

The Review Team is required to prepare questionnaires for various informants.


The Technical Review will submit trimester reports, feeding into the April and December
meetings. The review reports will include differentiated data with regard to different levels of
the health system. The reports will include a summary that provides an overall assessment
of the quality of data provided by the monitoring and reporting systems, and will
systematically present comparison of information obtained from the system and through the
review highlighting discrepancies, if any. The reports will also present an assessment of the
extent to which the findings of the review can or should be generalised, and propose
measures to improve the monitoring and reporting system.

The reports will be submitted to the Secretary of MOHP, and copied to the Ministry of
Finance and the joint chairs of the EDP partners’ forum, Surveyed districts and health
facilities will also receive feedback reports.

Review team

A team consisting of a lead researcher/team leader, a data analyst and data quality
controller will be contracted to carry out the review.

The team will recruit, train and dispatch groups of local field researchers. The lead
researcher/team leader should have a sound understanding of the school-education system
as well as first-hand experience in survey-based research.

Priority will be given to women and people from disadvantaged groups in the recruitment of
local field researchers.

A Consultative Forum of stakeholders will be established to enhance collection of data, to
assess review findings, and to comment upon analyses and recommendations.

List of Persons Consulted
SN                 Name                     Position           Organization
 1.    Mr. R.M. Singh              Secretary                MoHP
 2.    Dr. Nirakar Man Shrestha    Chief Specialist         MoHP
 3.    Dr. Babu Ram Marasini       Chief, HSRU              MoHP
 4.    Mr. T. M. Sharma            Chief, HEFU              MoHP
 5.    Dr. M Bista                 DG,                      DOH/MOHP
 6.    Dr. Y. B. Pradhan           Director                 DOH/MOHP
 7.    Dr. B. Subedi               Director                 DOH/MOHP
 8.    Dr. M Chhetri               Director                 DOH/MOHP
 9.    Ms. Bella Bird              Country Head             DFID
 10.   Mr. Bob Smith               Deputy Head              DFID
 11.   Mr. Purushottam Acharya     Health Advisor           DFID
 12.   Ms. Susan Clapham           Senior Health Advisor    DFID
 13.   Mr. Simon Arti              Conflict Advisor         DFID
 14.   Mr. Alan Whaite             Governance Advisor       DFID
 15.   Mr. Matthew Greenslade      Economic Advisor         DFID
 16.   Ms. Jashmin Rajbhandari     Social Dev Advisor       DFID
 17.   Mr. H. Tiwari               Under Sec                OAG
 18.   Mr. Sushil Dhungel          Chief                    FCGO
 19.   Mr. Bhuwan Karki            Under Sec                MoF
 20.   Mr. Deepak Kharel           Under Sec                MoF
 21.   Mr. K.H Baskota             Chief, Budget Division   MoF
 22.   Mr. Gyanendra Shrestha      Under Secretary          NPC
 23.   Mr. Roshan D. Bajracharya   Senior Economist         WB
 24.   Mr. Bigyan Pradhan          Finance Specialist       WB
 25.   Dr. Tirtha Rana             Health Advisor           WB
 26.   Dr. Suomi Sakai,            Country Director         UNICEF
 27.   Dr. Birthe Rossi            Health Program           UNICEF
 28.                               Health Unit Cheif        USAID
 29.   Mr. Sunder Gopalan                                   WB
 30.   Mr. Arjun Bahadur Singh     Chief, Planning          MoHP
 31.   Mr. Binod Gyawali           Joint Sect, Personnel    MoHP
 32.   EDP Group

Shared By: