Country Forest Note: Nepal

Forests for Prosperity at a Time of Transformation

February1,2018

EnvironmentandNaturalResourcesGlobalPractice

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© 2018 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Somerightsreserved.

This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2018. Country Forest Note: Nepal. © World Bank.”

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TableofContents

Abbreviations...............................................................................................................................................iv

ExecutiveSummary......................................................................................................................................v

Preface.........................................................................................................................................................1

RoleofForestsintheNationalEconomy.....................................................................................................3

PolicyandInstitutionalContext...................................................................................................................6

NationalLevel..........................................................................................................................................6

InternationalLevel...................................................................................................................................8

Institutions...............................................................................................................................................9

NationalForestChallenges........................................................................................................................11

DriversofDeforestationandForestDegradation..................................................................................11

VulnerabilitytoClimateChangeandNaturalDisasters.............................................................................12

PublicandPrivateInvestmentsintheForestSector.............................................................................13

PolicyandInstitutionalEnvironment.....................................................................................................14

OpportunitiestoImproveForests’ContributiontoNepal’sEconomy......................................................15

DynamicsbetweenEconomicSectorsandForests................................................................................15

ForestSectorEconomicandEmploymentPotential.............................................................................18

CurrentWorldBankandPartnerEngagementinForests..........................................................................19

WorldBankEngagementinForests.......................................................................................................19

DevelopmentPartnersEngagementinForestsandForest-RelevantSectors.......................................21

WorldBankGroupResponse:AMultisectoral,ProgrammaticApproachinSupportofNepal’sForests..22

Annex1.NepalWorldBankProjectPortfolio............................................................................................26

Annex2.NepalWorldBankProjectPipeline.............................................................................................27

Annex3.ForestOpportunities,Threats,Gaps,andPotentialInstruments...............................................28

References.................................................................................................................................................32

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ABBREVIATIONSBank WorldBankCBD ConventiononBiologicalDiversityCBFM community-basedforestmanagementCFUG communityforestusergroupCPF CountryPartnershipFrameworkCPS CountryPartnershipStrategyCSO civilsocietyorganizationDFID U.K.DepartmentforInternationalDevelopmentDFO DistrictForestOfficeDOF DepartmentofForestsERP EmissionReductionProgramFAO FoodandAgricultureOrganization(oftheUN)FAP ForestActionPlanFY16–20FCPF ForestCarbonPartnershipFacilityFIP ForestInvestmentProgramFY fiscalyearGDP grossdomesticproductGHG greenhousegasGNI grossnationalincomeIFC InternationalFinanceCorporation(oftheWorldBankGroup)IHA InternationalHydropowerAssociationIIED InternationalInstituteforEnvironmentandDevelopmentKGGTF KoreaGreenGrowthTrustFundLHF leaseholdforestryMFSC MinistryofForestsandSoilConservationMSFP Multi-StakeholderForestProgramNDC NationallyDeterminedContributionNGO nongovernmentalorganizationNPR NepaleserupeesNTFP non-timberforestproductPA protectedareaPES paymentforenvironmentalservicesREDD+ Reduced Emissions from Deforestation and Forest Degradation, Sustainable Forest

ManagementandEnhancedForestCarbonStocksSCD StrategicCountryDiagnosticSFM sustainableforestmanagementUNFCCC UnitedNationsFrameworkConventiononClimateChange

AlldollarsareU.S.dollarsunlessotherwiseindicated.

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EXECUTIVESUMMARY

Thisnotearticulatesaproposedprogrammaticforestlandscapeapproach(“forestengagement”)fortheWorldBankGroup (the “Bank”) to supportNepal inbetter tackling its forest andassociated landusechallengeswithaviewtocontributetothecountry’sdevelopmentaspirationsandenhancingresiliencein the context of climate change and natural disasters. The note has informed the Strategic CountryDiagnostic (SCD) (World Bank 2017a), which forms the basis for the future Country PartnershipFramework(CPF)FY19–22.TheproposedforestengagementisconsistentwiththeBank’sForestActionPlan2016–2020andClimateActionPlan2016–2020.

Theproposed forest engagementwill support the goals ofNepal’s 14thperiodic plan, specifically theobjectives for the forest sector, the Forestry Sector Strategy, and the REDD+ Strategy, by supportingsustainableforestmanagementandaddressingthedriversofdeforestationandforestdegradationthatareoftenassociatedwithothereconomicsectors.TheengagementwillalsosupportNepalinachievingitscommitmenttotheParisAgreementundertheUNFCCCandotherinternationalagreements.

Nepal’sforestscover6.4millionhectares,or44.7percentoftheland(DFRS2015),yettheforestsectorcontributes only 3.5 percent to the national gross domestic product (GDP) (MSFP 2016a). The forestresources,whileextremely rich,donot contribute toeconomicgrowthat fullpotential andareoftenperceived as a less important asset that can be disposed of in favor of supporting other economicactivities.However,awell-managedforestsectorpresentspromisingpotentialtofurthercontributetoeconomicgrowthandemploymentinNepal.

Nepal’s ongoing transition to federalism provides opportunities and poses risks for the Bank’sengagementinforests,whichwillrequireflexibilityandoptionstoadapttotheevolvingdevolutionandinstitutional changes. Opportunities include the planning and management of natural resources in asustainablemanner and equally sharing benefits from the expected revenue streams. Potential risksinclude the lack of capacity, particularly at the local and provincial levels, for natural resourcesmanagementandotherdevelopmentopportunitiesthatdonotcomeatthecostofforests.

Themain challenges to sustainablymanageNepal’s forests and develop their full economic potentialresidein(a)thedriversofdeforestationandforestdegradation,(b)thecountry’svulnerabilitytonaturaldisasters,(c)thelowlevelofpublicandprivateinvestmentsinthesector,and(d)theweakpolicyandinstitutionalenvironment.

Although no current Bank lending portfolio focuses exclusively on the forest sector,1 several trust-fundedinitiativessupportactivitiesrelatedtoREDD+(ForestCarbonPartnershipFacility–FCPF,ForestInvestmentProgram–FIP),combattingtheillegalwildlifetrade(GlobalEnvironmentFacility–GEF),andintegratedcatchmentareamanagement(KoreaGreenGrowthTrustFund–KGGTF).

ThecurrentBank lendingportfolio inNepalcovers theenergysector (hydropowerandenergyaccess,powersectorreform),agriculture(livestock,irrigation,foodsecurity,commercialization,andtrade),andtransport(roads).Thesesectorsindirectlybenefitfromforestsbuthavealsobeenidentifiedasdriversofdeforestationandforestdegradation.

ConsideringthechallengesandopportunitiesassociatedwithNepal’sforestsandtheongoingtransitionto federalism, the proposed programmatic engagement is to support the government of Nepal with

1ThelastBank-supportedforestprojectinNepal,“HillCommunityForestryProject,”closedinJune1999.

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exploring theuntappedpotentialofNepal’s forests foreconomicgrowth, jobcreation,social stability,and addressing climate change. This engagement is envisaged to be implemented through a set offorestry and “forest smart = climate smart” operations in several sectors that address barriers andpromoteopportunitiestofurtherenhancetheeconomicandclimatecontributionofNepal’sforestsandforestlandscapes.

UnleashingthepotentialofNepal’s forestswill require investments, technicalassistance,andcapacitydevelopment to sustain growthnotonly in the forest sectorbut also inother sectors that affect anddepend on forests, including tourism, agriculture, hydropower, and transport. Through an integratedlandscapeapproach,competinglanduses/sectors/interestscanbeaddressedandtrade-offsminimizediftheyaresupportedbyaprogramoraseriesofprojects(programmaticapproach)consistentwiththeobjectiveoftheproposedforestengagement.

SuchaprogrammaticengagementwouldenabletheBanktobetteruseamenuoffinancialinstrumentstoaddressthe identifiedbarriersandopportunitiesandtakeadvantageofsynergiesacrosstheBank’sportfolio.

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PREFACE

ThisnotearticulatesaproposedprogrammaticforestlandscapeapproachtohelpNepal1bettertackleitsforestsandtheassociatedlandusechallengesthatimpactthecountry’sdevelopmentaspirationsand ability to better respond or prepare for vulnerabilities such as climate change and naturaldisasters.Itpresentsaforward-lookingbusinesscasefortheWorldBanktoinvestinmanagingNepal’sforest landscapes. It isbasedon identifiedgapsandopportunities forengagementacross sectorsandavailablefinancial instrumentstheBankoffers.Thisnoteisa“livingdocument”intendedtoserveasabasisfordiscussionswithkeypartnersandthegovernmenttoworktogetheronachievingtheprogramobjectives.

The Bank’s engagement in support of Nepal’s forests will be consistent with the current CountryPartnership Strategy (CPS) and the future Country Partnership Framework FY19–22. The CPS statesthat the “WBG will support Nepal’s aspirations for increasing economic growth through increasedinvestmentsinkeysectorswhileprovidingsupporttomakegrowthmoreinclusiveandtohelpequalizeopportunities across groups and communities.”While the forest sector is not listed in the CPS as aprioritysector forBankengagement,managingforestsandother landuses inasustainablemanner isessentialforothersectors,suchasenergyandtransport,tosustaintheirassetsandabilitytooperate.Thisnotehas informedtheStrategicCountryDiagnostic(WorldBank2017a),whichformsthebasisofthe future CPF. The Bank’s engagementwill seek to enhance the contribution of the forest sector toeconomic growth, livelihoods, job creation, andprosperity; to createabetterbasis for environment-,climate-,anddisaster-smartinfrastructure;andtoimprovetheregulatoryframeworkaswellassystemcapacity (particularly at municipal and provincial levels) for managing the environment and naturalresources,includingforests.

TheproposedforestengagementwillfullysupportthegoalsofthegovernmentofNepalpresentedinthe 14th periodic plan. The plan focuses on reducing absolute poverty, sharing economic prosperity,post-earthquake reconstruction and rehabilitation, development of physical infrastructure, and goodgovernance.Theplanenvisagesaneconomicgrowthrateof6.5percent in thecurrent fiscalyear,7.2percentin2017–18,and7.9percentin2018–19.Muchofthismoneywillbeusedtoincreasedomesticproduction by transforming the agriculture sector2 and expanding tourism, industry, and small andmediumenterprises.Fortheforestsector,theplanforeseesthefollowing:

• An increase in forest productivity and production of forest products through participatorysustainableforestmanagement

• Self-dependency on forest products and an increase in forest-based entrepreneurship andemployment

• Anincreaseinforestcoverthroughplantationinpublicandtheprivatelands• Mainstreamingecosystem-basedadaptationandmitigation• CompletionofREDD+Readinessactivitiesandstartofimplementation

The plan alsomakes reference to firemanagement, promotion of ecotourism, integrated watershedmanagement,marketingofhigh-valuenon-timberforestproducts(NTFPs),andforest-basedlivelihoodopportunities(NPC2017).

1NepalisidentifiedasaprioritycountryintheWBGForestActionPlan.2Theforestsectorisusuallycoveredundertheagriculturesector.

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ThenewconstitutionofNepal representsamajor transformation in thewaythecountry isgoverned.The transformation process is still under way, and elections have recently been concluded. Thereorganization into seven new states and 753 local governments has started. The three-level federalstructurehasmajorimplicationsforforestsectorgovernance.Statesandlocalgovernmentswilldeveloptheir own policies, laws, and regulations, and raise taxes. Forest management responsibility will bedevolvedtothelocallevel.Itisexpectedthatforestsectorinstitutionsandprocesseswillgothroughamajortransformation.

TheongoingtransitiontofederalismprovidesopportunitiesandposesrisksfortheBank’sengagementin forests. The engagement will need to be flexible and adapted to the evolving devolution andinstitutionalchanges.Itwillneedagoodcoordinationbetweentheforestsectorandothersectorsthathaveanimpactonorarebenefitingfromforests.Opportunitiesincludetheplanningandmanagementofnaturalresourcesinasustainablemannerandsharingbenefitsfromtheexpectedrevenuestreams.Potential risks include conflict among federal, provincial, and local government agencies regardingmandatesanduseofnaturalresources,and lackofcapacity,particularlyat localandprovincial levels,fornaturalresourcesmanagementthatdoesnotcomeatthecostofforests.

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ROLEOFFORESTSINTHENATIONALECONOMY

Addressingruralpovertyandunemployment isakeypriority forNepal,a low-incomecountryof29millionpeoplewithagrossnationalincome (GNI)percapitaof$730in2016.Themostrecentpovertysurvey data for Nepal’s Multidimensional Poverty Index estimation dates to 2011.3 Although theproportionofNepalesehouseholdslivinginpoverty,asmeasuredbytheinternationalextremepovertyline,fellfrom46percentin1996to15percentin2011,418.1percentofthepopulationstill livesnearpoverty,18.6percentinseverepoverty,and23.7percentbelowtheincomepovertyline.In2016,theannualGDPgrowthwas0.6percent;itisexpectedtoincreaseto5percentin2017anddecreaseto4.7percentin2019(WorldBank2018).Povertyissignificantlyhigherinruralareasthaninurbanareas(27.4percent vs. 15.5 percent) and highest in the far western regions (45.6 percent) and mountainousecological regions (42.3 percent). Nearly 90 percent of the poor live in rural areas, but povertyprevalenceandshareinthetotalareotherwiseinverselyrelated,withmostofNepal’spoorfoundinthecentralregions(withrelativelylowprevalence),theTeraiplainsandmid-hills(WorldBank2014).Nepalaspires to emerge as an inclusive, equitable, and prosperous middle-income country by 2030. Thegovernment is committed to reducepovertyandpromotehumandevelopmentwith lowvulnerabilityand higher human security through economic growth and job creation. The federalization processenvisionsaninclusivesocietyandeconomy,andaprosperouswelfarestate(NPC2015b).

Map1.NepalLandUseandPoverty,2015

3Theindexidentifiesmultipledeprivationsinthesamehouseholdsineducation,health,andlivingstandards.4 Poverty data for Nepal are from Open Data (database), World Bank, Washington, DC (accessed 2017).http://data.worldbank.org/country/nepal?=chart.

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Thegovernment’sambitionwithregardstotheforestsectorisarticulatedinthe2015ForestrySectorPolicy, which supports an enhanced contribution of the forest sector to Nepal’s economy and jobcreation. This note assesses the challenges and opportunities for developing forests and forestlandscapes in an integrated and inclusive manner to meet these goals. The proposed programmaticapproach will focus on job creation, livelihood enhancements, and good governance throughinterventions intheforest,agriculture,energy,tourism,andtransportsectors,taking intoaccountthechangingpoliticaleconomyinNepal.

Nepal’stotal forestarea is6.4millionhectares,or44.7percentofall land(includingshrubland).Theestimatedgrowingstockoftheforestsis982.3millionm3,oranaveragestockingof164.8m3/ha(HighMountains, 225.2m3/ha;MiddleMountains, 124.26m3/ha; and Terai and Chure, 161.66m3/ha). Themeancarbonstockoftheforests(includingabove-andbelowgroundbiomassandsoilcarbon)is176.9t/ha,with61.5percentinthetreecomponentand37.8percentinforestsoils(DFRS2015).

Map2.NepalLandCover

Overthepastthreedecades,thegovernmenthasgraduallytransferredgovernment-ownedforeststocommunity-basedforestmanagement(CBFM)groupsundervariousmodelsdevelopedinresponsetodifferentgeographicandsocioeconomiccontexts.Thesegroupsnowmanageabout2millionhectares,orabout34percentofNepal’sforest.Forexample, intheTerai,28CBFMgroupsprotectandmanageabout 70,000 hectares of forest; in the Middle Hills, about 40,000 hectares of forest have beentransferredtoabout7,000leaseholdforestry(LHF)groups.CBFMisalongstandingnationalpriorityand

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remainsaprioritydevelopmentprogramunderthe14thNationalDevelopmentPlan,althoughthepaceof the handover has been reduced in recent years, partly due to a reduction in externally fundedprogramsinNepal’sforestsector,butalsobecauseinmanydistricts,alargeproportionoftheaccessibleforesthasalreadybeenhandedover.IntheTerai,thehandoverofforeststovariousCBFMgroupshasbeen limited in recentyearsdue toa lackofclearpolicydirectionandpoliticalwill,although thishasbeen resolved since Nepal’s 2015 Forest Policy and there is now a backlog of applications bycommunitiesfortransfer(MFSC2017a).

Forests contribute directly and indirectly to Nepal’s economy by providing ecosystem goods andservices.Whilemostforestgoodscanbevaluedbecausetheyaretradedonthemarket(forexample,timber,firewood,andNTFPs),servicessuchashabitatprovisioning,sedimentretention,andwaterandclimate regulation are currently not valued and hence are underestimated in terms of theircontributiontotheeconomy.

The forest sector directly accounts for over 9 percent of total national employment (2011) and onaverage3.5percent(2.2–5percent)ofthenationalGDP(2000)(MSFP2016a).Inaddition,thepotentialvalueof environmental services,whichpresently are not included inGDP calculations or allocated tosectors other than forestry,was estimated at 17.3percent (MSFP2016a). The total trade inNTFPs isestimatedat$60–$100million(HeinenandShrestha-Acharya2011).However,otherstudiesshowthatthetruevolumeofNTFPsisnotrecordedduetoillegaltrade,andthatestimatevarieswidely.

Forests also contribute directly and indirectly to the national economy by supporting the energyagriculture, tourism,and transport sectors. Forestscurrently supply roughly86percentofhouseholdenergy needs. Forestedwatersheds provide sediment retention andwater regulation services that inturn improvetheefficiencyofhydropowerfacilities.Morethan70percentofthepopulationdependsonagriculture forsustainingtheir livelihoods.Agriculturecontributestoover50percentofhouseholdincomeandprovidesemploymentforabout80percentofthepopulation(MFSC2009).Forestsplayacriticalroleinsupportingagriculture:itisestimatedthatbetween3.5and6hectaresofforestlandsarerequiredtosupporteachhectareofcropland inNepalbyprovidingnutrient-richanimal fodder(MFSC2009).Theapplicationofefficientandsustainablepracticesanduseofnaturalresources(land,water,soils,andforests)areseenasfactorstoincreaseagriculturalproductivity(MAD2015).

Nepal’s tourist statistics show thatalmosthalfof tourists visitingNepal trek in theprotectedareas(PAs), generating considerable economic opportunities in rural areas and contributing to povertyalleviation.Significantpotentialexistsfornature-basedtourismoutsidethePAs,includingareaswhereforests are present. Tourism creates business for skilled human resources and investors, andemployment for both skilled and unskilled labor. It also generates much of the PA revenue. Anestimated 50 percent of the PA revenue is channeled back to local communities for biodiversityconservation,livelihoodimprovement,andsustainabledevelopmentactivities(MSFP2016a).ThedirectcontributionoftravelandtourismtoNepal’sGDPwas3.6percentin2016,whilethetotalcontributionofthissectoraccountedfor7.5percentofGDP.5Thereportestimatesthatthesectorsupportednearly1million(945,000)directandindirectjobsin2016,orroughly6.4percentoftotalemployment(WTTC2017). 5 “Direct contribution” includes total spending within a country on travel and tourism by residents and nonresidents forbusinessand leisureandspendingbygovernmentontravelandtourismservicesdirectly linkedtovisitorssuchasmuseums.“Total contribution of tourism includes direct contributions andwider impacts on the economy such as travel and tourisminvestmentsspending,governmentspending thathelps travelandtourismsectorsuchas tourismmarketingandpromotion,anddomesticsupplychainpurchasesbysectorsdirectlydealingwithtourists”(MSFP2016a).

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Eighty percent of Nepal’s population lives in the mountains. While efforts to improve access areadvancing, over the past 15 years there has been an increase in landslide deaths because of poorlyplannedroadsbuiltonfragileanddeforested landswithoutslopestabilizationmeasures inplace.Astudy by Bhattarai, Tsunaki, and Mishra (2002) points out that about 12,000 small- and large-scalelandslides occur in Nepal every year. When cutting into slopes, supporting land and land cover isremovedand landslidesbecomeagreaterrisk,especiallyduringthemonsoonseason(June–October).Bioengineering,includingafforestationandreforestationofslopesborderingroads,isaprovenconceptforslopestabilizationinNepal,butitsapplicationisstilllimited(Dhital,Kayastha,andShi2012).Nepal’sWaterResourcesStrategystatesthat“environmentallyacceptablewaterresourcesdevelopmentshouldjustify and minimize destruction of productive ecosystems, including forests and wetlands” (WECS2002).

WhiletheforestresourcesofNepalareextremelyrich,theycurrentlydonotcontributetoeconomicgrowthatfullpotentialandareperceivedasalessimportantassetthatcanbedisposedofinfavorofshort-term economic benefit. They have a significant untapped potential for contributing to Nepal’seconomy, creating employment and alleviating rural poverty through sustainable forestmanagementand conservation (MSFP 2014). The country has had some of the best performing joint forestmanagement programs, yet forest-dependent communities are falling behind on socioeconomicindicators. Recognizing this, the government has put in place strategies and policies to increase thecontributionofforeststoachievingandgreeningNepal’sambitiousdevelopmentgoals.

POLICYANDINSTITUTIONALCONTEXT

NationalLevel

The proposed programmatic engagement to enhance the role of forests and landscapes in Nepal’seconomywillsupportthegoalsthegovernmentofNepalpresentedinthe14thperiodicplan.Theplanaims to transform Nepal into a middle-income economy by 2030 by achieving an annual economicgrowth of 7.2 percent. The plan focuses on reducing absolute poverty, sharing economic prosperity,post-earthquake reconstruction and rehabilitation, development of physical infrastructure, and goodgovernance(NPC2017).

The plan provides for multisectoral approaches, with priority given to hydropower and energy,agriculture,basiceducation,health,drinkingwater,physical infrastructure,goodgovernance, tourism,trade, and environment, among other sectors, and to increasing the contributions of the private,government, and cooperative sectors in these efforts (NPC 2017). The plan is consistentwith severalothergovernmentstrategies, includingtheForestrySectorStrategy,programsandplansthatprioritizeresilientlandscapesandtheroleofnaturalresources,includingforests.

The plan envisages making the forest sector a significant contributor to the plan’s aim and givesprioritytoseveralprogramsfortheforestsector(Table1).

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Table1.ObjectivesandPriorityProgramsfortheForestSectorinNepal’s14thPeriodicPlan

Overallobjectives• Increasedforestproductivitythroughsustainableforestmanagement• Biodiversityandforestresourceconservationandpaymentforenvironmentalservices• Climatechangemitigationandadaptationandclimatevulnerabilitymitigationthroughwatershed

managementandlandandwatermanagementPriorityprogramsa. Nationalforestdevelopmentandmanagement b. Communityforestryandleaseholdforestry-

basedforestdevelopmentc. Biodiversityandwildlifeconservationand

managementd. Collaborativeforestmanagement

e. Publiclandagroforestrydevelopment f. Religiousforestmanagementg. Plantationandtreeseedimprovementand

privateforestdevelopmenth. Greenforestenterprisedevelopment

i. Soilconservation,watershedmanagement,andclimatechangehazardmitigation

j. Plantresourcesurveyandresearch

k. Forestsurveyandcapacitybuilding

In 2015, the government of Nepal endorsed a new Forestry Sector Policy to further develop thepotential contribution of forests to the national economy and society. The vision described in thepolicy is that “[p]otentials of forest ecosystems, biodiversity andwatersheds [are] fully optimized forpeoples’ prosperity.” The goal provides that “[f]orest ecosystems and watersheds [are] sustainablymanaged and climate resilient through a decentralized, competitive and well-governed forest sectorproviding inclusive and equitable incomes, employment and development opportunities.”6 The policyhashighlightedtheneedofsustainableforestmanagement(SFM)to increaseforestsproductivityandproduction to fulfil national demand. SFM ismentioned as a tool for achieving theministry’s vision,“ForestsforProsperity”(MFSC2015a).

Thepolicyidentifiessevenkeyareasofimplementation:

1. Increasetheproductivityofforestsectorandproductionofforestproductsthroughsustainableforestmanagement.

2. Increase the benefits from environmental services, including biodiversity and resourceconservation,andensuretheirjustifiableandequitablebenefitdistribution.

3. Integrate conservation and management of watershed areas to increase land productivitythroughwaterandlandconservation.

4. Makecommunity-managedforests—includingcommunity,leasehold,collaborative,bufferzonecommunity, protection, and religious forests—environmentally, economically, and sociallycapable,withjustifiableandequitablesharingofthebenefits.

5. Create green employment and value addition by involving the private sector in forestdevelopmentandexpansion through forestenterprisepromotion,productdiversification, andmarketing.

6. Implement the mitigation and adaptation approaches for the negative impacts of climatechange.

6LinkedtothenewForestrySectorPolicy,theMinistryofForestsandSoilConservationhaspreparedaforestryprojectbankbyprioritizingthepotentialprojectsbasedonfeltneedsandpriorities.Twenty-fivemajorforestryprojectshavebeenidentifiedthroughanextensivereviewoftheforestrydocumentsandconsultationswiththerespectiveorganizations.Theindicativecostoftheseprojects(prioritized)isestimatedtobe$227millionforaperiodoffiveyears.

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7. Capacitatethemanagementforgoodgovernance,inclusion,andsocialjusticepromotionintheforestsector.

Nepal’s Forestry Sector Strategy (2016) further details the policy and underscores the need forsustainable forest management to harness potential productivity and their contribution to locallivelihoodsandnationalsocioeconomicdevelopment.Thestrategyhassetsomeambitioustargetsoneconomiccontributionsofforests.By2025,theforestsectorwillcontributeatleast7.5percenttotheGDP,generateat leastsixtimesmore jobs,reduceannualtimber importsby50percent,and increasecommercialtimbersupplytothedomesticmarketannuallybysixtimes(MOF2016a).

The strategy identifies seven thematic areas for the interventions required to achieve the ForestrySectorPolicy:

1. ManagingNepal’sforests2. Managingecosystemsandconservingbiodiversity3. Respondingtoclimatechange4. Managingwatersheds5. Promotingenterpriseandeconomicdevelopment6. Enhancingcapacities,institutions,andpartnerships7. Managingandusingforestsectorinformation

Nepal’sREDD+Strategy(2018)supportstheForestrySectorStrategyandliststhefollowingobjectives:

• Reducecarbonemissions,enhanceforestcarbonstocks,andimprovesupplyofforestproducts.• Increasenon-carbonbenefitsofforestsecosystems.• Promoteprivateandpubliclandforestry.• Promoteoptimumlanduseacrossallthephysiographicregions.• Improve forest tenureandensurecarbon rightsand fair andequitablebenefit sharingamong

right holders, women, indigenous peoples, Madhesis, Dalits, and forest-dependent localcommunities.

• Promoteforest-basedenterprisesforlivelihoodandeconomicdevelopmentwithstrongroleoftheprivatesector.

• Increaseagriculturalproductivityofforest-dependentandothersmallholders.• Increaseaccesstosustainable,affordable,andreliablealternativeenergy.• Improvecollaboration,cooperation,andsynergyamongsectoralpolicies,sectors,andactors.• Improve capacity, institutional performance, and service delivery of the forest sector

institutions,rightholders,andrelevantstakeholders.• Ensuresocialandenvironmentalsafeguards,includingenvironment-friendlydevelopment.• Establishandmaintainarobustandwell-functioningnationalforestmonitoringsystem.

Othersectorstrategiesmentionthepositiveroleof forests,suchasNepal’sWaterResourcesStrategy(WECS2002).

InternationalLevel

Nepal iscommittedtotheParisAgreementundertheUNFCCC.At0.2tCO2e/year,Nepal’spercapitagreenhouse gas (GHG) emissions are among the lowest in the world. Together, land use changesresultinginconversionofforestandforestdegradationaccountforthesinglelargestsourceofNepal’sGHGemissions(MPE2014).Nepal’s2016NationallyDeterminedContribution(NDC)(MPE2016)points

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outthatNepalaimstoenhanceitsforestcarbonstockbyat least5percentby2025comparedtothe2015levelandtodecreasethemeanannualdeforestationrateby0.05percentfromabout0.44percentand0.18percent in theTerai andSiwalikHills, respectively.Nepalpledged40percentof its areawillremainunderforestcover,comparedtothe44percentofforestcoverconfirmedin2015(DFRS2015).Forest productivity and products will be increased through sustainable management of forests.Emphasiswillequallybegiventoenhancecarbonsequestrationandforestcarbonstorageandimproveforestgovernance.NepalisactiveinREDD+andaimstoputinplaceaforestcarbontradeandpaymentmechanismby2025.Mainstreamingcommunity-/ecosystem-basedadaptationcomplementstheworkonforest-basedmitigationactivities.

ThegovernmentofNepalisalsocommittedtomanagingthecountry’srichbiologicaldiversityasperthenationalneed,andinthespiritoftheUnitedNationsConventiononBiologicalDiversity(CBD)andother relevant multilateral environmental agreements to which Nepal is a party. In 2014, NepalpresenteditsNationalBiodiversityStrategyandActionPlan2014–2020totheConferenceofthePartiesoftheCBD(CBD2014).

Institutions

TheMinistryofForestsandSoilConservation(MFSC)hasthemandateforpromotingthesustainablemanagementof forestsandwatersheds. Theministrydelivers its function through fivedepartments:Department of Forests, Department of Forest Research and Survey, Department of Soil ConservationandWatershedManagement,DepartmentofPlantResources, andDepartmentofNationalParksandWildlife Conservation. Besides the departments at the national level, there are regional as well asdistrictoffices.

TheDepartmentofForests(DOF)isresponsibleforlocal-levelimplementationandextendsitsservicesthrough fouradministrative levels:headquarters,District ForestOffice, Sector ForestOffice, and IlakaForest Office. The DOF headquarters has the following functional divisions: planning andmonitoring,community forest, national forest and national silviculture. The 74 District Forest Offices (DFOs) areresponsible for the field-level implementation of all forest development programs, operations, andadministration.

The MFSC leads the forest clearance process for obtaining tree felling permits, which provides animportant base for development activities such as building infrastructure. Large infrastructuredevelopershavecitedtheprocessascumbersome,time-consuming,andhighlybureaucratic, involvingDFOs,theDOF,theMFSC,andtheCouncilofMinisters(Cabinet).Forexample,theMFSCrequestedthatdevelopersbuyanequivalentareaofforestlandinasimilarecosystem,createasimilarforest,andhanditovertothegovernmentinordertoacquiretheforestlandneededfortheirprojects.InMay2017,thegovernment issued new guidelines on forest clearance, making it easier for developers of largeinfrastructureprojectstoacquirewoodedareasattheirproposedconstructionsites.Thenewguidelinesoffertwowaystoacquireforest landfordevelopmentprojects:(a)adevelopercanbuyanequivalentareaofforestlandinasimilarecosystemelsewhere,createasimilarforestonit,andhanditovertothegovernment,or(b)adevelopercanpayafeedeterminedbytheMFSC,whichwillbeusedtocreateasimilarforestelsewhere.ThenewguidelinesonforestclearancewillgointoeffectaftertheMFSCfixesthe rates for different ecosystems. The new rules will make it easier for infrastructure projectdevelopers, including developers of hydropower projects, to receive permission for necessary forestclearance.

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Table2presentsanoverviewofthecurrentdistributionofpowersintheforestsector.

Table2.DistributionofPowersintheForestSectorFederalpower Statepower Concurrentpower

offederationandstate

Localpower Concurrentpoweroffederation,state,andlocal

Nationalandinternationalenvironmentalmanagement,nationalparks,wildlifereserves,wetlands,nationalforestpolicies,carbonservices

Explorationanduseofmines

Stateboundaryriver,waterways,environmentprotection,biodiversity

Environmentprotection,biodiversity

Forest,wildlife,birds,wateruses,environment,ecology,biodiversity

Environmentadaptation,commissionofnationalimportance

Useofforestsandwatersandmanagementofenvironmentwithinthestate

Useofforests,mountains,forestconservationareas,andwatersstretchingininterstateform

Protectionofwatersheds,wildlife,minesandminerals

Royaltiesfromnaturalresources

WithNepal’stransitiontoafederalsystem,institutionalchanges,includingintheMFSC,areimminent.Thenewconstitutionprovidesforathree-tieredgovernancestructure:federal,state,andlocal,andallhavedifferentroles,powers,andmandates.

Civil society organizations (CSOs) have institutional capacity to expand community-based forestmanagementinNepal,buttheircurrentcapacityisinsufficienttoalsoachieveimprovedlivelihoodsandincome for forest-dependentcommunities.Recentchanges inNepalbuildonearlierpolitical changes,startingwiththemovementtowarddemocracyin1990thatliberalizedtheeconomyandincreasedtheinvolvement and clarified the roles of communities, civil society, nongovernmental organizations(NGOs),and theprivatesectoras implementers, serviceproviders,and investors. In the forest sector,theForestAct(1993)andsubsequentForestRegulations(1995)withlateramendmentsestablishedthefoundations for community forest governance and made significant tenure reforms that led to theexpansionofCBFMtoalevelthathasreceivedworldwiderecognition.

CSOs organize and represent a significant portion of forest-dependent communities, and provideimportant support to the community forest user groups through their networks.Over the past threedecades,governmentforesthasgraduallybeentransferredtoCBFMundervariousmodelsdevelopedinresponse to different geographical and socioeconomic contexts. CBFM groups now manage about 2million hectares, or about 34 percent of Nepal’s forest. CBFM is a longstanding national priority andremainsaprioritydevelopmentprogramunderthe14thperiodicplan,althoughthepaceofhandoverhasbeen reduced in recent years,partlydue toa reduction inexternally fundedprograms inNepal’sforestsector,butalsobecauseinmanydistricts,alargeproportionoftheaccessibleforesthasalreadybeenhandedover.Overall,majorcapacitygapsremain forsustainable forestmanagement,whicharerelated to designing the process to strengthen forest tenure, address conflict and grievances, and topromotesustainableinvestmentsintheforestsector.

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Privatesectorparticipationandinvestmentinforest-basedindustriesisfocusedmainlyonprocessing,manufacturing,andtrade,withlimitedparticipationintheproductionofforestproductsandservices.TheMSFP(2014)estimates41,062forest-basedenterprises,includingforestproducergroups,formallyoperateinNepal,ofwhich27,342(over66percent)areinvolvedintheprimaryproductionofgoodsandservices. The remaining 13,720 enterprises work in processing, manufacturing, and trade, with themajorityintimber(9,869enterprises),followedbyNTFPs(2,140),ecosystemservices(1,676),andforestbioenergy(35)(MSFP2014b).

The totalestimated investmentbyprivateentrepreneurswasaboutNPR32billion in2013 (excludingdirect foreign investment in ecotourism), of which the highest investment came from the timberprocessorsandmanufacturers,with59percentofthetotal investment.TheinvestmentmadeinNTFPenterprises,ecosystemservices(mainlyecotourism),andforestbioenergyisestimatedtobeaboutNPR5.48 billion, NPR 6.56 billion, and NPR 42.9 million, respectively. There is a growing interest amonginternationalorganizationsinpurchasingvoluntarycarboncreditsfromNepalasthecountryprovidesaunique story of social and environmental benefits, but the transaction of forest carbon is not welldevelopedandislimitedtoonlyafewvoluntarytransactionsinfund-basedmarkets(MSFP2014b).

NATIONALFORESTCHALLENGES

ThemainchallengestosustainablymanageNepal’sforestsresidein(a)thedriversofdeforestationandforest degradation, (b) the country’s vulnerability to natural disasters, (c) the low level of public andprivateinvestmentsinthesector;and(d)theweakpolicyandinstitutionalenvironment.

DriversofDeforestationandForestDegradation

Nepalisaforest-richcountry,butalthoughforestcoverhasincreasednationally,thereisconsiderableregional variation in deforestation and forest degradation rates across the country. The rate ofdeforestation and forest degradation has dropped in recent years and the overall state of forests isimproving (ICIMOD2015).Themeanannual rateof lossof forestandshrubland (combined)was0.47percentduring theperiod1978/79–1994and0.53percentover theperiod1990–2000.However, thisnegativetrendhasbeenreversedmorerecently.Theperiod2000–2010sawanannualincreaseinforestandshrublandcoverofabout0.8percent, largelyduetothedevelopmentandpromotionofCBFMofvarious types (MFSC 2018) and as a result of the abandonment of agricultural land and its gradualreversion to forest. An estimated 18–38 percent of agricultural land has been abandoned or isunderutilizedinsomeMiddleHillsdistricts(FAO,n.d.[c]).

The Terai, which has the lowest percentage of forest cover of Nepal’s regions (20.8 percent),experiencedanannualdeforestationrateof0.44percentovertheperiod1999–2010.TheChureregion,with a forest cover of 73.6 percent, had an annual deforestation rate of 0.18 percent over the sameperiod.TheMiddleMountains’53.7percent forest cover isnowreportedly increasing (but the rate isnot specified in the data); the HighMountains and High Himal together have a forest cover of 37.8percent,whichalsoreportedlyincreasedovertheperiod1994–2010(DFRS2015).

Nepal’sREDD+Strategy(MFSC2018) identifiesninedriversofdeforestationandforestdegradation:(1) unsustainable and illegal harvesting, (2) forest fires, (3) infrastructure development, (4)overgrazing/uncontrolled grazing, (5) weak forest management practices, (6) urbanization andresettlement, (7) encroachment, (8) mining and excavation, and (9) invasive species. The factorsunderlying these dynamics include a lack of clarity over land and resource tenure, poor forest

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governance and cross-sectoral collaboration, demographic and cultural complexity, limited access tomarkets and related livelihood opportunities, and high opportunity costs for agricultural land usecomparedtoforestry.

Inadditiontothe importanceof improvedforestmanagementtotheeconomyand livelihoods,NepalwillneedtobettermanageforeststoincreaseitsforestcarbonstockasperitsNDCcommitments.Per2012FAOdata,15.1percentofNepal’s2011GHGemissionsresultedfromlandusechangeandforestry.Moving forward, the roleof the forest sector inmeeting the immediateneedsof thepopulation (forexample, firewood, NTFPs, timber) and in providing jobs and income in the long term needs to bediscussed.

VULNERABILITYTOCLIMATECHANGEANDNATURALDISASTERS

Climate change is a serious development challenge facing Nepal. The country’s natural resources,economy, and population are vulnerable to the negative impacts of climate change, including glacierretreats, avalanches, landslides, flooding, droughts, and changingweatherpatterns. Potential impactsincludethreatstoagriculturalproductivityandfoodsecurity;damagetoforestecosystemsthroughfire,disease,andinsectinfestations;threatstofaunaandflora;wateravailability;andvector-bornediseases.

Nepal isalsopronetoearthquakes,attributableto itsgeographic locationandgeologicalformation.About 8,800 people died and more than 20,000 were injured in a major 2015 earthquake. Theearthquake affected over 31 districts and instigated heavy damage and loss to the forests, forestryecosystems, protected areas, ecotourism, government and community infrastructures, and thelivelihoodsofforest-dependentcommunities.

Arecentpost-disasterneedsassessmentoftheforestrysectorreportedlargedamagestotheforests.Total damages and losses to forest-related infrastructure (for example, industries, offices), forests,biodiversity,andNTFPswereestimatedatNPR31.49billion($295million)andNPR34.86billion($326million), respectively (NPC 2015a). A total of NPR 17.7 billion ($166 million) was estimated forreconstructionandrecoveryforthenextfiveyears(NPC2015a).

Improvedmanagementof forests and landscapeswill help to increaseNepal’s resilience to climatechangesandothernaturaldisasters.Forexample,thelatestearthquakehighlightedtheimportanceofasustainablesourceoftimberandwoodproductsforreconstruction, inadditiontomeetingthebasiccookingandheatingneedsofthecountry(MSTE2015b).

Soil bioengineering has been used in Nepal for nearly 30 years to deal with erosion problems onslopes,inhighwayconstruction,andinriverbankstabilization(Dhital,Kayastha,andShi2013).Inrecentyears, soil bioengineering techniques have been increasingly implemented due to their cost-effectiveness—theyuselocallyavailablematerialsandlow-costlabor—incomparisontomoreelaboratecivil engineering works. The main techniques used are brush layering, palisades, live check dams,fascines, and vegetative stone pitching. Forests can also play a positive role in slope stabilization,reducingtherisksoflandslidesorexcessivesedimentation.Usingforests,trees,andshrubsinsupportofsoilbioengineeringonslopesandstreambankscancontributetotheirstabilization,resultinginsecuringinfrastructuresuchasroadsandhydropowerinfrastructure.Furthermore,communityparticipationandresponsibilityforthesuccessfulapplicationofvegetation-basedtechniquesisessentialforsustainabilityandisconsistentwiththeconceptofCBFM.

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PublicandPrivateInvestmentsintheForestSector

PublicSectorTheMinistryofFinance’sallocationoffundstotheforest sector has been low over the past yearscompared to other sectors, although the budgetallocationforfiscalyear2017/18wasincreasedtoNPR15.3trillion(Table3)(MOF2017a).However,the MFSC has continuously underspent theallocatedbudget,anindicatorforlowinstitutionalcapacity and governance challenges. During theperiod 2014/15, theMFSC spent $8.56million intheforestsector,only87percentof itsallocation(MOF2016a,2017b).

Currently,commercialbanksareunwillingtolendfor forestry investments. Banks have no policiesto recognize forestry as a productive sector andthere are no mandatory policy provisions forbanksandfinancial institutionstospendatleast2–3percentoftheirtotal loanportfolioinforestryasthereare for spending in theagriculture sector. Inaddition, thecapacityandskill setofbankstaffaswell as the provision ofmarket linkage services formicro and small forest-based enterprises in ruralcommunitiesneedtobeimproved,asdoesthesupportofsubsidizedinsurancepremiums(MFSC2017).

PrivateSectorForest-basedenterprisesinNepalhavelimitedawarenessofthemarketandfollowbusinessscenariosthatnegatively affect productdemand (IIED2016). Smallholders arepoorly integrated in themarketandhavenoaccesstomoderntechnologythatcouldcontributetovalueadditionoftheirproducts(forexample, timberprocessing,NTFPs).Smallandmediumforest-basedenterprisescouldgeneratemorethan$8.7billionand1.38millionworkdaysthrough400,000sustainablefull-timeequivalentgreenjobs.Withlimitedbusinesscapacity,theabilitytoparticipateinacompetitiveprocessiscompromised.Somedevelopment partners provide direct cash incentives or financial grants to establish enterprises, butcapacitydevelopmentonsustainablebusinesspracticesisnotavailable,includingtheabilitytodevelopplansforsustainablebusinessmanagement.Buyersusuallydeterminethepriceofproducts,attimesfarbelowthecostofproduction.

Despitemanyconstraints,theprivatesectorisasourceofinvestmentsandsupplyofforestproducts.The share of private forestlands is less than 0.01 percent (2,361 hectares) of Nepal’s forests (MSFP2014). Still, private forests and tree growers have emerged as the leading suppliers of timber,accounting for about 48 percent of total sales during the past five years. The total supply from thegovernmentandthecommunitiesare17percentand35percent,respectively.Arecentstudyestimatesthatwiththesustainablemanagementofforestsandplantations,Nepal’sforestscouldsupplyasmuchas 9.18millionm3 of timber annually, ofwhich 1.6millionm3 could be supplied fromprivate forests(MSFP2014b).

Table3.MinistryofFinanceBudgetAllocationtoSectorsinFiscalYear2017/18Ministries Estimatedallocated

budget(NPR,thousands)

MinistryofForestsandSoilConservationMinistryofEnergyMinistryofPhysicalInfrastructureand

TransportMinistryofAgricultureMinistryofIrrigationMinistryofEducationMinistryofHealth

15,344,394

19,299,40596,557,264

24,261,93727,405,84066,124,41631,781,099

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Thereareseveralconstraintstoincreasedprivatesectorinvestments:

• Complexityandconfusionintheprocessandstepsofbusinessregistration• Lack of support in business registration and operation, including market information and

businesspromotionservicesfortheinvestorsinforestry• Complexproceduresandhightransactioncosts inharvestingandutilizationof forestproducts

fromprivatelandandcontradictoryprovisionsthatarisefrommultipleagenciesandprocedures• Irrational system of fixing and collecting royalties, prices, and taxes on forest products,

especially charging royaltiesonNTFPsandvalueadded tax (VAT)on timbergrownonprivateland

• Tariffandnon-tariffbarriersintrade,especiallythehurdlesintransportation• Tenure issue on non-forested public land, privately occupied non-registered land, and

ecosystemservices,suchascarbonandecotourism• Unavailability of quality planting materials, especially for the preferred fast-growing species

suitableforprivateplantationforestry• Issuesrelatedtoaccesstofinance,especiallyduetothelongmoratoriumperiodofplantation,

whichcausesbankstobehesitantforinvestmentinplantation• Inadequatecoordinationbetweenwood-based industriesandproducers,and lowexchangeof

informationandservicesamongthem• Lackofclearpolicyontheprocessforprivatesectorengagement

PolicyandInstitutionalEnvironment

Whilethecurrentpolicyandregulatory frameworkbroadlysupports the implementationofNepal’sForestry Sector Policy, the Forestry Sector Strategy, and the REDD+ Strategy, important regulatorygapsandgovernancechallengesstillneedtobeaddressedtoachievethefullpotentialcontributionofthe forest sector to Nepal’s socioeconomic development. These challenges can be grouped into fourareas:

a. New challenges arising from Nepal’s ongoing state restructuring process under the newconstitution,particularlyregardingcapacitiesandawarenessgaps(especiallyatthelocal level)andunclearresponsibilitiesorweaklydevelopedlinksbetweenthethreelevelsand/orbetweendifferentstakeholderinstitutions—forexample,betweencommunitiesandmunicipalities.

b. Mismatchbetweenforestpolicyandpracticewherepotentiallysupportiveandenablingpoliciesmaybeunderminedbytheirvariableinterpretationbydifferentindividualsoratdifferentlevelsorwherepoliciesarecontradictedbyactionstakingplaceontheground.Poorlysupportedlawenforcement,overfrequentregulationchanges,andoverregulationofsomeareas—forexample,forestproductsales,utilization,transport,andenterpriseestablishment—oftenwithoutproperconsultationorevidence-base,exacerbatesthismismatchbetweenpolicyandpractice.

c. Contradictions,lackofharmonization,andjurisdictionaloverlapbetweenenablingforestsectorpolicies and the policies and practices of other sectors—including local governance,infrastructuredevelopment,energy,mining,tourism,agriculture, livestock,andresettlement—create contradictory influences and unclear lines of responsibility and control (for example,betweenforestryandagricultureorbetweenforestryandinfrastructuredevelopment).

d. The lackof effective systems for landuseplanningat all levels (central, state, and local). Thenewconstitutiongivespowersand responsibilities to local government for the formulationoflocallanduseplans,althoughtherearelikelytobecapacitychallengesindoingthis.WithoutaclearnationallandusepolicyandwithaNationalLandUsePlan(2015)thatisgenericandlacksaneffectiveenforcementandmonitoringmechanism,thereislittletopreventcontinuedlossofforestlandthroughitsconversiontootherlanduseswithouteffectiveoffsetsbeingmade.

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Nepal has long experience with implementing multilateral- and bilateral-funded projects andprogramsthathavehelpedbuildsufficienttechnicalcapacityforforestprotectionandSFM.However,with the transition toward federalism and the reorganization required to build new institutionalstructures at different levels, it is expected that there will be significant institutional capacitydeficienciesforimplementation,especiallyatthelocallevel.

Institutionalcollaborationinsideandbetweenforestinstitutionsneedstobeimproved(MFSC2018).TheMFSC and its regional, district, and local offices need to improve their communication on policyneedsandemerging issues.Widerconsultationswith field-level implementers, researchers,andcross-sectoralexpertsarenecessarytoensureconformityofforestrypolicieswithotherpoliciesortoidentifyareaswhere trade-offs can beminimized. Amechanism for linking district development committees,village development committees, NGOs, community-based organizations, and civil society throughvariouspoliticalpartiesandcommunityforestusergroups(CFUGs)needstobedeveloped.Theseissuesneedtobeaddressedorresolvedduringtheongoingdecentralizationprocess.

OPPORTUNITIESTOIMPROVEFORESTS’CONTRIBUTIONTONEPAL’SECONOMY

DynamicsbetweenEconomicSectorsandForests

As discussed, the forest sector generates direct and indirect benefits to Nepal’s economy. Directbenefits includetheprovisionofgoodssuchastimber,NTFPs,or firewoodwithopportunitiesfor jobsand incomegenerationfromharvestingandvaluechainaddition.Sustainable forestmanagementandconservation provide indirect benefits to economic sectors such as agriculture (that is, nutrition), theenergysector(that is,sedimentationcontrol),tourism(that is,floraandfauna),andtransport(that is,erosioncontrol).

While forestsprovidesuch indirectbenefitstoothersectorsoftheeconomy,policiesandpracticesoftheseandothersectors (including infrastructuredevelopmentandmining)areoftendevelopedeitherwithouttakingintoaccounttheirimpactonforestsoracceptingnegativeimpactsasanunavoidableoracceptabletrade-off(Figure1).

Figure1.DynamicsbetweenEconomicSectorandForests

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Increasingagriculturalproductivityforsmallandmarginalfarmersthroughagriculturalintensificationwouldhelpreduceencroachmentanduncontrolledgrazinginforestareas.EffectiveimplementationofREDD+ needs a progressive increase in agricultural productivity (crop and livestock) to contribute tofood security and reduce encroachment into forests. However, it is necessary to identify means toincrease productivitywhile reducing the adverse environmental impacts, includingGHG emissions. Inthiscontext,respondingtotheneeds,interests,andrightsofsmallandmarginalfarmersisparticularlyimportant.

Hydropower has the potential to launch Nepal into a higher growth trajectory, but its impacts onforestsmustbecarefullyconsideredinplanningnewenergyinvestmentsandrelatedinfrastructure.Identified as a national development priority (IHA 2017), hydropower has the potential to catalyzeeconomicgrowth,reducepoverty,andsubstantiallyincreaseaccesstoelectricity.Morethan98percentof feasiblegenerationhasnotbeen realizedyet. Since1990, theprivate sectorhasemergedasakeyplayer in the development of the sector, but the increasing energy demand still can’t be met.Hydropower plants have highmaintenance costs due to sedimentation ofwater reservoirs aswell asfrequentturbineoutagesbecauseofdamagefrominflowingminerals.Iflanduseincatchmentsofthesehydropower facilities were managed sustainably—for example, by exploring opportunities forreforestationandafforestation—itcouldhelpimprovetheefficiencyoftheplantsbyreducingsedimentinflowandimprovingwaterregulation(Rawat2011).

Improving access to non-wood-based energywill, over time, reduce dependency on fuelwood andhencecontributetoreducingforestdegradation.A2015studyfoundthatinNepal,themeanreductionin household firewood collection associated with use of a biogas plant for cooking is about 1,100kilogramsperyearfromameanofabout2,400kilogramsperyear(SomanathanandBluffstone2015). While access to alternative energy gradually improves, remaining fuelwood needs should bemet byoperatingcommunitywoodlotsorfuelwoodplantations.

Nepal’stourismsectorisprimarilynature-based,withmountaineering,trekking,white-waterrafting,andsafaritours intotheforeststhemainactivities.Theimportanceofnature-basedtourismisseenbythenumberofvisitorswhovisitprotectedareas.During2014,514,277touristsvisitedPAs,orabout65percentofthetotalnumberofvisitorstothecountrythatyear.ThoughthenumberofvisitorstoPAsdeclined to387,383 in2015becauseof theearthquake, theshareof foreignvisitors toPAs remainedstableataround70percent(DNPWC2014).

Several factors affect the tourism industry in Nepal and limit its growth trajectory: (a) the lack ofsustainableinfrastructuredevelopmentindifferenttouristdestinationsandaccesstoit,(b)theunevenredistributionofbenefitstokeystakeholders,(c)thelackofcapacitybuildingandjobopportunities,(d)lack of human capacity, (e) the limited resources for conservation efforts and PAmanagement, (f) aweakserviceindustry,and(g)weakpolicyandregulatoryframeworks.

Nepal’s transport sector is highly vulnerable to the impactof climate changeandnatural disasters.ThecostofbuildingandmaintainingroadinfrastructureinNepalishighcomparedtoothercountriesinthe region. High rainfall and flooding can cause significant damage to the road drainage structures,breaching of road embankments, scouring of bridge foundations, washouts, and so on. In addition,naturaldisasterssuchasearthquakesandlandslidesmakeroadbuildingandmaintenanceachallengeintermsof technical designandproviding adequate resources for appropriatedesignandmaintenance.ThetransportsectorconsumesaconsiderableportionoftheoverallinfrastructureinvestmentinNepal,

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withamajorshareofthetransportsectorbudgetexpendedonimprovementandmaintenanceofroads(MPIT2015).

Bioengineering,includingtheuseoftreesorshrubs,isaprovenconcepttodecreaseerosionandtheoccurrenceof landslidesandrelatednegativeimpactonroads (WorldBank2015).Todate,therearenodesignspecificationsforbuildingclimate-proofroadsinNepal.Thegovernmentneedstodevelopaframeworkto(a)identifylocationsforextremeclimateconditions,(b)carryoutriskanalysisandimpactassessments, (c)plananappropriateresponsetotherisks, (d)calculatethe lifecyclecostsofbuildingroads, (e) design the infrastructure accordingly, (f) implement the plan, and (g) carry out continuousmonitoringandevaluation.Althoughthiswillnotpreventextremeclimateconditions,itwillhelpreducethelifecyclecostsoftheroads(MPIT2015).

Whiletheabove-mentionedsectorsindirectlybenefitfromforests,theirpracticesarealsoidentifiedintheREDD+ Strategy (MFSC2018) as drivers of deforestation and forest degradation. In response, thestrategylistsproposedstrategiesonlandusethatdonotcomeatthecostsofforests,includingactionsneededinsectorsimpactingforestsandtheneedforimprovedcoordinationandcollaboration(Table4).

Table4.REDD+Strategy:StrategiesandActionsRelatedtoLandUsePromoteoptimumlanduseacrossallthephysiographicregions

4.1PromoteimplementationoftheLandUsePolicy2015,particularlyprovisionsrelatedtotheforestsector.Updatezoningandmappingofforestlanduseregularly.

4.2Developandimplementeconomicandmarket-basedincentivestopromoteoptimallanduse.

4.3Developextensionmaterialsonlinkingclimatechangeandbenefitsoflanduseplanninganddisseminatethroughmassmediaandothermethods.

4.4Ensuresocialandenvironmentalsafeguardsduringtheformulationandimplementationoflanduseplan.

4.5Strengthenenforcementandmonitoringcapacityofdistrict-levellandencroachmentcontrolcommitteesandlawenforcementagenciestoreclaimillegallyoccupiedforestlands.

Increaseagriculturalproductivityofforest-dependentandothersmallholders

7.1Supportclimate-smartagriculturesuchasagroforestry,ecologicalfarming,SlopingAgricultureLandTechnologies,minimumtillage,directseedingtechnologies,anduseoffarmyardmanure.

7.2Supporttorevisitandrevisepoliciesforsmall-scalesustainableagriculture.

7.3PromotefodderandforagemanagementinCF,CFM,andotherCBFM,andprivatelandwithincreasedaccesstoseed/seedling,cultivation,management,andfeedingandprocessingtechnology.

7.4Conserveandincreasewatersourcesandpromoteefficientwatermanagementtechnologies.

7.5Supportforest-dependentandsmallholderswithinformation,technology,andincentivestoincreasetheiraccessforthecropandlivestockbreedingandhusbandryimprovement.

Increaseaccesstosustainable,affordable,andreliablealternativeenergy

8.1Promotesustainable,cost-effectivealternativeenergyandenergy-savingtechnologiessuchasbio-briquettes,biogas,solar,wind,andimprovedcookstovesthrougheducational,financial,andtechnologicalinterventions.

8.2Simplifytheregistrationprocess,provideinputontechnology,andsubsidiesonequipmentforenergyproductionthatencouragesuseofavailableenergyinoperating

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forest-basedenterprises.

8.3Developmechanismstoincreaseaccessofforest-dependentpoorandmarginalizedpeopletoalternativeenergyandenergy-savingtechnologies.

Improvecollaboration,cooperation,andsynergyamongsectoralpolicies,sectors,andactors

9.1Establishstrongcoordinationmechanismamongrelevantsectorsforintegratedplanning,implementation,monitoring,andevaluationofsectoralpolicies,plans,andprograms.

9.2Identifyandalignlegalframeworksinlinewithinternationalcommitmentsandharmonizebetweencross-sectoralpoliciesandlegalframeworks.

9.3Strengthenmulti-stakeholderandintegratedplanningapproachatalllevelsinvolvingkeygovernmentandnongovernmentagenciesonland,forest,water,agriculture,energy,andinfrastructure,andincreaseconsensusandcommitments.

9.4Developpolicies,legalframeworks,andinstitutionsforinvestmentinclimatechangemitigation,includingperformance-basedpaymentmechanisms.

9.5Sensitizesecurityagencies,media,andcivilsocietyonclimatechange,REDD+,andforestconservation.

9.6Incorporateclimatechange,rolesofforestonclimatechangemitigationandimportanceofforestconservationinformaleducation.

9.7Controlcross-borderillegaltradeofforestproductsthroughintercountrycooperationwithIndianandChineseauthorities.

ForestSectorEconomicandEmploymentPotential

The forest sector presents promising potential to contribute further to economic growth andemploymentinNepal.AstudybytheMSFP(2014a)estimatesthatinaconservativescenario,theforestsector can provide up to 420,000 jobs (Table 5). Presently, the private sector provides nearly 99,000formal full-time jobs in the forest sector, per year, and community-based organizations, includingCFUGs,provideabout31,000jobs,foratotalof130,000jobs.Thus,eveninaconservativescenario,thepotentialexistsforcreatingthreetimesmorejobsinNepal’sforestsectorthanatthepresentlevel;inan optimistic scenario, even 10 times more. The transition of an informal workforce to formalemployees could be achieved by involving workers in enterprise-oriented forest management andproduction of goods andservices as well as in otherfunctions of the valuechains.

SFM and development offorest plantations ondegraded and barren landscould help meet energyneeds without degradingnatural forests and reducedependence on timberimports. The potentialsustainable supplyof timberand firewood from Nepal’s

Table5.ScenariosforPotentialEconomicValueandEmploymentOpportunitiesofForestSubsectors

Subsector

Economicvalue(NPR,millions)

Numberofsustainable,full-timejobs

Conservativescenario

Optimisticscenario

Conservativescenario

Optimisticscenario

Timber 55,127 270,697 206,725 812,090NTFPs 11,635 58,173 87,259 290,865Forestcarbon 4,235 13,572 37,054 118,755Ecotourism 14,572 21,567 72,860 107,833Forestbioenergy

2,126 9,107 15,633 53,571

87,695 373,116 419,531 1,383,114Source:MSFP2014.

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forests isestimatedtobe21.7millionm3/year,butvery littleofthispotentialproductivity iscurrentlyharvested or utilized. As a result, the country imports about 8,500 m3 timber annually. In fact, it isestimated that Nepal’s forest sector—if managed for sustainable production rather than strictprotection—couldsustainablygenerate$180millionayearfromtimberharvestsalone(DFRS2015).

CURRENTWORLDBANKANDPARTNERENGAGEMENTINFORESTSTheWorld Bank engagement in Nepal’s forests is consistent with the current Country PartnershipStrategyand the futureCountryPartnership Framework. TheCPS states that the “WBGwill supportNepal’saspirationsforincreasingeconomicgrowththroughincreasedinvestmentsinkeysectorswhileprovidingsupporttomakegrowthmoreinclusiveandtohelpequalizeopportunitiesacrossgroupsandcommunities.”WhiletheforestsectorisnotlistedintheCPSasaprioritysector,managingforestsandotherlandusesinasustainablemannerisessentialforothersectors,suchasenergyandtransport,tosustain their assets andability tooperate. Theproposed forestengagementwill buildon theexistingWorld Bank portfolio for Nepal, design new operations based on identified needs, and exploreopportunitiesforincreasingBankfundingandleveragingadditionalfinancefromdevelopmentpartnersinNepal.

TherecentlyconcludedStrategicCountryDiagnosticcites“naturalresources”asoneofsixpriorities(WorldBank2017a).Keydevelopmentgapsidentifiedforthispriorityincludethefollowing:

• Poormanagementofnaturalresources• Weakforestryandenvironmentalmanagement• Lowprivateinvestment• Weak/constrainedregulatoryenvironment• Lowandvolatileagriculturalproductivity• Weakpublicinstitutionsandcapacity

The Country Partnership Framework FY19–22, currently in development,will build on the SCD andfocuson(a)publicinstitutions,(b)growthandemployment,and(c) inclusionandresilience.IndicativeactivitiesforthesefocusareasprovideanexcellentopportunitytoaddressNepal’sforestchallengebyclosingtheabove-mentionedkeydevelopmentgaps.

WorldBankEngagementinForests

ThecurrentBanklendingportfolioinNepalcoverstheenergysector(hydropowerandenergyaccess,powersectorreform),agriculture(livestock,irrigation,foodsecurity,commercialization,andtrade),andtransport (roads).7 The recently closed regional wildlife project contributed to betterprotected areamanagementandexploringecotourismopportunities.

Although no current lending portfolio focuses exclusively on the forest sector, several trust-fundedinitiatives, implemented by the World Bank, provide up-front finance for activities related tocombatting the illegal wildlife trade (GEF), REDD+ (FCPF, FIP), and integrated catchment areamanagement(KGGTF).

7 See Annex 1 for the activeWorld Bank portfolio, Annex 2 for the currentWorld Bank pipeline, and Annex 3 for amoredetaileddescriptionofforestopportunitiesandthreats,WorldBankprojectsaddressingtheseissues,andremaininggaps.

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TheFCPFCarbonFundissupportingthedevelopmentofanEmissionReductionProgram(ERP)for12districtsintheTerairegionthatwilleventuallyprovideperformance-basedpaymentsforverifiedGHGemissionreductionstobedistributedthroughabenefit-sharingmechanism.TheERPhas identifiedsixprogram activities that have the potential to generate the GHG emission reductions and non-carbonbenefits:

1. Improving the management practices under CBFM models, building on traditional andcustomarypractices

2. Transferofnationalforeststocommunityandcollaborativeforestusergroups3. Engagementofprivatesectorforestrythroughimprovedaccesstofinanceandinputs4. Expandingalternativeenergywithbiogasandimprovedcookstoves5. Scalinguppro-poorleaseholdforestry6. Supportingintegratedlanduseplanningtoreduceforestconversion

However,severalbarriersneedtobe liftedtoachievetheseemissionreductions,suchasthe lackofinteragency collaboration, the fragmentation of forest-related external and internal funding streams,andthelimitedinstitutionalcapacitytoabsorbresourcesandprovideappropriateguidanceandadviceto local-levelentities.Moreover,nodedicatedup-frontfinancehasbeencommittedyetto implementtheseactivities,highlightingtheneedforapartnershipapproachtohelpNepal implementtheagreedactions that will result in emission reductions and non-carbon environmental, economic, and socialbenefits.

In 2015, the government of Nepal expressed interest in participating in the Forest InvestmentProgramaspartoftheClimateInvestmentFunds,apartnershipofseveralmultilateraldevelopmentbankshostedbytheWorldBank.TheFIPSub-CommitteeendorsedtheFIPinvestmentplanforNepalinDecember 2017,which unlocked $24million in FIP resources to cofinance activities thatmay initiatetransformationalchangesintheforestandforest-relatedsectors.AllocatedFIPresourceswillprovideagoodvehicle for supportingand leveragingother resources forNepal’s Forests forProsperity agenda,includingIDA-18.

TheFIPinvestmentplanidentifiesfiveareasofinvestments:

1. SustainableforestmanagementthroughCBFM2. Forestmanagementforaforest-basedeconomy3. Privatelandforestdevelopment4. Enhancedenvironmentalservicesthroughnature-basedtourism5. Watershedmanagementthroughinnovativetechnologies

Inaddition,$4.5millionwereallocatedtotheFIPDedicatedGrantMechanismfor IndigenousPeoplesand Local Communities (DGM), which will complement the investments and ensure the full andtransparentparticipationofindigenouspeoplesandlocalcommunitygroupsinNepal’sforestagenda.

TheFIPinvestmentplanwasdevelopedthroughextensiveconsultationswithallkeystakeholdersanddevelopment partners: the government of Nepal (Ministry of Forests and Soil Conservation and itsdifferent departments, Ministry of Environment and Population, Ministry of Livestock Development,Ministry of Finance, and National Planning Commission); representatives from the private sector,including entrepreneurs in the forest sector; trade and industry federations, banks and financialinstitutions; community-basedorganizations, includingCBFMgroups indifferentpartsof the country;

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civil society, includingNGOs, federations,andassociationsandtheirmembers;developmentpartners;andelectedrepresentativesatthelocallevel.

DevelopmentPartnersEngagementinForestsandForest-RelevantSectors

Development partners have provided significant support to the Nepal forest sector and remainengaged, although financial assistance in more recent years has shifted to support earthquakeemergencyandrecoveryactivitiesaswellaspeacebuilding,governance,andenergysecurity.In2015,the top seven development partners (DFID, GEF, government of Finland, Swiss DevelopmentCooperation, United Nations, USAID, and the World Bank) committed a total of $148.1 million toongoing forestry and environmental projects (MFSC 2015b). The remaining forest-related efforts aresmall and uncoordinated, calling for a revitalized approach to addressing the sector challenges andeconomicpotential, and supporting government commitment tomodernize its forest institutions andmanagement.

One of the most known and influential donor-supported forest programs in Nepal was theMulti-Stakeholder Forest Program (MSFP), supported by DFID, the government of Finland, and the SwissDevelopment Cooperation. The MSFP was terminated prematurely because of structural andinstitutionalchallenges—namely,theprogram’sfocusmoreontargetsthanqualityofdelivery,too-shorttimeframefor implementation,blanketapproachtoprivatesectorengagement,andchronicshortageofkeyserviceproviders;weakNGOcapacity;lackofinteragencycommunicationandcollaboration;lackof clarity on authority for local communities to manage forests; and inadequate human resourcesprovided from the donor and recipient side. In addition, theMSFP struggledwith a large budget butsmallworkforce,andinsufficientfiduciaryoversightandsupervision.LessonslearnedfromtheMSFParepresentedinBox1.

OnekeysuccessoftheMSFPwas itsmulti-stakeholderapproach,whichallowedkeystakeholderstoparticipatemeaningfully, confidently, andequally inall theprocessesofpolicydeliberationaswell asprogramplanning,implementation,andmonitoring.ThesestakeholdersincludedgovernmentofNepalstaff members, civil society members, communities, and private sector representatives. The multi-stakeholder approach has nowbeen extended to the subnational and local levels, and theMFSC hasadoptedandinstitutionalizeditinpolicyandplanningproceduresatalllevelsduetoitseffectivenessinincreasing stakeholder ownership. As a result of the MSFP efforts to institutionalize the multi-stakeholder approach in forestmanagement, the collaboration between the government and privatesectorhasnoticeablyimproved.TheMFSChasamendedtheForestRegulations(1995;5thAmendmentin 2015), which are considered a policy breakthrough in relation to private sector involvement. Theamended regulations have created a more enabling environment for private foresters to harvest,transport, and sell their forest products. Similarly, the government of Nepal has revised thedistancefromforestsrule forenterpriseestablishment in2014,creatingamore favorableenvironment for theestablishmentofforest-basedenterprisesinruralareas.

Moving forward, the Bank will continue its dialogue with development partners to exploreopportunitiesforcoordinatedsupporttoNepal’srenewedforestagenda.Theseopportunitiesincludereevaluatingactivitiesfortheirpotentialtobeforest-relevant(thatis,theroleofforestecosystemsforbuilding climate resilience, capacity development in the context of the federalization process) andexploringthepotential forsupportingnewactivitiestoaddressbarriers formakingtheforestsectoravaluable contributor to Nepal’s economy, job market, peoples’ livelihoods, and environmentalsustainability.

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WORLDBANKGROUPRESPONSE:AMULTISECTORAL,PROGRAMMATICAPPROACHINSUPPORTOFNEPAL’SFORESTSTheobjectiveoftheproposedprogrammaticengagementistosupportthegovernmentofNepalwithexploringtheuntappedpotentialofNepal’sforestsforeconomicgrowth,jobcreation,socialstability,and addressing climate change. This engagement is envisaged to be implemented through a set of“forest smart = climate smart” operations in several sectors that address barriers and promoteopportunities to furtherenhance theeconomicandclimatecontributionofNepal’s forestsand forestlandscapes(Figure2).

Box1.SelectedLessonsLearnedandGoodPracticesfromtheMSFP• The multi-stakeholder approach is effective for increasing ownership but time-consuming to

implement.• ThevaluechainapproachandtheValueChainDevelopmentFund(VCDF)appeartobepromisingfor

enterprisepromotion.• Addressing needs and interests of the households and individuals increases the commitment and

likelihoodofsuccessandimpact.• Support through the livelihood improvement plan has been a means of economic and social

empowerment,andworkedasasafetynetforwomen,thepoor,andthedisadvantaged.• Programs designed and implemented by local institutions, such as the LHF groups, are more

effectiveinimprovingthelivelihoodsofbeneficiariesthanprogramsdesignedfromthecenterduetoanincreaseinthelevelofownership,responsibility,andappropriateness.

• Offeringmultipleandcustomizedlivelihoodoptions,andmatchingthesewiththespecificneedsandinterestsofthehouseholdsandindividuals,increasethecommitmentandlikelihoodofsuccessandimpact.

• Multi-stakeholder engagement in the livelihood improvement programs has increased theawarenessof,andaccountabilitytowardwomen,thepoor,andthedisadvantaged.

• SFMhassignificantpotentialtocontributetothelocaleconomy,anditisagoodoptiontoimproveboththequalityandproductivityofdiminishingover-matureforests.

• SFMprovidesmuchopportunityforlocalemployment,smallenterpriseestablishment,andprovisionoffuelwood,poles,andtimberforgroupmembers.

• Thereisaneedformutualcollaborationbetweengovernmentbodies,localcommunities,andotherrelevant stakeholders for effective implementation—further support for the multi-stakeholderapproach.

• A common understanding and collaborativemilieu among stakeholders is important for effectiveimplementationandincreasedownershiptoensurethesustainabilityofSFM.

• Clear provisions are needed in policy and guidelines to expand SFM to different ecological zones,forest types, and with different management modalities; current policies and guidelines needamendingtoencouragethisexpansionratherthanimposingablanketapproachacrossthecountry.

• ConsideringtheeconomicpotentialofSFM,bothpoliticalandbureaucraticcommitmentiscrucialatalllevelstoachievetheanticipatedresultsfromSFM.

Source:MSFP2016.

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Figure2.WorldBankGroupForestEngagementinNepal

An illustrative list of core results from this programmatic engagement could include the following(indicatorstobedetermined):

• Values of forest goods and ecosystem services (for example, habitat services, sedimentretention,waterregulation,carbonsequestration)areincreased.

• People have secure employment and benefit from forest-dependent jobs (including fromnature-basedtourism).

• Institutionalandhumancapacityatalllevels(national,provincial,andmunicipal)isincreased.• Increasedwoodproduction.• Emissionsfromdeforestationandforestdegradationareavoidedandreduced.• Forestecosystemsareresilienttodisturbancesandprovideessentialecosystemservices.• Peoplehaveaccesstoalternativeenergyresourcesandenergyneedsaremet.

Unleashing the potential of Nepal’s forests requires investment, technical assistance, and capacitydevelopment to sustaingrowthnotonly in the forest sectorbutalso inother sectors thataffect anddepend on forests, including tourism, agriculture, hydropower, and transport. Through an integratedlandscape approach, competing land uses/sectors/interests can be addressed and the trade-offsminimized if they are supported by a program or a series of projects (programmatic approach)consistentwiththeobjectiveoftheproposedforestengagement.

WBGForestEngagementinNepalObjective:TosupportthegovernmentofNepalwithexploringtheuntapped

potentialofNepal’sforestsforeconomicgrowth,jobcreation,socialstabilityandaddressingclimatechange

Project1 Project2 Project3 Projectx…

Financialandtechnical resourcesaredeployed insupportofpublicandprivatesectoroperationsimplemented bythegovernment authorities, localstakeholders andtheprivatesector

Exampleofpotentialprojectsandprograms(tobeprioritizedthroughconsultativeprocess):

• forestlawenforcementandgovernance,includingsimplificationofregulationsforwoodharvesting• Integratedlanduseplanning• landandtreetenure• scale-upofcommunity-basedforestmanagement• plantationforestry,especiallyindegradedlands• woodprocessing• forest-smartroads• catchmentareamanagementlinkedwithhydropowerinfrastructure• improvedaccesstorenewableenergy• nature-basedTourism• climate-smartagriculture

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The Bank’s Forest Action Plan FY16–20 (FAP) underlines how “forests generate essential services tosustain key sectors (agricultural, energy, water, mining, transport and urban sectors), by helping tomaintainthefertilityofthesoil,protectwatersheds,providehabitatforforestbiodiversity,andreducethe risk of natural disasters, including floods and landslides.” Building on the FAP, the proposedapproach would encompass selective interventions under two pillars: (1) supporting the Forests forProsperity program led by theMFSC, and (2) promoting forest-smart interventions in other relevantsectors.

SupporttotheForestsforProsperityprogramcouldincludethefollowing:

• Strengthening institutions at the national and local levels for sustainable forestmanagement,including improved coordination, information and knowledge management, planning,monitoring,andenforcement

• Increasing productivity through, for example, stand rotation, re- and afforestation usingproductive species, forest plantations, the introduction of new technology, and firemanagement

• Communityforestry:community-basedforestmanagement,managementoftimberandNTFPs,and promotion of sustainable forest-based micro enterprises (for example, communitywoodlots,community-ownedsawmillsandwoodprocessingfacilities,treenurseries,furnitureenterprises)

• Plantationforestryindegradedlandsandrehabilitationofdegradedforests• Catchment treatment for sustainable hydropower: sedimentation control measures (for

example,terracing,bioengineeredsedimenttraps)• ImprovedmanagementofPAsandbufferareasforecotourismdevelopment• Alternative livelihoods in buffer zone communities (for example, agroforestry, artisanal

activities,employmentopportunitiesinnurseriesorplantations)Bank projects in the following sectors provide good opportunities for forest-smart interventions aswellasincreasedclimateco-benefits:

• Tourism:destinationplanninganddevelopment,agrotourism,expandingmountaintourism(forexample,shelters,hotels,serviceproviders)

• Agriculture:climate-smartagriculture,agroforestry,andsoon• Hydropowerandrenewableenergysources:accesstorenewableenergysourcessuchassolar,

wind,orsmallhydropower• Roads: using “green smart infrastructure” approaches, including bioengineering for slope

stabilization,wildlifecorridors,integratedroadsandbiodiversitylanduseplans• Urbandevelopment:urbanforestryandbetterlanduseplanning

TheprogrammaticengagementwouldenabletheWorldBankGrouptobetteruseamenuoffinancialinstruments to address identified barriers or opportunities and take advantage of synergies.Instruments include grants for technical assistance, including available under FIP and IFC advisoryservices for exploring private sector opportunities; performance-based payments for activities thatgenerate emission reductions from REDD and, once verified, lead to performance-based payments;loans (FIP and IDA) for investments that have a financial or clear economic return from financedactivities (for example, plantation forestry, supply chain improvements, risk reduction or increasedresilienceforinfrastructureinvestments);andpossiblyguaranteestohelpre-riskprivateinvestment(for

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example, indestinationdevelopment).Annex3 summarizes forestopportunities, threats,andgapsaswellaspotentialBankinstrumentstoaddressthem.

TheproposedengagementwillbefullyconsistentwiththeSCDandtheemergingprioritiesconsideredfortheCPFFY19–22.ItisexpectedthattheCountryManagementUnitwillensurethat,movingforward,thepipelinewillsupporttheobjectiveofthisprogrammaticengagement.

The CPF FY19–22 will guide future Bank investments around three emerging priority areas: (1)institutions, (2) growthandemployment, and (3) inclusionand resilience.The following list illustrateshowtheproposedforestengagementmaycontributetothethreethemes:

1. Institutions• Trainingandcapacity-buildingprograms,especiallyformunicipalitiesandstategovernments• Modernizingmonitoring (in situ and new sources of earth observation), information, and

analyticaltools,andknowledgeproducts• Scenario planning for key watersheds/basins; multisectoral institutional coordination

frameworks(nationaltomicro-watershedlevel)• Supportingwatershed/landscape/landuseplanning• EIAprocessstrengtheningforinfrastructuredevelopment• ScalingupPESschemes

2. Growthandemployment• Furtherexploringlinksbetweenforestsandgrowthandjobs• Supportingforestplantationsandforest-relatedSMEs,includingvaluechains• Exploring“cascade”options• Developingeco-tourismopportunitiesoutsideprotectedareas• Developingforest-smartcodesofpractice• DevelopingcreditlinesforCFUGsforforestactivities

3. Inclusionandresilience• Buildingawarenessonroleofforestsandforestlandscapesforresilience• Developingforestfireandearlywarningsystems• Improvingmeaningfulstakeholderinclusionandbenefit-sharingplans• Supportcommunitymonitoring• Improvingresilienceandsustainabilityofforestcommunitiesthroughintegratedwatershed

approachesandcomprehensiveapproachestonaturaldisaster,includingfireriskreduction

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ANNEX1.NEPALWORLDBANKPROJECTPORTFOLIO

ProjectID Project LeadGP/CCSA ContributingGP/CCSA

ApprovalFY

ClosingFY

Lendinginstrument

Commitmentamount

($,millions)P087140 ProjectforAgricultureCommercialization

andTrade(PACT)Agriculture 2009 2018 SIL 60.00

P099296 NPIrrigation&WaterResourcesManagementProject

Agriculture 2008 2018 SIL 114.30

P128905 NepalAgricultureandFoodSecurityProject

Agriculture 2013 2018 SIL 46.50

P112893 KabeliTransmissionProject EnergyandExtractives 2011 2017 SIL 38.00P122406 Kabeli-AHydroElectricProject EnergyandExtractives 2015 2020 SIL 46.00P131592 SREP-SupportedExtendedBiogasProject EnergyandExtractives 2015 2020 IPF 7.90P132289 KaliGandakiAHydropowerPlant

RehabilitationProject(KGAH)EnergyandExtractives 2013 2017 SIL 19.71

P146344 Nepal:GridSolarandEnergyEfficiency EnergyandExtractives 2015 2021 IPF 130.00P150066 Nepal:PowerSectorReformand

SustainableHydropowerDevelopmentEnergyandExtractives 2016 2020 IPF 20.00

P127508 BuildingResiliencetoClimateRelatedHazards

Social,Urban,Rural,andResilience

2013 2019 SIL 31.00

P155969 EarthquakeHousingReconstructionProject

Social,Urban,Rural,andResilience

SPL 2015 2021 IPF 200.00

P095977 RoadSectorDevelopmentProject TransportandICT 2008 2017 SIL 110.62P132750 ProjectforStrengtheningtheNational

RuralTransportProgramTransportandICT 2014 2020 SIL 100.00

P125198 AdditionalFinance:REDDReadiness ClimateChangeCCSA Environmentand NaturalResources

2017 2019 CF 5.6

P160523 FIPInvestmentPlanPreparationGrant EnvironmentandNaturalResources

ClimateChangeCCSA

2017 2018 IPF 0.25(24)

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ANNEX2.NEPALWORLDBANKPROJECTPIPELINE

Project

IDProject LeadGP/CCSA Contributing

GP/CCSACross-cuttingarea

ApprovalFY

Lendinginstrument

Commitments($,millions)

Total SourceP125198 NepalEmissionReductionProgram Environmentand

NaturalResourcesCCCCSA 2021 CF 0.00 TBD

P156797 NepalLivestockSectorInnovationProject Agriculture FAM,TAC JOB,GEN,CLC

2017 IPF 80.00 IDA

P158364 NPModernizationofRaniJamaraKulariyaIrrigationScheme

Water AGR 2018 IPF 43.48 IDA

P160593 ResilienceandRiskMitigationProject Social,Urban,Rural,andResilience

CLC,ENV CLC 2017 IPF 5.00 TF

P154693 NepalEnergySectorDevelopmentPolicyCredit

EnergyandExtractives AGR,ENV,MFM,WAT

FCV,GEN,PPP,CLC

2017 DPL 150.00 IDA

P154109 UT1-UpperTrishuliHydroProject EnergyandExtractives 2018 NA 100.00 IDAP154323 StrategicRoadsDevelopmentProject TransportandICT ENV,MFM,URS 2017 IPF 150.00 IDAP157607 AdditionalFinancetoRoadSector

DevelopmentProjectTransportandICT URS CLC 2017 IPF 55.00 IDA

TBD FIPDedicatedGrantMechanismforIndigenousPeoplesandLocalCommunities

EnvironmentandNaturalResources

GPSURR 2018 IPF 4.5 TF

TBD ForestAccounts EnvironmentandNaturalResources

IPF TF

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ANNEX3.FORESTOPPORTUNITIES,THREATS,GAPS,ANDPOTENTIALINSTRUMENTSThis tableoutlines forest-relatedopportunitiesandtheassociatedpotential threatsand futuredrivers thatmightaffect theirachievement, theexistingorproposedBankprojectsthatcontributetowardachievementoftheopportunitiesandreductioninthethreats,andthegapsrequiringfurtherworkandsupport,includingcurrentknowledge,on-thegroundinvestments,institutionalcapacity,andpolicyandregulatoryframework.PotentialBankinstrumentsaresuggestedtoaddresstheseopportunities,threats,andgaps.Opportunities Threats ActiveBankprojectsor

projectsinpipelineGaps Bankinstruments

Sustainableforestmanagementtomaintainremainingnaturalforestsandwoodlands

• Highdependencyonforests

• Illegalharvesting• Unsustainableharvesting

(firewood)• Forestfires• Forestencroachment• Highopportunitycostsfor

agriculture• Limitedopportunitiesfor

CFUGStopursuelegalcommercializationofforestproductsinNepal

Inpipeline:• NepalEmissionReduction

ProgramInimplementation:• AF–REDDReadiness

Grant• FIPInvestmentPlan

• Scaleupcommunity-basedforestmanagement(CBFM)

• Improveforestgovernance

• Firemanagement,andenergyaccess

• Alternativelivelihoodoptionsforforest-dependentpeople

InvestmentProjectFinancing,includingtechnicalassistanceDevelopmentPolicyFinancingtogovernmentorforaprogramofpolicyandinstitutionalactionstoimprovelandusepolicyandincentivizeimplementation

Plantationforestrytoreducepressureonnaturalforestsandincreasetimbersupply

• Limitedaccesstomarkets• Lackofprivatesector(PS)

involvement• Tenureconfusion• Limitedaccesstofinance• Lackoflegalopportunities

forcommunityownerstopursuecommerciallogging

Inpipeline:• NepalEmissionReduction

Program• FIPInvestmentPlanInimplementation:• Nepal:GridSolarand

EnergyEfficiency• SREP-SupportedExtended

BiogasProject

• Accesstofinance• Accesstomarkets• Privatesectorcapacity• Securelandtenure

Privatesectoroptionsforfinancing,directinvestmentandguaranteesprovidedbyMIGAandIFCDevelopmentPolicyFinancingtogovernmentorforaprogramofpolicyandinstitutionalactionstoaddresslandtenureissues

Developmentofwood • Limitedaccesstomarkets Inpipeline: • Accesstofinance Privatesectoroptionsfor

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processingindustry • LackofPSinvolvement• Limitedaccesstofinance

• FIPInvestmentPlan

• Accesstomarkets• PScapacity• Securelandtenure

financing,directinvestmentandguaranteesprovidedbyMIGAandIFC

Hydropower/catchmentareamanagement

• Lackofplanningandinstitutionalcollaboration

• Lackofsedimentationdata

• Overgrazing• Deforestation

Inimplementation:• NepalEnergySector

DevelopmentPolicyCredit• UT1-UpperTrishuli

HydroProject• Kabeli-AHydroElectric

Project• Nepal:PowerSector

ReformandSustainableHydropowerDevelopment

• Catchmentareaplanning• Sustainablelivestock

management• Agroforestryand/or

sustainablesilvo-pastoralsystems

InvestmentProjectFinancing,includingtechnicalassistancetoimplementsustainablenaturalresourcesmanagementoptionsinwatershedsDevelopmentPolicyFinancingtogovernmentorforaprogramofpolicyandinstitutionalactionstoimprovelandusepolicyandincentivizeimplementation;fostercross-sectoralcollaboration

Nature-basedtourism • Lackofappropriateinfrastructure,includingaccessroadsandfacilities

• Invasivespecies

None • Infrastructure• Goodpracticestocombat

invasivespecies

InvestmentProjectFinancing,includingtechnicalassistancetoimplementsustainablenaturalresourcesmanagementoptionsinwatershedsPrivatesectoroptionsforfinancing,directinvestmentandguaranteesprovidedbyMIGAandIFC

Climate-smartagriculture • Demographicandculturalcomplexity

• Resettlement• Limitedsecurityoftenure

(mostagriculturallandinNepalisrentedundershort-termsharecropping

Inpipeline:• NepalLivestockSector

InnovationProject• NPModernizationofRani

JamaraKulariyaIrrigationScheme

• Enhancedagriculturalproductivity

• Climate-resilientcropspecies

• Greatertenuresecurity

InvestmentProjectFinancing,includingtechnicalassistancetopromotesustainableandclimate-smartagriculture;restoredegradedlandsforagriculturaluse

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arrangements) Inimplementation:• ProjectforAgriculture

CommercializationandTrade(PACT)

• NPIrrigation&WaterResourcesManagementProject

• NepalAgricultureandFoodSecurityProject

Greenroadsandotherinfrastructure

• Lackofplanning–bothbyindividualsectorsandacrosssectors

• Lackofknowledge,experience,andownershipbyinfrastructuresectors

• Inadequateexistingregulatoryframeworkforenvironmentandforestclearances

• Additionalup-frontinfrastructurecost

• Technicalchallengesofsteepterrain

• Inadequatebiodiversitybaselineknowledge

Inpipeline:• StrategicRoads

DevelopmentProject• AdditionalFinanceto

RoadSectorDevelopmentProject

Inimplementation:• RoadSectorDevelopment

Project• ProjectforStrengthening

theNationalRuralTransportProgram

• Modelingoflanduseoptionsthatsupportthesustainabilityoftheinfrastructure/oravoidnegativeimpactsonforests

• Comprehensiveplanningofroadsandotherinfrastructureatalandscapelevel,includingmanagementofadjacentforestareas

• Biodiversitystudiestoimprovebaselineknowledgeofsensitiveareasandwildlifecorridors

• ImprovementstoregulatoryframeworkforEIA/forestclearance

• InnovativefundingapproachesforSGI

• Awarenessraisingandcapacitybuildingwithininfrastructureagencies

InvestmentProjectFinancing,includingtechnicalassistancetoimplementsustainablenaturalresourcesmanagementoptionsinsupportofinfrastructureTrustfundsandgrantsforASA;andpilotinnovationsthatcanlaterbemainstreamedintoBankoperations

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Disasterpreparedness • Resettlement• Lackoftenuresecurity• Poorgovernance• Lackofprocessedwood

forreconstruction

Inpipeline:• ResilienceandRisk

MitigationProjectInimplementation:• EarthquakeHousing

ReconstructionProject• BuildingResilienceto

ClimateRelatedHazards

• Cleartenure• Resettlementplan• Disastermanagement

plan• Lackofprocessedwood

forreconstruction

Trustfundsandgrantstoallowscalingupofactivities,provideimmediateassistanceinresponsetonaturaldisastersandotheremergencies;andpilotinnovationsthatcanlaterbemainstreamedintoBankoperationsInvestmentProjectFinancing,includingtechnicalassistancetoimplementsustainablenaturalresourcesmanagementoptions,includingbioengineeringDevelopmentPolicyFinancingtogovernmentorforaprogramofpolicyandinstitutionalactionstoimprovelandusepolicyandincentivizeimplementation;fostercross-sectoralcollaboration;improveregulatoryframeworkforlandtenure

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