DFID's bilateral programme in Nepal - International Development Contents

5  Governance and Corruption

58. DFID notes that the Nepal state is highly centralised, with weak accountability:

    The civil service functions-it raises revenues, manages the macro economy, provides basic services - but it lacks capacity, and is politicised. It scores badly in public perceptions of corruption. State capacity to implement reforms and promote much needed coordination between the different levels of government is undermined by cycles of political impasse, brinkmanship and short-term deal-making.

In this inquiry, we did not focus on governance in general, but two issues: Parliament and Elections; and corruption.

Elections and Parliaments

59. In the run up to the 2013 Constitutional Assembly elections, the UK government provided £14 million in funding to provide a new electronic voter roll, 29 million new ballot papers, the training of election officials, and the printing of voter education materials. This funding also supported the training of domestic, regional and international election observers, trained 145 journalists and trained 150 women on leadership and campaign skills.[41] DFID claims that the programme increased the success of open elections and wider participation in the Constitutional Assembly election in 2013[42], but it does not intend to continue their work.

60. We questioned whether DFID should have funded parliamentary strengthening after the Elections were held. The Minister agreed that it would have been useful to do so as this might have helped form a more robust government.[43] We were informed that DFID was eager to work on parliamentary strengthening in Nepal and was undertaking scoping exercises.[44] The main question was about DFID staffing. To start a programme on parliamentary strengthening, it would either be necessary to add another member of staff to the Nepal team, or restructure the existing staff.[45]

61. Kul Gautam and RESULTS UK stressed that Nepal's new Constitution was expected to provide for strong representation of women in various elected bodies from national parliament to local development councils and urged Government to support them, particularly for those elected to local government as 'development activities at the local level have suffered from lack of accountability to democratically elected institutions'.[46]

62. DFID has provided significant funds for Elections in Nepal but not for the Constituent Assembly. We support DFID's decision to drop support for elections; other donors can fund them. We recommend DFID provide support for Parliament as soon as elections have been held, focusing on support for women MPs and committees. We recommend DFID support local elections through its existing local government programmes if possible, not least because the absence of local elections is seen as a source of corruption.


63. As DFID noted, corruption is seen as widespread in the state and private sector. There is little reliable country level data on the scale and impact of corruption, but in 2014, Transparency International ranked Nepal 126 out of 174 countries, with a score of 29 on the Corruption Perceptions Index (CPI). This is a deterioration compared to the 2013 score of 31.

64. We received a memorandum from Thomas Bell, who has over ten years' experience of working in Nepal; as a journalist (for the Daily Telegraph and the Economist), and latterly as a consultant on Nepali politics, which stresses the extent and nature of corruption in the country and the implications for foreign donors.

    'It is of course true, and has often been remarked upon for decades, that corruption is prevalent in Nepal. However, there is a big difference in understanding this as an obstacle to better governance, or as the very raison d'être of government.

    If one understands that the purpose of the state in Nepal is to extract resources for the enrichment of individuals and the sustenance of political and business networks, and therefore for the maintenance of those networks in power, then this leads to rather different conclusions about the efficacy of pouring in development money in search of growth and good governance. Government in Nepal has always been and remains an essentially extractive enterprise.

    Nepal is poor because of public corruption of the sorts described above, and the 'mafia'-like behavior of politically backed cartels and other similarly exploitative, value destroying and anti-competitive practices in the private sector.[47]

65. According to DFID, the Ministry of Finance has successfully reduced the scope for corruption through government systems, for example by introducing e-procurement, and by the roll-out of the Treasury Single Account system to all districts which has resulted in over 14,000 government accounts being closed. There have been other recent positive developments, for example the appointments of the Auditor General and the Chief Commissioner of the Anti-Corruption Authority (CIAA) after vacancies of over 6 years. We were informed by DFID that much will depend on whether Nepal can achieve progress on the Rule of Law. Although the Supreme Court seems largely willing to challenge the executive, there are concerns about politicisation in the judiciary, legal profession and police. Impunity is a pervasive problem.

66. DFID is spending up to £11.6m to improve public financial management and procurement systems and anti-corruption measures at national, local and sector levels implemented by the World Bank, the Asian Development Bank and Crown Agents. DFID published its Anti-Corruption and Counter Fraud strategy (ACCF) in 2013 and informs us that implementation is on track. DFID also pointed to key actions such as additional safeguards for identified high risk programmes. DFID has also scaled-up anti-corruption measures in every programme including strengthened financial scrutiny prior to making payments, spot checks and third-party monitoring. DFID added that all recent DFID Fiduciary Risk Assessments and Annual Statements of Progress points to the continued high risk corruption environment but with some improvements. We were informed that there was 'renewed impetus behind engagement on Public Expenditure and Financial Accountability, alongside ongoing efforts with procurement reform'.

67. In October 2014, ICAI published a report on DFID's Approach to Anti-Corruption and Its Impact on the Poor. Nepal was one of two country case studies of DFID's engagement in anti-corruption activities.[48] ICAI's report found that in Nepal, the Local Government and Community Development Programme (LGCDP) had provided corruption opportunities:

·  Citizens needing to pay bribes to government officials or to forge documentation in order to receive LGCDP funds.[49]

·  Political elite able to use status to influence direction of government funds and strong (60% of those surveyed) perception that influential community members are needed in order to receive funds.[50]

·  DFID aware government officials producing false documentation or documentation falsely promising compliance.[51]

·  DFID aware funds released late in the financial year under the LGCDP and that this put beneficiaries in difficulty. [52]

·  DFID knew-or should have known, given media coverage-of these negative consequences for the poor. There are concerns the "first do no harm" principle has been breached. [53]

68. The report recommended that before proceeding with support for government systems and structures known to be corrupt, DFID and the FCO should "redress the balance of their relationship with the host government".[54]

69. DFID was critical of the report, as were others. The most telling context within which the issue of corruption was raised by ICAI was the Local Government and Community Development Programme.[55] Questions about ICAI's methodology arose during the Minister's evidence to us.[56] ICAI robustly defended their findings and the selection of lead contractor, emphasising his wide experience of governance and anti-corruption and work on international development issues.[57]

70. However, ICAI has acknowledged that the presentation of the report was imperfect; it would, in retrospect, have presented the results of their stakeholder survey differently (by condensing the report's annex).[58] ICAI stated that "if the way the report is drafted has given the impression that the beneficiary surveys were the principal source of evidence, that is unfortunate, because they were not".[59] On the visit the Committee was informed of DFID Nepal's criticisms of the ICAI study, including its methodology. ICAI subsequently submitted a memorandum answering a number of questions about the methodology before the evidence session.

71. During the visit the Committee visited the District Development Committee Office in Kaski and each group visited a Ward Citizen Forum (WCFs) where corruption in Nepal and the Local Governance and Community Development Programme were discussed.

72. We were concerned that anti-corruption measures were of limited effectiveness as in fundamentally corrupt systems people get round them and pressed DFID on how to change the culture of corruption. The DFID Minister replied that:

    An anti-corruption agency is not going to have any impact unless there is a change throughout the culture of society, and I would say that that is the strength of our commitment. The ICAI report's principal thrust was that DFID should be more ambitious in its attempts, in its programmes throughout the world, to address petty corruption. The irony is that in Nepal I would suggest the programme that drew so much of their criticism—the local government programme—is precisely such a model that drives forward change throughout society. Setting up these village committees and empowering them—400,000 people trained to hold what passes for local government or Government to account, to ensure that the local priorities are dealt with and to publish the accounts at the village level to show everyone what it cost, what was spent and where the money went—is a huge strength in addressing specifically the agenda to which you have rightly drawn attention: changing society at all levels by changing the expectations of ordinary people that money will be spent properly and will not stick to people's fingers all along the way.[60]

He added:

    With respect to all our projects and all the people we work through and the capacity-building we do in Government by having our own technical-assistance people in the ministries—everywhere we work—we do spot checks, we do audits; we do all the things that you say. Now you are asking us to expand the programme. It is a very successful programme; I am sure we would want to expand it beyond those communities where it is in place to those that have not got one, but all these things come with opportunity costs and we are working at capacity. [61]

73. We asked DFID about ICAI's finding that DFID had "little understanding of what is working" in terms of anti-corruption work and had "not sought sufficient evidence". In reply the Minister stressed the importance of working with Government and the inadequacies of other options:

    The consultants came with an ideological prejudice, which, frankly, I share—namely that there is a preference for working with the private sector rather than with Government—but I would say that I am sufficiently open-minded to let the facts on the ground overcome my prejudice. Yes, we could go with their suggestion of working much more with NGOs rather than through Government systems, …, but I would suggest to you that NGOs are as prone to corruption in a corrupt society as the Government are, and we have not got the management capability to manage programmes running through any number of non-governmental organisations, whereas if we put—as we have done—our people and our technical support into the ministries, we build the capacity and the strength of Government to create an infrastructure of development, health care and local government that will last. If you build up an alternative system through the private sector or through NGOs, it will not persist any longer than you are funding it.[62]

Mark Smith added that the local government programme provided a very good example of how DFID learnt.

    The first phase provided support to block grants to the district level and provided community facilitators supported through NGOs. We have learnt from that for this national programme. DFID's support now does not go to the block grants; it goes to support the structures that the Minister has spoken about, to ensure that they are there, while the Government provide the grant funding to the community level. We had some issues over the way in which the community facilitators were being employed by NGOs. We have now brought that into them being employed by the Government, so we have learnt about how to reduce corruption scope through there. The programme itself, through annual reviews and through impact studies by external individuals, is learning, is adapting, is focusing more on the prevention of corruption and the co-ordination of delivery, and is now in a second phase, and we will keep adapting and learning until we get it completely right. [63]

The Minister added:

    the huge benefit of working with the Government through the Government system is best identified in health, where we have now rolled out these health posts—health care free at the point of delivery. Our engagement with the Government system by having our people in the ministry discussing and helping the formulation of policy and then its implementation has paid huge dividends, which we would never have been able to have achieved,…had we attempted to work outside the Government system.[64]

Conclusions and recommendations

74. Corruption is endemic in Nepal. We welcome ICAI's decision to make Nepal a case study in its Anti-corruption Inquiry. DFID Nepal has responded robustly to ICAI's report, criticising its methodology; ICAI has accepted that the wording of the report gave too much weight to survey material, but has defended its conclusions. We recommend our successor Committee discuss with ICAI the contractors it plans to use in its inquiries and the proposed methodology. We do not see the use of local NGOs in place of the state as a panacea; in corrupt societies the NGOs can also be corrupt. If Nepal is to become less corrupt, improvements have to be made to state institutions. We recommend that DFID continue to work through state institutions, but ensure funding is linked to improvements in performance. DFID's large budget in Nepal can only be justified if there are such improvements.

75. Increasingly DFID's bilateral programmes are in the world's most corrupt and fragile countries. How to work in these corrupt and fragile countries is increasingly one of DFID's biggest problems and will be one of the biggest challenges facing not only DFID but also those charged with its oversight, including our successor Committee, ICAI and the NAO. We recommend they make this a priority in the next Parliament.

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Prepared 27 March 2015