How policy corruption works

Nepal has established legal frameworks to combat corruption, yet it remains deeply embedded within political and institutional frameworks. This entrenchment is particularly evident when high-ranking elected leaders openly defend corrupt actors.

Policy corruption refers to manipulation of public policies for private gains. It has surged in Nepal because of several interrelated factors: parliamentary affairs buckling down to party whips and whims, the increasing dependency of civil society groups on international assistance at the expense of their autonomy and the loss of credibility within Nepal’s highly politicized judiciary. Institutions that are supposed to check executive powers are either failing to do their jobs or have become part of the kleptocratic network. As a result, budget (policy) caters to a significant number of new projects rather than offering directions to complete the existing ones. Funds are mostly directed to projects that are susceptible to theft, rather than those that genuinely serve the public interest. This leads to a decline in investments in essential social sectors such as education and health. For instance, Nepal’s federal education budget decreased from 15.66 percent of total expenditure in fiscal year 2013-14 to just 11.27 percent in 2023-24, reaching the lowest 5.18 percent in 2017-18. While the health sector budget rose from three percent in 2017-18 to 8.6 percent in 2021-22—likely due to the pressing need to respond to Covid pandemic—it subsequently dropped to 5.8 percent in 2023-24. These allocations fall significantly short of comparable international benchmarks for investment in essential social sectors.

Public procurement is one of the important government functions. It is also one of the most vulnerable public functions because it receives a substantial portion of public funds, accounting for nearly 25 percent of the total public expenditure. According to the Asian Development Bank (ADB), if principal debt payments are excluded, this figure can go as high as 50 percent. Regardless, the share of procurement in public expenditure is significant and it is likely to grow. However, the credibility of public procurement has declined, and the process has become cumbersome and expensive, increasing incentives to bypass established protocols by offering favors to public officials. This trend has been amplified by a growing nexus between government and the private sector, exemplified by the increasing number of lawmakers representing the business community. Many elected officials have openly promoted their personal businesses while serving in public office, further blurring the lines between private gain and public responsibility.

According to a study conducted by the Federation of Contractors’ Associations of Nepal (FCAN), eight construction entrepreneurs won seats in the House of Representatives in the 2022 general election. Eleven others secured provincial assembly seats. Additionally, in the local body elections held in May 2022, 247 contractors got elected, including 104 as mayors or chairpersons. Furthermore, 129 contractors were elected as ward chairpersons, 14 as ward members and two as district coordination committee members. Recently, the chairperson of a prominent construction company was appointed Minister for Urban Development. The minister continued to run his business and made decisions that benefited his company

Both the Public Procurement Act, 2007 and its associated regulations brought a year later grant significant discretionary authority to public officials. As a result, decisions regarding the types and locations of projects—airports and view towers come to mind—often lack a scientific basis. This discretionary authority arises primarily from deliberately ambiguous language within the laws. The procurement laws, for example, are filled with terms that can be manipulated for personal gain, such as “as prescribed” (‘tokiye bamojim’) and “maybe” (garina sakine cha). Notably, the term “as prescribed” appears 62 times, while "maybe” is mentioned 67 times in the procurement regulations.

It is striking that, in a country where policymaking tends to be slow, the procurement regulations have been amended 13 times since their introduction in 2008. Notably, six of these amendments (from the 6th to the 11th) occurred within just one year. Among these changes, the most controversial pertained to the criteria for assessing the financial qualifications of bidders, which have been altered multiple times. Other amendments permitted businesses to extend project timelines and raised the upper threshold for domestic-only competition. One particular amendment restricted competition by only allowing a select few businesses to bid for projects up to Rs 5bn. It is evident many of these amendments were not implemented to serve the national interest but rather to favor one or two particular companies.

While many scholars agree that the primary objectives of public procurement should be to support the acquisition of quality goods and services at competitive costs in a timely manner, the prevailing focus in Nepal tends to be on low-cost bidding. Technical evaluation is part of the process, but it is often discarded after preliminary screening. Although the law does not explicitly require a need to prioritize the lowest cost, this approach is how oversight institutions typically evaluate procurement activities. As a result, contractors are incentivized to underbid, only to seek contract extensions at higher costs later on.

Public procurement is indeed a daunting task. For public officials, fear of punitive measures sometimes works as a deterrent. The incumbent Minister for Health and Population has noted that some existing legal provisions can frustrate good intentions. He explained how the ministry was unable to use life-saving equipment due to an ongoing investigation into the procurement process.

The minister’s call for safeguarding good intentions and developing a clear understanding of how to make procurement transparent makes sense. One effective way to begin this process is by facilitating dialogues around bills both before and after they are tabled in the parliament. We must find innovative ways to bring good people to policymaking at all levels. This approach can also help ensure that these bills do not become overly centered on individual or party interests.

The author is the executive director of Niti Foundation