• Home
• About us
• Document Library
• Research Helpdesk
• Professional Development Directory
• Emerging Issues
• Email Bulletin
• Topic Guides
  • Civil service reform
  • Climate change adaptation
  • Communication and governance
  • Conflict
  • Empowerment and accountability
  • Fragile states
  • Gender
  • Human rights
  • Institutional development
  • International legal frameworks for humanitarian action
  • Justice
  • Measuring results
  • Political economy analysis
  • Political systems
  • Security sector reform
  • Service delivery
  • Social exclusion
  • Social protection
  • Statebuilding and peacebuilding
  • State-society relations and citizenship
• Gateway Guides
  • Anti-corruption
  • Decentralisation and local governance
  • Inclusive growth
  • Public financial management and accountability
• Consultancy Services
• Newsfeeds
• Contact us

What lessons can be learned from political economy analyses of Nepal to inform a) donor strategies in that country and b) future political economy analysis in any context? This paper examines political economy studies, commissioned by DFID, on Nepal's agricultural, energy, health and police sectors. It finds that, while the short-term scope for donor influence on policy and institutional reform is likely to be limited, donors can act as a counterweight to rent-seeking and short-term political pressures. In addition, political economy analysis is most useful when it can inform specific decisions and existing processes, especially joint donor analysis and action.

Common themes emerge from the political economy studies regarding how Nepal's current political situation is interacting with more deeply established institutional features to influence government performance. In general, it is weak government implementation capacity, rather than ideological differences or the strength of vested interests, that blocks effective progress in key reforms (on which there is a high level of consensus). In addition:

• Control of resources and decision-making in Nepal is highly centralised. Centralised control over public sector staffing decisions is an important focus of rent-seeking and political action.
• New (previously excluded) political players have sought to take control of patronage systems rather than to change how the political system works.
• Individual relationships appear to have been more important in determining political influence than institutional relationships.
• Policy adoption by political parties seems to have been driven largely by short-term political advantage.
• Political competition has remained focused on constitutional rather than policy issues. The move towards a federal political system will increase regional or local level accountability for government resources and service provision.

To maximise donor influence, joint action around a shared diagnosis and plan of action is required. Development partners need to offer dialogue and options, not prescriptions. They also need to:

• Recognise the governance and political economy constraints to growth.
• Ensure that their interventions are conflict-sensitive and do not contribute to undermining the fragile political settlement.
• Learn to live with a highly ambiguous situation and not exacerbate the challenge of effectively governing Nepal.
• Leave room for the necessary domestic political compromises and not push too hard for complex, interdependent programmes that are vulnerable to failure.
• Identify 'quick wins' and feasible policies at the sector level. This will help the government develop appropriate institutional arrangements. It will also improve awareness of risks and opportunity and thus increase the impact of proposed investments.
• Facilitate dialogue between government and the private sector with a view to developing a shared understanding of constraints faced – and the steps necessary to address them.

Experience in Nepal shows that political economy analysis is most useful when it can inform specific decisions and existing processes, especially joint donor analysis and action. In undertaking a political economy analysis:

• The terms of reference should be very specific about the processes and decisions that the analysis is intended to inform.
• The core team should include a national sector specialist, a political scientist and a social researcher, as well as an international political economy specialist.
• National sector specialists should command wide respect, have good contacts and not be seen as strongly politically aligned.
• Findings from stakeholder interviews and key informant analysis should be used to prepare an overall stakeholder analysis based on the assessment of the team.
• Institutional analysis should be used to inform understanding of the way in which stakeholders are able to exert influence within complex processes of policymaking and resource allocation.
• Historical analysis of past policy choices should be used to improve understanding of the policy process and context.