Nepal: A Political Economy Analysis Magnus Hatlebakk Report commissioned by the Norwegian Ministry of Foreign Affairs Publisher: Norwegian Institute of International Affairs Copyright: © Norwegian Institute of International Affairs 2017 ISSN: 1894-650X The report has been commissioned by the Norwegian Ministry of Foreign Affairs. Any views expressed in this publication are those of the author. They should not be interpreted as reflecting the views, official policy or position of the Norwegian Ministry of Foreign Affairs or the Norwegian Institute of International Affairs. The text may not be printed in part or in full without the permission of the author. Visiting address: C.J. Hambros plass 2d Address: P.O. Box 8159 Dep. NO-0033 Oslo, Norway Internet: www.nupi.no E-mail: [email protected] Tel: [+ 47] 22 99 40 00 Nepal: A Political Economy Analysis Magnus Hatlebakk Report commissioned by the Norwegian Ministry of Foreign Affairs November 2017 Contents Map of Nepal ........................................................................................................................ V About the report .................................................................................................................. VI List of acronyms ................................................................................................................... VII Preface .................................................................................................................................. IX Executive summary .............................................................................................................. X 1. Introduction ................................................................................................................. 1 2. The Nepali economy .................................................................................................... 3 2.1 Growth, poverty and inequality ......................................................................... 3 2.2 Variation in welfare between social groups ..................................................... 5 2.3 Drivers of economic growth and development ................................................. 7 2.4 Constraints on economic growth and development ........................................ 11 2.5 Public finance and foreign aid ........................................................................... 15 3. The history of political and social conflict ................................................................ 18 3.1 Regional and ethnic conflicts ............................................................................ 18 3.2 Pre-democracy protests ..................................................................................... 19 3.3 Bandh and local protests ................................................................................... 20 3.4 Maoist insurgency .............................................................................................. 21 4. Political actors and their economic and other interests .......................................... 23 4.1 Main actors ......................................................................................................... 23 4.2 Main interests of different actors ...................................................................... 25 4.3 Power analysis .................................................................................................... 28 5. Political culture ............................................................................................................ 31 5.1 Clientelism .......................................................................................................... 31 5.2 The culture of consensus ................................................................................... 31 5.3 India’s role in Nepali politics ............................................................................. 32 6. Governance issues ....................................................................................................... 34 6.1 Bureaucracy and corruption .............................................................................. 34 6.2 Local democracy and civil society ..................................................................... 35 6.3 Federalism .......................................................................................................... 36 7. The space for development cooperation ................................................................... 39 7.1 Opportunities and constraints .......................................................................... 39 7.2 The role of donors and foreign aid in Nepali politics and the economy ......... 39 7.3 Risk assessment summary ................................................................................ 40 7.4 General versus sector support .......................................................................... 40 7.5 Development cooperation within specific domains ......................................... 41 Appendix. Timeline-Nepal .................................................................................................. 46 80o 81o 82o 83o 84o 85o 86o 87o 88o Map ofNepal Map The boundaries and names shown and the designations used on this map do not imply official endorsement or acceptance by the United Nations. 31o 3311o NEPAL National capital Regional seat Zonal seat District seat International boundary Regional boundary 30o o 30 SimikotSimikot Zonal boundary DDarchulaarchula CHINA Main road Secondary road BBaitadiaitadi CChainpurhainpur GGamagadhiamagadhi Railroad MMartadiartadi MMAHAKALIAHAKALI SSETIETI KARNKARNALIALI Airport DadeldhuraDadeldhura JJumlaumla SilghadiSilghadi DDipayalipayal MManmaanma 0 20 40 60 80 100 km o o FAARR WWESTEST 29 29 MID-WESTMID-WEST 0 10 20 30 40 50 60 mi MMahendranagarahendranagar DDailekhailekh DDuinaiuinai Lambert conformal conic projection with a central meridian V JomosomJomosom of 84 degrees east longitude with standard parallels of 24 DhangadhiDhangadhi BHERIBHERI JajarkotJajarkot degrees and 32 degrees north latitude using the WGS84 JJumlikhalangaumlikhalanga datum. BBirendranagarirendranagar ChameChame DDHAHAWAALALAGGIRIIRI RAPTIRAPTI GGANDANDAAKIKI BBenieni SSalyanalyan LLiwangiwang KusmaKusma BBisisaharisisahar GGulariyaulariya BBaglungaglung TulsipurTulsipur PokharaPokhara DDhunchehunche o NNepalgunjepalgunj o 28 TTamghasamghas SyangjaSyangja GorkhaGorkha BAGGMAMATTII 2288 GGhorahihorahi PPyuthanyuthan WESTWEST DDamauliamauli DhadingbesiDhadingbesi SSandhikharkaandhikharka TansenTansen BidurBidur ChautaraChautara LLUMBINIUMBINI BButwalutwal BharatpurBharatpur KKathmanduathmandu BBhaktapurhaktapur CharikotCharikot MMECHIECHI Nepal, Map No. 4304, January 2007, UNITED NATIONS UNITED 2007, January 4304, No. Map Nepal, SSiddharthanagariddharthanagar PatanPatan DDhulikhelhulikhel KOOSHISHI Taulihawa SalleriSalleri PParasiarasi TaplejungTaplejung HHetaudaetauda CENTRALCENTRAL KKhandbarihandbari OOkhaldhungakhaldhunga NAARARAYAANINI RRamechhapamechhap BBhojpurhojpur PhidimPhidim SindjulimadiSindjulimadi DDikteikte o Terhathum o 2277 JAANNAAKPURKPUR EASTEAST 2277 KalaiyaKalaiya DhankutaDhankuta BirgunjBirgunj MMalangawaalangawa NEPAL IIlamlam GaurGaur SSAAGGARMAARMATTHAHA DDharanharan JJanakpuranakpur GGaighataighat INDIA SSirahairaha InaruwaInaruwa CChandragadhihandragadhi JalesworJaleswor RRajbirajajbiraj BBiratnagariratnagar 2266o 26o 8800o 8811o 8822o 8833o 8844o 8855o 8866o 8877o 88o Map No. 4304 UNITED NATIONS Department of Peacekeeping Operations January 2007 (Colour) Cartographic Section About the report In June 2016, the Norwegian Ministry of Foreign Comprehensive Terms of Reference (ToR) Affairs (MFA) commissioned NUPI to provide were developed to serve as a general template for political economy analyses of eleven countries all eleven country analyses. The country-specific (Afghanistan, Ethiopia, Haiti, Malawi, Mali, ToR and scope of these analyses were further Mozambique, Myanmar, Nepal, Somalia, South determined in meetings between the MFA, the Sudan and Tanzania) deemed important to Nor- Norwegian embassies, NUPI and the individual wegian development cooperation. The intention researchers responsible for the country studies. was to consolidate and enhance expertise on these NUPI has also provided administrative support countries, so as to improve the quality of the and quality assurance of the overall process. MFA’s future country-specific involvement and In some cases, NUPI has commissioned part- strategy development. Such political economy ner institutions to write the political economy analyses focus on how political and economic analyses. power is constituted, exercised and contested. VI List of acronyms ADB Asian Development Bank CA Constituent Assembly CMI Chr. Michelsen Institute CPA Comprehensive Peace Acord CPN Communist Party of Nepal CPNM Communist Party of Nepal - Maoist DAC Development Assistance Committee DDC District Development Committee DFID Department for International Development - UK DHS Demographic and Health Survey FDI Foreign Direct Investments GDP Gross Domestic Product GNI Gross National Income IDA International Development Association (World Bank) INGO International Non-Governmental Organization INSEC Informal Sector Service Center LGCDP Local Governance and Community Development Program LGP Liquefied petroleum gas MFA Ministry of Foreign Affairs MP Member of Parliament MPRF Madhesi People’s Rights Forum MW Mega Watt = 1000 kilo watt NEA Nepal Electricity Authority NEFIN