Aid Conditionality for Reform: Effects on Country- ownership in Nepal

Donors have applied several models of conditionality for inducing policy reforms and institutional development in developing countries. This paper reviews the conditionality of policy-based lending (or structural adjustment) programs of Bretton Woods Institutions (BWIs)—the World Bank and IMF. They are the largest providers of policy- based lending for supporting member countries’ adjustment programs. The contents of the review section include: understanding conditionality; adjustment lending as a policy tool; criticism of traditional conditionality; new approaches to conditionality; and improving country-ownership. The present study examines the effects of aid conditionality on the country-ownership aspect of governance in Nepal. The survey data reveal that all the governance-related conditionalities have been positively affecting for improving the country-ownership in Nepal. It was also identified that there is no correlation between the level of the enforcement of aid-conditionality and its effects on the country-ownership in donor-funded activities.
Main Article: 

1. Introduction and Methodology

The concept of modern governance emerged in response to the growing dysfunction of welfare state, and it has become an important component of neo-liberalism. Since the early 1990s, International Financial Institutions and donor agencies have been considering governance reform as a precondition of aid allocation. The governance-related aid conditionalities are primarily concerned with the globalization of neo-liberalization, which is characterized by deregulation, privatization, right-sizing civil service, introducing managerialism in public sector, and reducing governmental control function. To treat such political issues of state reform, donor agencies have been using the technical term ‘governance reform’. It helped them to become ethical for intervening in the political affairs of the aid recipient countries. In this context, the issue of country-ownership is vital for sustaining reform.

In the history of foreign aid, approaches to aid-conditionality had been shifting as the global development approaches shifted. The present study focuses on reviewing the traditional conditionality particularly the policy-based lending of International Financial Institutions and the modern approach of conditionality particularly the governance-related conditionality including country-ownership. Both the traditional and modern approaches have been co-existing in Nepal.

In order to examine the effects of aid conditionality on the country-ownership in donor-funded activities, the primary data were collected through opinion survey. The survey was conducted during the month of September 2011. This study was undertaken also for verifying the previous research findings of a PhD thesis (Adhikari, 2011) in which the primary data were collected in 2006. In order to compare the findings, the present study administered the same measuring instrument in the same group of population as in the previous PhD work. For a survey study, respondents were selected by using ‘judgmental quota sampling’ technique. There were altogether 100 respondents that included 40 aid coordinating officials involved in the donor-recipient aid coordination, 30 auditors involved in auditing donor-funded projects, and 30 academics related to public finance. The responses were recorded by using a delivery-and-collection questionnaire. Moreover, 6 high level government officials involved in donor-recipient coordination meetings were purposively taken as key informants for sharing their experiences with the researcher in the field of aid conditionality in Nepal. Since the views of donor community are sufficiently documented in the available literature, they were not included in the sample for this study.

2. Understanding Conditionality

Conditionality refers to the conditions attached to funds disbursed by international financial institutions including bilateral donors. To Stiglitz (2002:44), “Conditionality refers to more forceful conditions, ones that often turn the loan into a policy tool”. The Reality of Aid (2002: 8) states: “Conditionality relates not only to donor goals but also the process for achieving these goals”.

Theoretically, donor conditions are the terms of using aid money which are negotiated between all parties to loan contract and are mutually agreed upon. But, in practice, it is important to note how the agreement is reached and how conditions are formulated and applied. In other words, the question is whose reality counts in setting conditions. By nature, donor - the powerful partner - is certainly influential. On the other side, recipients are bound to accept donor conditions if they are to get aid.

Dolowitz and Marsh (2000) developed a policy transfer continuum extended from lesson drawing (bounded rationality) to coercive transfer (aid conditionality) in which the middle value is voluntary transfer driven by the perceived necessity of contemporary global development goals. This framework indicates that aid conditionality is a policy tool for the globalization of the ideas of aid.

Conditionality is mostly a debated topic in the field of development. Almost all the aid agreement papers contain basic conditions. In some cases, recipient countries have to pass new policies in the parliament to meet the donor’s requirements. In some cases, donors suspend their assistance if a recipient country does not come up to specified minimum standards for utilizing aid money. Donor conditions are related to various intentions, such as reforming policies, controlling corruption, using expatriate consultancy, promoting donors’ market, or promoting democracy.

Donor conditions may be explicit or implicit, as well as highly rigid to flexible. During 1980s, donor conditionalities were of the traditional type variously known as ex ante conditionality, project conditionality, political or policy-based conditionality, or macro-economic conditionality. The traditional or ex ante conditionality in policy-based lending is often concerned with policy imposition from international financial institutions to developing countries.

The traditional conditionality has been widely criticized because of its intrusive nature. In response to such criticism, new forms of conditionality came into practice. Ex post conditionality focuses on country-ownership, selectivity and partnerships (Koeberle, 2003). Many scholars call selectivity as ex post conditionality or allocative conditionality (Uvin, 2004). In outcome-based conditionality, the choice of policies are in the hands of country authorities and the loan disbursements are made on the basis of achievements of results rather than on the implementation of policies expected to attain the program objectives.

The emergence of new issues of conditionality is associated with the emergence of new development approaches or paradigms. Under the governance paradigm, governance conditionality focuses on budget management, anti-corruption measures, and the public sector management. After the emergence of pro-poor approach to development, “poverty-focused” or “social” conditionality existed, that is concerned with achieving the Millennium Development Goals. Likewise, after the innovation of poverty reduction strategy (PRS), “reverse conditionality” (Taylor, 1997 cited by Wood and Lockwood, 1999: 28) existed in which borrower governments would propose their economic programs to donor agencies.

In process conditionality, recipient governments are expected to follow certain procedural steps rather than accept specific policies. It helps develop country-ownership of aid activities by employing PRS process. The process conditionality is also known as “post conditionality” approach (Uvin, 2004: 72). In the PRS process, the recipient countries have to follow the guidelines provided by the World Bank. The completed PRSPs must be submitted to the World Bank and the IMF boards for approval. The World Bank also involves in drafting the discussion documents to be used in the consultation for preparing PRSP. The whole process of PRS is in the line of neo-liberal thinking that donor agencies want to induce in developing countries.

The above discussion reveals that the meaning of conditionality is vague, dynamic, and contextual. In fact, aid conditionality is donors’ ideas of using their aid that are to be agreed and implemented by the recipient governments. The conditionality approach is based on the idea that aid could be an incentive for policy change.

3. History of Conditionality

A system of aid-conditionality is as old as the history of aid. Since the very beginning, the World Bank has always attached conditions to its project aid; and the IMF has also always demanded changes in macroeconomic policy in return for balance of payment support (Wood and Lockwood, 1999).

In the 1980s, The World Bank - a leading donor - stepped up policy-based lending or adjustment loan by making loans more conditional to borrower countries for reforming their policies and institutions. The reason behind shifting from investment loans (for supporting specific project) to structural adjustment loans (for policy reform) was to re-address the problem of poverty. The donor community in general identified poor government policies as a key reason for persistent poverty in the Third World countries.

Since the mid-eighties, “lending has often been justified in terms of the benefits of the policies adopted as the result of the conditionality clauses. The policies have become the projects…. Loans are justified by policy changes instead of vice versa” (Hopkins et al., 1997 cited by Wood and Lockwood, 1999:4).

During the first half of the 1990s, according to Uvin (2004), almost all bilateral donors used common adjectives in their aid agreement, such as promoting democracy, maintaining rule of law, and respecting human rights as the preconditions for development cooperation. Many developing countries were told that they would receive no more aid if they did not organize multi-party elections. Uvin (2004) further observes that since 1992 all trade, aid, and investment treaties of EU cooperation with third-world countries contain human rights clause.

The Reality of Aid (2002) reports that there was an average of 41 conditions per IMF loan during 1995 to 2000. The conditions were related to fiscal policy, exchange rate policy, pricing and marketing, privatization, financial sector regulation, systemic reforms, social safety nets and the social security system. Aid -conditionality expanded its coverage from influencing macro-economic policy to the micro-level management of development policies and institutions.

During 1990s, a bulk of aid literature identified that the root causes of poverty are poor policies and poor governance. To address these causes, the donor agencies focused on policy reform and governance reform. As an example, the policy-based lending of the World Bank during 2002 was accounted for 64 per cent of its total aid commitment (The Reality of Aid, 2002).

While talking about conditionality, we tend to think of Washington-based international financial institutions’ conditional assistance. But, the conditionality related to the promotion of democracy has been most aggressively advanced in Europe. Uvin (2004:58) observes: “In 1991 EU members adopted a resolution stating that a transition to democracy would be one of the conditions for receiving EU aid.” Thus, the European donors considered democratic principles including human rights and rule of law as the essential elements of their development cooperation.

4. Adjustment Lending as a Policy Tool

The World Bank introduced ‘adjustment lending’ (or policy-based lending) in 1980. It was originally conceived as a way of financing short-term balance of payment support or to improve policy environment for implementing projects. In 1990s, adjustment lending shifted to focus on poverty reduction, institution building and the implementation of complex social and structural reforms including good governance and public sector management reforms. These reforms often pursued conditionality (Koeberle, 2003). In other words, the adjustment lending is considered as a policy tool designed to reform policies in developing countries.

Conditionality is implemented through program design and monitoring. Program design tracks whether agreed policies (macro-economic and structural) are implemented in a timely and effective manner. Monitoring also includes prior actions like passing an agreed budget, realigning the exchange rate, and adopting for the first disbursement. For receiving subsequent disbursement, the recipient country should fulfill agreed conditions like tariff reduction, tax system revisions, and privatization of public enterprises (Khan and Sharma, 2003).

In recent years, the World Bank has been using issue-based loan conditions. The issues listed by Thomas (2004) include: the privatization of state-owned enterprises, tariff reductions and trade liberalization, civil service reform, reform of public procurement, revision of public expenditure procedures, strengthening justice system, implications of citizens in decision-making, or the creation of empowerment of local governments. These reform issues are basically related to neo-liberalism.

In recent years, adjustment lending more often supports institutional reforms in public sector management and in the financial and social sectors. The Table-1 shows that the share of policy conditions applied to public sector reform increased from 19 per cent in 1980-88 to 33 per cent in fiscal year 2001-02. During the same period, the share of conditions for agriculture and infrastructure reforms falls from 27 per cent to 4 per cent.

Table 1: The Share of Policy Conditions Applied by the World Bank

Sectoral reforms % of conditions applied from 1980 to 2002
80-88 89-94 95-97 98-00 01-02
Trade and economic management 34 21 19 12  
Agriculture infrastructure 27 12 6 4 4
Social sector and environment   13 14 2 23
Public sector management 19 24 18 21 33
Finance & Pvt. Sector 20 32 44 40 32

Source: Data are compiled from Koeberle (2003:254-55)

As far as the number of conditions per loan program is concerned, Koeberle (2003) observes that the average number of conditions has fallen significantly– from 36 in the early 1990s to 21 in 2002. He further hypothesizes that more conditions tend to be negatively correlated with ratings for adjustment loan outcomes– especially in countries with weak policies and institutions. It means countries with poor policy environment are, obviously, subject to more conditions and it results in difficulty in measuring performance outcome.

In order to improve reform initiatives, the Bretton Woods Institutions tried to apply the following three strategies of their lending program (Wood and Lockwood, 1999): (1) short-leash financing; (2) back-loading reforms; and (3) trigger before disbursements. In short-leash financing, reforms are to be implemented provided in instalments (known as tranches) that allow withholding later instalments if conditions that qualify the country for the next loan instalment are not met. The term “trigger conditions” is alternative to “benchmark criteria” of the World Bank and “performance criteria” of the IMF.

Back-loading reforms are concerned with phasing and tranching of policy-based lending. According to Koeberle (2003), ‘multiple tranches’ is useful for supporting in-depth sector reforms; floating or non-scheduled tranches can help with discrete reforms with uncertain timing; and the programmatic adjustment lending is useful for those countries who are strong reformers with good track records.

5. Criticism of Traditional Conditionality

The traditional conditionality is generally concerned with the donor conditions related to specific reforms that are to be implemented by the recipients before receiving adjustment loans. The donor community provides aid in return for explicit negotiated commitment to policy reform in the recipient country. It means aid would be an incentive for policy change. The Reality of Aid (2002) realizes that the policy choices available to governments in aid-dependent countries are narrowed by conditionalities imposed by the donors.

Conditionality has been criticized on several grounds. Koeberle (2003) indicates that some critics raise question on the legitimacy of the World Bank and the IMF for enforcing countries to adopt their policies, describing them as unelected and unrepresentative bodies. In addition, agreements on conditionality are reached in non-transparent discussions with some selected top bureaucrats, without the participation of the stakeholders including the civil society. Koeberle further identified that critics of traditional conditionality generally fall into five areas: (1) ineffective reforms; (2) externally induced reforms that are not sustainable; (3) illegitimate enforcement; (4) lack of country-specific contents of conditions; and (5) unnecessary proliferations of conditions that affect country-ownership negatively.

For donor agencies, the main problem of conditionality is non-compliance. Wood and Lockwood (1999) identify the reasons behind it. The reasons are: (a) governments do not have the capacity or expertise to implement technical reforms; (b) external or political shocks divert governments’ attention away from the reform process; (c) governments do not agree with or understand the donors’ policy prescriptions; (d) governments consider some reforms biased, inappropriate, or harmful for significant elites; (e) past experience with donor reform programs has not been positive; (f) program contains too many conditions; and (g) governments have insufficient finance to do so properly.

Uvin (2004) criticizes conditionality by considering it as an unethical. Conditionality becomes unethical when suspension of aid hurts the poor because of their rulers’ undemocratic behavior that donors do not like. If democracy is enforced by outside donors then it is also unethical by violating the principle of sovereignty. Uvin 2004) provides following suggestions for making conditionality ethically acceptable: (a) conditionality should be designed so as not to impose costs on the vulnerable groups; (b) it should seek consensus from the recipient country; (c) it should be done in a gradual manner rather than cutting all aid at a time; (d) it should be made country-specific, best suited to the existing laws within the country concerned; and (e) it should be based on multi-lateral procedures and institutions.

The Reality of Aid (2002) advocates that imposed conditionality is incompatible with democratic governance. The donor conditions must be fairly and transparently negotiated in line with the principles of international human rights and a rights-based approach. so that conditionality cannot be justified on the basis of aid effectiveness. The report further suggests that good governance should not be a vehicle for imposing market-based approaches.

The World Bank (2005) advocates its policy shifting from adjustment lending to development policy lending. The new approach aims at supporting a country’s program of policy reform and institution building for aid effectiveness.

6. New Approaches to Conditionality

Since the donors themselves became not satisfied with their traditional conditionality, they experimented and innovated several alternative approaches for improving the credibility of conditionality. The World Bank experimented conditionality by preparing a program of Higher Impact Adjustment Lending (HIAL) for promoting good policies where structural adjustment programs were launched. The HIAL relies on the selectivity approach. In selectivity approach, only those governments which are already implementing donor-supported reforms would be eligible for receiving aid.

Bilateral donors usually select countries according to their political or colonial alliances and perceived needs. The selectivity approach is concerned with selecting countries which have “good economic policies and sound institutions.” Defining “good” and “bad” policies is in the hand of donors, and is a matter of subjective judgment. The other drawback of selectivity is that conditionality enters by the back door and it hampers for building ownership of reforms (Wood and Lockwood, 1999).

The World Bank (1998) argues that aid should only be allocated to those countries whose governments have demonstrably adopted a “good policy environment”. But, it is not realized that withholding aid to the government having poor policy environment is unfair to the poor citizens of that country.

Another experiment of conditionality was done in the name of Special Program of Assistance (SPA) for Africa, for which several donors jointly provided program support to Sub-Saharan African nations. The SPA approach focused on fostering country-ownership in which governments were to formulate and draft their own reform programs and identify performance targets, and donors were to act as advisors. For implementing SPA, donor group experimented with greater donor coordination (Wood and Lockwood, 1999).

Since the 1990s, governance-related conditionality (GRC) has been evolved because of aid fatigue, civil society pressures from borrowing countries, and epistemic changes driven by the new research findings in political economy (Kapur and Webb, 2000). Donor agencies have started to use terms and conditions for increasing accountability, transparency, rule of law and participation in recipient countries. But, the conditionality may be either strictly defined or loosely defined.

After reviewing several research findings on aid effectiveness, Wood and Lockwood (1999) identified the following recent approaches to improve the credibility of conditionality: (a) identifying objectives rather than specifying policies by donors; (b) applying long-leash approach (i.e. long-term donor commitment); (c) improving donor-government (principle-agent) relationship; (d) linking conditionality to growth-related variables (eg. investment and productivity); (e) reconciling recipient’s want of aid and donor’s want of reform; (f) focusing not on selectivity but on good governance and commitment to poverty reduction; (g) channeling aid directly to NGOs where government is non-responsive or where there is poor policy environment; (h) preparing economic programs by the borrower government and then presenting to the lender for evaluation (i.e. reverse conditionality); (i) establishing monitorable benchmarks instead of conditions; (j) keeping flexibility in timing of reform. These new initiatives are, in some way, concerned with improving country-ownership of reform program.

7. Improving Country-Ownership

In recent years, country-ownership has become a central concept in the field of development cooperation. Literature on aid effectiveness emphasize on ownership believing that donors can only advise and support but not buy or induce economic reforms (World Bank, 1998). Donor agencies have recognized the importance of country-ownership and readiness to reform for effective policy reforms and sustainable development. Wood and Lockwood (1999) clearly state that recipient government and civil society are not committed to implement reform program because they have not fully engaged in designing their programs. It means the lack of ownership is the cause of the poor implementation of conditionality.

The primary aim of donor conditionality is to try to induce policy reform in recipient countries. Both the ‘policy prescription from donors’ and the ‘country-ownership of reform’ are essential for development cooperation; the debates about it have tended to focus on how to keep balance between these two contradictory efforts. According to Collier et al. (cited by Wood and Lockwood, 1999), ownership can be improved through recipients choosing policies, lenders choosing objectives, and aid being disbursed according to performance.

There are several methods for improving the country-ownership of donor supported programs. Khan and Sharma (2003) identified the following four initiatives to foster greater ownership: (a) encouraging countries to design their own reform programs or PRSP; (b) streamlining structural conditionality; (c) introducing flexibility in the timing of structural reform (i.e., adopting floating tranch conditionality); (d) applying conditionality to outcomes rather than policy prescriptions (i.e., outcome-based conditionality).

It is widely believed that there is rhetoric of ownership and the reality of coercion. Recipient countries have had accepted donor conditions to access aid money. If country-ownership is to be improved, the traditional aid procedures and practices must be reformed. The Reality of Aid (2002) indicates the following key areas to improve ownership: (a) reducing the reliance on donor country technical assistance; (b) untying aid; (c) unconditional cancellation of remaining bilateral debt for the poor countries; (d) transparency and more flexible program management; and (e) public and political commitment to increase resources for international cooperation.

Improving country-ownership is not only concerned with donor procedures but also with recipient’s development culture. Where there is no culture of participation and consensus building in recipient countries, the ownership cannot be improved properly. For examining the country-ownership of IMF adjustment program, Khan and Sharma (2003) used the agency theory in which the principal-agent (or lender-borrower) framework of relationship was observed.

Khan and Sharma (2003) determine that country-ownership is difficult to achieve when programs have too many objectives, which is exactly what is happening in recent years. For example, the traditional mandate of IMF was to establish macro-economic and financial stability. Since 1990s, the IMF expanded its objectives to facilitate transactions to market economies, integrate domestic economies with world economy, diversify production and exports, develop financial sector, and promote high quality growth.

The World Bank (2005) highlights emerging good practices—ownership, criticality, additionality, and medium-term framework—for better application of aid conditionality. It means the donor practices are good when they: support the development of country-ownership, focus on critical actions needed to achieve key outcomes, become flexible to develop national policy options, and provide aid to support country-led medium-term framework.

8. Effects of Aid Conditionality on Country-Ownership

Before analyzing the effects of aid conditionality on country-ownership, let us first discuss the brief contextual understanding of the selected 20 aid conditionalities as identified in a PhD work (Adhikari, 2011).

Preparing Expenditure Framework: During the first five-year of the new millennium, donor agencies were found to be increasingly interested in seeing need-based expenditure framework. In response, the government prepared MTEF and IAP in some selected sectors.

Developing Country-Ownership: As a response to the criticism of donor-driven development, donors started to advocate for developing country-ownership since 1990s more seriously than before.  OECD (2003) highlights the low ownership trap. Low capacity in recipient, low trust by donors and low ownership by recipient are all three reinforcing each other in a cyclical way.

“Nepalese ownership of donor-funded programs, projects and activities was not a concern in the past. Recently, all donors have started to emphasize its importance, at least theoretically though less so in practice.” (ODI, 2000: 68). Generally, donors formally ‘own’ the tern-key projects until they handover to the Government of Nepal. Ownership issue must be viewed on the basis of the donors’ involvement in all phases of aid management.

Being Accountable and Transparent: Being a development partner, donor agencies expect that the government should be able to be accountable for effective service delivery and be transparent for combating corruption and maintaining rule of law.

Decentralizing Decision-Making: Almost all the donor agencies have shown their interest in decentralizing decision-making. The issue of decentralization has become more of governmental rhetoric and less of an actual scheme for many years in Nepal.

Using Democratic Process: In recent years, the term “democracy” is not concerned with rule by majority, but is concerned with maintaining rule of law, respecting human rights, social inclusion, transparency and devotion. One of the fundamental concerns of donors in Nepal is to use democratic process for using aid effectively.

Ensuring Sustainability: In many cases, donor-funded projects in Nepal are not ustained after paying constant attention by the donors (NDF, 2002). Keeping such bitter experiences in mind, donor agencies in many cases put conditionality of ensuring sustainability, during the aid agreement.

Ensuring Social Inclusion: Many donor agencies commit in their country assistance plan that they would help the government develop and implement policies more responsive to women and excluded caste and ethnic groups. But, “HMG/N has tried to discourage donors from launching aid programs or projects that were targeted only on particular ethnic or lower-caste groups” (ODI, 2000).

Reforming Regulations/Procedures: For formulating, implementing, evaluating and reporting of donor-funded projects, donor agencies have their own strategies, regulations and procedures that are to be followed by the recipient.

Controlling Corruption: Key informants were of the opinion that most of the donors, namely the World Bank, ADB, USAID, DANIDA, NORAD, SDC, DFID, Japan and UNDP have committed themselves in their country assistance plan to help Nepal combat corruption. The issue of corruption control has become a governmental rhetoric in Nepal for the last two decades.

Controlling Fungibility: The donor agencies usually want that the aid money given for a specific purpose should not be used for other purposes. If it happens, it becomes a strong violation of aid agreement.

Generating Matching Fund: ODI (2000: 13) reports: “the government is unable to allocate adequate or promised counterpart funds and manpower to the large number of projects” that results in the delay of project implementation or even cancellation.

Reforming Private Sector: The present age of development is the age of governance. By considering private sector as an integral component of governance reform, many donor agencies have been involved in reforming the private sector and they provoke recipient government for the same.

Reforming Public Sector: Donor agencies are committed to help Nepal for reforming governmental institutions including constitutional bodies and local authorities. The public sector reform is considered essential for shifting from “welfare state” concept to neo-liberalism, and for effective management of socio-economic change in the country.

Increasing Tariffs: In some cases, donor agencies prescribe tariff rates of water and electricity. For example, NDF (2002) reports that the ADB and the World Bank impose conditionalities for increasing tariffs; and at the time of implementation the poor consumers face the burden of high electricity tariff.

Decreasing Subsidies: In the course of executing Agricultural Perspective Plan (APP), the subsidies for shallow tube wells were eliminated to meet ADB conditionality, and the government wanted to reintroduce it. This has caused confusion among farmers (NDF, 2002). The removal of subsidies also negatively affected the private sector’s chance to develop this market.

Using Donors’ Auditing Procedure: Each donor demands a separate financial and technical reporting system, which are adapted from their domestic procedures. For example, in 1993, Nepal received aid from seven donors for the Nepal Telecommunication Corporation Project. Each donor demanded its own accounting procedures which were more demanding than those used by the Ministry of Information and Communication for its own funds. It was difficult to comply with all of them and keep all the donors satisfied (ODI, 2000).

Direct Funding at Local Level: In some cases, UNDP and many European donors have been directly funding the local bodies and NGOs. It may both have positive and negative consequences. The critical issue is that direct funding by donors at local level is related to the violation of government policy. The government intends to get all the foreign assistance through the Ministry of Finance so as to make transparent recording of foreign aid.

Direct Execution by Donors: Ideally, the donors are not project executors. But, in practice, they have been executing some projects by setting up specialized project implementation units outside the governmental framework.

Using Foreign Consultants: Nepal has been receiving a large number of experts and advisors from various donor agencies. The advisors are being used in many areas without much consideration of the availability of local experts. ODI (2000: 15) reports:  “The performance of many expatriate consultants is below expectations because they need a lot of time simply to understand the country’s complex rigidities and structural weaknesses.”

Procuring Donor Goods: Key informants were of the opinion that some bilateral donors show their interest for selling their own goods and restricted local companies in competitive bidding. In most cases, the imported equipments or goods were more expensive and, in some cases, not of high quality. However, the trend of keeping the conditionality for procuring donor goods is exhibiting decreasing trend in recent years.

In order to analyze the effects of aid conditionality on the country-ownership aspect of governance, 20 aid conditionalities were taken into consideration, as given in the Table-2. The Table shows the effects of 20 aid conditionalities on country-ownership and the level of the enforcement of these conditionalities both in 2006 and 2011. In the Table, the items of donor conditionality are placed in descending order corresponding to their frequencies of positive responses, as of the survey of 2006. The level of enforcement (high, moderate, low) is measured by the mean score ranging from 3 to 1. The table indicates that governance-related conditionalities (the first fourteen in the list) affect more positively; and the traditional conditionalities (the last six in the list) affect more negatively on the country-ownership both in 2006 and 2011.

The Spearman’s rank correlation between the “effects of aid conditionality on country-ownership” and the “mean score of the level of enforcement of the conditionality” is 0.1109 in 2006, and 0.2616 in 2011. It indicates that there is no correlation between these two variables. The table also shows that the rank correlation between the effects of aid conditionality in 2006 and 2011 is 0.7654; and between the mean score of the level of enforcement of the conditionality in 2006 and 2011 is 0.7778. Similar results of both the surveys reveal that the findings of the both studies are reliable.

Table-2 also indicates that the level of enforcement of most of the aid conditionalities is higher than or equivalent to the median score 2. The table also shows that most of the mean scores of the level of enforcement in 2011 are slightly lower than that of 2006. It reveals that the level of enforcement of aid conditionality in Nepal has been in a slightly decreasing trend.

Table 2: Donor Conditionality: Effects on Country-Ownership and the Level of Enforcement

68 (13) 25 (16) Average score

Donor conditionality Response on positive effect (out of 100) Mean score of the level of enforcement
In 2006 (R1) In 2011 (R2) In 2006 (R3) In 2011 (R4)
Preparing expenditure framework 97 (1) 70 (12) 2.71 (1) 2.45 (5)
Developing country ownership 91 (2) 80 (2) 1.80 (17) 1.84 (17)
Being accountable and transparent 89 (3) 93 (2) 1.32 (20) 2.01 (10)
Decentralizing decision-making 86 (4) 94 (1) 2.13 (15) 1.87 (16)
Using democratic process 85 (5) 92 (3) 2.34 (10) 2.50 (2)
Insuring sustainability 83 (6) 90 (4) 1.96 (16) 1.93 (14)
Insuring social inclusion 76 (7) 87 (6) 2.45 (5) 2.34 (7)
Reforming regulations/procedures 75 (8) 79 (10) 2.33 (11) 2.33 (8)
Controlling corruption 74 (9) 89 (5) 2.50 (4) 2.48 (3)
Controlling fungibility 70 (10) 1.76 (18) 1.73 (18)  
Generating matching fund 66 (11) 71 (11) 2.41 (7.5) 2.03 (9)
Reforming private sector 65 (12) 83 (8) 2.68 (2) 2.46 (4)
Reforming public sector 61 (13) 84 (7) 2.44 (6)  
Increasing tariffs 50 (14) 43 (14) 2.41 (7.5) 1.99 (11)
Decreasing subsidies 38 (15) 24 (17) 2.35 (9) 1.93 (12)
Using donors’ auditing procedure 36 (16) 23 (18) 2.14 (14) 1.88 (15)
Direct funding in local level 34 (17) 14 (19) 1.35 (19) 1.03 (19)
Direct execution by donors 27 (18) 2.27 (12)    
Using foreign consultants 17 (19) 10 (20) 2.63 (3) 2.51 (1)
Procuring donors’ goods 0 (20) 29 (15) 2.21 (13) 1. 94 (13)
61 62 2.21 2.04  

Note: rs between R1 & R3 = -0.1109; R2 & R4 = 0.2616; R1 & R2 = 0.7654; R3 & R4 = 0.7778

Source: Survey 2011; Survey 2006 (Adhikari, 2011).

9. Conclusion

In the survey study, all the governance-related aid conditionalities were found to be ‘more positively’ affecting the country-ownership of donor-funded activities in Nepal. Such governance-related aid conditionalities were identified as: prepare expenditure framework, develop country-ownership, be accountable and transparent, decentralize decision-making, use democratic process, ensure sustainability, reform regulations/procedures, control corruption, control fungibility, generate matching fund, reform public sector, reform private sector, and increase tariffs. The survey data also reveals that there is no correlation between the level of enforcement of conditionality and its effects on country-ownership. However, all the traditional conditionalities, not related to improving governance, were found to be ‘more negatively’ affecting the country-ownership. Such conditionalities taken into consideration under the study were: procure donors’ goods, use foreign consultants, direct execution by donors, direct funding at the local level, use donors’ auditing procedure, and decrease subsidies.


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