Nepal: Poor performance in Bertelsmann Transformation Index

One of the distinct features of Nepali politics is that the country has been in transition for a prolonged period of time. If modern political history of Nepal is to be traced back from 1950s then the country has been in transition from one type of regime to another – from absolute monarchy to parliamentary democracy to federal democratic republic.

However, there is one caveat. Dissenting voices are being heard in the streets that there have been changes in the “system” (bebastha) sans any changes in the “condition” (awastha). This bebastha-awastha hypothesis can best be tested by gleaming through the Bertelsmann Transformation Index (BTI).

Bertelsmann Transformation Index (BTI) data

Since 2003, the Bertelsmann Foundation has been publishing BTI data. From 2006 onwards, they are publishing BTI on a biannual basis covering 137 developing countries and countries in transition towards democracy and market economy, with a population of more than one million. The list excludes data for advanced Northern countries.

Primarily, BTI is a composite indicator consisting of two indicators, namely, (a) Status Index and (b) Governance Index comprising a total of 17 variables, further sub-divided into 52 indicators. Earlier, the Governance Index was called the Management Index. Together with these two indicators, BTI answers two questions: (a) To what extent the country has been able to transform towards the path of democracy and market economy? And (b) How the politicians/policy makers fared in managing this transformation?   

Status Index is comprised of two measures, namely, the state of political (democratic) transformation and economic (market economy) transformation. Political transformation goes beyond electoral democracy and civil and political rights to the use of monopoly power by the state, social capital, quality of participation, rule of law and abuse of authority and so on and so forth. Similarly, economic transformation which includes factors like social safety nets, inequality and sustainability besides competitive market or regulatory policy and protection of private property rights.

However, there is a third dimension to this measure, that is, Governance Index.  This index measures “how effectively policymakers facilitate and steer development and transformation processes.” The policy makers’ capacity to steer the country, mobilize and use resources, build consensus and mobilize regional and international cooperation is weighted by other measure called “level of difficulties”.

A simple example will clarify on the use of this measure: Nepali policy makers may be capable of doing good job (transformation) however; they could be constrained by difficult situation like rugged mountain topography, landlocked situation, extreme weather conditions that are beyond their control. We may have a good football player (capability) but if the playing field is extremely poor (level of difficulties), he cannot give his best performance (governance) and this will have a direct impact on the overall status of the game being played (political and economic transformation). BTI data helps us to answer a number of questions like: (a) What is the status of political and economic transformation taking place in the country vis-à-vis other countries in transition? (b) Is the problem of transformation rests with the capacity of our policy makers or with unique difficult situation they face? (c) What is the overall trend in our transformation? BTI data ranges from a score of 1 (worst) to 10 (best)[1].             

Nepal and BTI data

1. Transformation Status: Politics vs. Economy

The Figure 1 depicts Nepal’s transition to democracy and market economy from 2003-2022. The BTI status indicator, covering a period of 19 years, shows a marginal improvement in BTI status score from 4.1 in 2003 to 5.23 in 2022. Bertelsmann Foundation has termed Nepal’s improvement in transformation scores to be “very limited” throughout 2006-2022.  

The decomposition of status index into political and economic transformation indices reveal an interesting picture. Compared to economic transformation, particularly, post 2008, with the abolition of monarchy, political transformation (red line) has surpassed economic transformation (green line). In fact, there is a decline in economic transformation from 2020-2022.

We have moved from “hard-line autocracy” in 2006 to “highly defective democracy” from 2010 to 2022, with “moderate autocracy in 2014 (when CJ was appointed as the Chief Executive to hold second CA elections). 

In terms of economic transformation, we have moved from “limited” transformation in 2006 to “very limited” transformation from 2008-2022. One resolute finding from the Figure 1 is that Nepal is having more of political transformation vis-à-vis economic transformation, though overall transformation gains are “very much limited”. Using political transformation as a proxy measure for system change (bebastha) and economic transformation again as a proxy measure for condition change (awastha), we can fairly say that there are marginal changes in bebastha while awastha may be on decline.

2. Governance: Level of Difficulty vs. Capability (Performance)

Governance indictor together with level of difficulty and governance capacity (performance) will also help to demystify debate on “neta vs niti”, that is, is our bebasta-awastha problem related to defective policies, including incapability of politicians/policy makers or our uniquely “difficult situation”. It must be added here that it is often difficult situations that produce competent leaders. Who knows we could be having a reverse situation – instead of problems creating leaders, leaders creating problems?  

Bertelsmann Foundation has termed Nepal’s governance to be “moderate”. We had a weak governance in 2006, and from 2010-2020. The gain in governance situation from a status of weak governance to moderate governance is due to dramatic reduction in the “level of difficulty” than an increase in the capability of the policy makers. The level of difficulty was “massive” in 2006 to “substantial” in 2016-22. BTI Country Report 2022 for Nepal speaks of Nepal’s governance challenge in following terms:

“On the governance front, many challenges remain and Nepal faces an incredibly challenging structural environment. Nepal is a landlocked country with few natural resources and difficult terrain; it also has considerable ethnolinguistic diversity and staggering poverty. Few governments fare well under such conditions. In Nepal’s case, poor governance has long contributed to poverty and economic stagnation.”

The capability of policy makers (also read governance performance) is termed as “flawed”.  Refer to Figure 2 governance situation vis-à-vis level of difficulties and capabilities/governance performance. There is a dramatic reduction in level of difficulties vis-à-vis marginal improvement in the capabilities of the policy makers.

Concluding Remark

Let me conclude this write up with a paragraph copied from BTI Country Report 2022 for Nepal:

“Governance in Nepal remains problematic, even though the pandemic has provided some impetus for improvement. Political and economic gains remain, but progress is fragile.”

Published 24 April 2022