Nepal continues to struggle with deep-rooted corruption, with state institutions demonstrating little commitment to promoting good governance. This persistent challenge has placed the country among the world’s most corruption-prone nations. Experts warn of a troubling trend: bribes are increasingly being accepted abroad in exchange for facilitating large-scale procurements within Nepal.

The country’s deteriorating anti-corruption landscape is reflected in its performance on the 2024 Corruption Perceptions Index (CPI), the flagship report of Transparency International, a Berlin-based global watchdog. The country’s CPI score has dropped from 35 in 2023 to 34 in 2024, indicating a rise in perceived public sector corruption. As a result, Nepal now ranks 107th out of 180 countries and territories assessed.

Among South Asian nations, Bhutan leads with a score of 72, followed by India and the Maldives at 38 each. Sri Lanka (32), Pakistan (27), Bangladesh (23) and Afghanistan (17), however, are below Nepal in CPI. Meanwhile, neighboring China has achieved a score of 43.

The index ranks countries on a scale from 0 to 100, where 100 represents clean governance and 0 signifies severe corruption.

Nepal’s poor CPI performance coincides with its recent addition to the Financial Action Task Force (FATF) ‘gray list’ due to inadequate enforcement of anti-money laundering (AML) regulations.

Transparency International compiles the CPI using data from up to 13 international surveys and expert assessments. Nepal’s score is derived from evaluations by six organizations specializing in governance and corruption. The World Bank assesses government decision-making, resource management, accountability, public access to information and vested interests. Similarly, the World Economic Forum examines corruption risks in imports, exports, public services, taxation, procurement and judicial decisions. Global Insight, on the other hand, evaluates corruption in business operations, trade, procurement and administration. Similarly, the Bertelsmann Foundation measures the prosecution of public officials accused of corruption and the effectiveness of government controls, while the World Justice Project focuses on the misuse of public office for personal gain across institutions. The Varieties of Democracy Project (V-Dem) analyzes political corruption within state institutions.

Global Insight has highlighted Nepal’s precarious position, assigning it a score of just 32 for bribery and corruption risks in business dealings, public contracts, import-export activities and administration. Similarly, the Bertelsmann Foundation rated Nepal at 34, the World Justice Project at 32, and the Varieties of Democracy Project at 34. Despite a slight improvement in Nepal’s World Bank ranking—rising from 35 out of 100 in 2023 to 39 in 2024—this progress remains insufficient to elevate the country from the highly corrupt category. More concerning is the fact that Nepal’s score in the World Economic Forum index dropped sharply by eight points to 30. Global Insight recorded a three-point decline, while Bertelsmann and the World Justice Project each increased Nepal’s rating by one point. In contrast, the Varieties of Democracy Project lowered its score by one point.

Based on these assessments, Transparency International has classified Nepal among the world’s most corrupt countries in 2024, assigning it an overall score of 34.

Madan Krishna Sharma, President of Transparency International Nepal, said corruption in trade, public services, tax payments and contracts is a major driver of the country's worsening corruption levels. Nepal’s one-point decline in the CPI indicates increasing financial mismanagement in the public sector.

Trade Sector and Revenue Leakage

Government officials identify trade mispricing as the primary driver of illicit financial outflows from countries like Nepal. Over-invoicing has become a common tactic in trade-based money laundering schemes, facilitating larger transfers from importers to exporters.

Nepal’s trade sector plays a vital role in the economy, with imports generating 40% of the nation’s total revenue. However, experts say that corruption is widespread in this sector, driven by practices like under-invoicing, fraudulent customs declarations and weak enforcement of billing regulations. These practices have resulted in substantial financial losses for the state.

Revenue leakage has become a matter of serious concern. In 2022/23, despite imports worth Rs 1,611.73 billion, revenue collection reached only Rs 1,010 billion, highlighting significant enforcement gaps. In 2023/24, while imports slightly decreased, revenue collection rose to Rs. 1,082 billion, suggesting that tighter monitoring could yield better results.

Surya Nath Upadhyaya, a former chief commissioner of the Commission for the Investigation of Abuse of Authority (CIAA), attributes the discrepancy between imports and revenue to systemic issues that traders and businesses exploit frequently. He highlighted the porous border with India as a major vulnerability enabling smuggling and tax evasion. "Strengthening border security, enhancing customs inspections and enforcing stricter billing regulations are essential to combat corruption in trade," he added.

Sharma said that the intense competition among bureaucrats for leadership positions in key customs offices, such as Birgunj and Bhairahawa, highlights the financial influence these roles command. "This underscores the need for systemic reforms to reduce revenue leakage and improve trade governance," he added.

The Changing Form of Corruption

Corruption in Nepal has evolved from isolated cases of project-level embezzlement to a deeply entrenched system where leadership positions are essentially auctioned for millions of rupees. According to Sharma, this undermines merit-based appointments, securing long-term financial benefits for those in power and often extending across generations.

One particularly alarming trend is the leasing of public assets—such as hills and land—to private companies at abnormally low rates. Although these deals are often presented as developmental projects, they primarily serve the interests of powerful politicians and businessmen. “By granting valuable national assets to private entities for a fraction of their worth, leaders ensure financial benefits for themselves. Such practices erode public trust, limit national revenue and deprive citizens of their rightful resources,” Sharma said.

The scale of corruption has grown alongside the rise of multi-billion-rupee projects, where accountability is virtually nonexistent. “As the number of multi-billion-rupee projects increases, so does the volume of illicit financial gains. Reports of corruption in mega irrigation and road projects are widespread, but no one is held accountable,” said Sharma.

Investigations into major scandals reveal a disturbing pattern: political and administrative figures receiving illicit payments abroad in exchange for approving large-scale procurement deals facilitated by business interests and intermediaries. This was revealed by none other than Prem Kumar Rai, the Chief Commissioner of the CIAA. During a discussion in the State Affairs Committee of the House of Representatives, he said that corruption transactions are no longer happening within Nepal, making investigations increasingly difficult. “Deals are now taking place in Singapore, Hong Kong and the UAE,” Rai told the committee. “We have access to information and correspond with the relevant countries, but they refuse to share it, citing the lack of a bilateral agreement.”

Leadership positions, once awarded based on competence and experience, are now being monetized. Key roles in policy-making and national development are sold to the highest bidder, with political leaders accepting bribes, said Sharma. “As a result, Nepal’s political and administrative institutions are increasingly controlled by individuals who prioritize personal gain over public welfare.”

Weak Oversight Agencies

Despite mounting concerns, the government has shown little urgency in enacting legislation to prevent conflicts of interest. Key oversight institutions—including the CIAA, law enforcement agencies, the Department of Money Laundering Investigation, and the Department of Revenue Investigation—remain susceptible to political influence.

The obstruction of high-profile corruption investigations continues to erode Nepal’s credibility. Appointing ministers and officials with clear conflicts of interest, along with reinstating individuals convicted of corruption, has further deepened the country’s governance crisis.

Although multiple oversight bodies exist, efforts to combat corruption have been largely ineffective. Political and bureaucratic leaders fail to enforce accountability, and institutions meant to operate independently are often manipulated to shield those in power. Political leaders routinely appoint loyalists to key oversight roles, undermining institutional independence and allowing corruption to persist unchecked.

The bureaucratic system is also compromised, with promotions, transfers and appointments heavily influenced by political interests. “Oversight agencies, which should function independently, are deliberately weakened by political interference. Political parties ensure that appointees are loyal to them rather than committed to public service,” said Upadhyaya.

Sharma echoed this concern. “Bureaucrats who align with political parties receive preferential treatment, while those who remain neutral or challenge corruption are sidelined. This cycle of interference ensures that no one dares to challenge the status quo,” he said. “The corruption cycle in Nepal is reinforced by a lack of institutional independence and transparency. Political leaders, bureaucrats, and oversight agencies operate within a web of mutual protection, while the people—who suffer the most from corruption—remain powerless due to the absence of an effective system to hold the corrupt accountable.”

The Path of Businesses

As corruption becomes entrenched in both political and bureaucratic systems, businesses striving for transparency are increasingly forced to engage in corrupt practices for survival. It is nearly impossible to secure government approvals without political connections. This discourages ethical business operations and deters foreign investment.

Moreover, the close ties between politicians and business interests have created a governance model that prioritizes private gain over national development. This political-business nexus has become a major obstacle to economic growth and foreign investment in Nepal. As a result, ethical businesses are losing confidence, and foreign investors are hesitating to enter Nepal. “This explains why Nepal’s FDI inflows have been decreasing every year,” said Sharma.

The situation is further exacerbated by the fact that many lawmakers have significant business interests. While it is not unusual for businesspersons to enter politics, concerns persist over whether they will serve the nation’s interests or prioritize their own. “When businessmen and contractors enter politics, policies and contracts are tailored to benefit their businesses,” he added.

Societal Acceptance of Corruption

Corruption has become so deeply embedded in Nepali society that it is now widely accepted. The public no longer questions how bureaucrats or political leaders accumulate wealth.

“If officials build massive homes or amass large fortunes, they are still respected, regardless of whether their assets come from corruption or legitimate earnings. This societal acceptance has allowed corruption to thrive unchecked,” Sharma said. “Unless this mentality shifts, meaningful reforms will remain out of reach.”

Political leaders openly admit to spending millions of rupees on elections, which is illegal, yet no action is taken. Even the Election Commission, which is responsible for regulating campaign expenses, is doing nothing to intervene.

“This blatant disregard for the law reinforces the culture of corruption, making genuine reform nearly impossible,” said Upadhyaya.

Another glaring sign of unchecked corruption is the government’s failure to address financial irregularities flagged by the Auditor General’s reports. These reports highlight massive arrears, with approximately Rs 100 billion owed by organizations and individuals. Of this, Rs 6 billion is categorized as arrears that must be settled immediately. However, parliamentary committees, oversight agencies and even the CIAA remain unresponsive.

“When unaccounted expenditure continues to grow year after year, it signals rampant corruption. Corruption is flourishing with impunity, allowing those engaged in dishonest practices to benefit without fear of consequences. If concrete measures are not taken to dismantle this culture, Nepal will continue to face economic stagnation and governance failures,” Sharma warned.

(This news report was originally published in  March 2025  issue of New Business Age Magazine.)