Stephen Knack argue that donor's use of the recipient country's systems is positively related to:
- The donor's share of aid provided to the recipient (a proxy for the donor's reputational stake in the country's development)
- Perceptions of corruption in the recipient country (a proxy for the trustworthiness or quality of the country's systems)
- Public support for aid in the donor country (a proxy for the donor's risk tolerance).
In Nepal, though the use of country systems by donors is improving, it is still not up to the expected level. It has been reported that in 2008, only 59 percent of projects followed Nepal’s national procurement system and only 68 per cent of projects followed the national public financial management system. In 2008, 106 of some 376 aid-funded projects were implemented through parallel implementation units (PIUs).
This paper on the evaluation of effectiveness of Aid for Trade (AfT) in Nepal explores the issue in detail.
In Nepal, a hybrid system, combining both donors’ and the GoN’s systems, is generally in place, but donors’ use of their own systems is more prevalent in the case of procurement under grant and technical assistance. A cross section of stakeholders find fault with the national Procurement Act and call for its revision, pointing out that it is “construction-centred” and stipulates a time-consuming process, which may not be suitable for many AfT projects requiring prompt intervention. Also, donors’ use of parallel programme implementation units (PIUs) for AfT projects is rampant.