Next week, donors from 11 countries and six multilateral agencies will gather in Kathmandu and Pokhara to hear Nepal's request for additional aid to make up for resources diverted to fight the insurgency.

This meeting of the donor consortium (called the Nepal Development Forum, NDF) is taking place for the first time in Nepal, and during an unprecedented national crisis: a costly counter-insurgency war is on, development is at a standstill, and the economy is in shambles.

In the run-up to the NDF last week, the government held pre-consultation meetings to fine tune its plans, objectives and expectations. It mustered impressive paperwork, but the contents failed to dazzle donors or Nepali participants. "There was a worrying lack of consensus among Nepali politicians and planners about which way the country should go," said one donor rep.

Sure, there is plenty to be critical about. But there are also achievements, like Nepal's home-grown successes in areas like community forestry, decentralisation and the work of grassroots self-help groups to raise income. Bihari Krishna Shrestha, a 32-year veteran of development planning, out of government now, says we know what to do, we just need to get on with the job. "Everything that worked was domestically-innovated," he told us. "The most valuable service a donor agency can give at this time of crisis would be to help devolve authority to grassroots stakeholders."

"Decentralisation" is in danger of turning into just another buzzword, but experts agree that handing decision-making to local bodies is the only way to begin addressing the causes fuelling the insurgency: lack of basic services due to apathetic Kathmandu-centric control.

Development expenditure has taken a direct hit. The government urgently needs to multitask: stave off an insurgency, accelerate development, and put its economic house in order with fiscal reforms, re-prioritisation and bureaucratic efficiency-all at once.

The Finance Ministry and the Nepal Rastra Bank know better than anyone else just how serious the country's economic crisis is, and are racing against time to raise revenue, reform banking and privatise sick corporations. But reforms are politically painful. Does the leadership have the political will and transparency to wage war on poverty and implement genuine reforms?

That is the big "If" donors will look at next week. The Asian Development Bank's Richard Vokes told us: "If the government is aggressive in pursuing these reform efforts, particularly improving governance and reducing corruption, and takes rigorous steps to prioritise expenditure, the donors will be more open to requests for support." Politicians like populist subsidies, but the seriousness of the country's fiscal crisis doesn't seem to have sunk in, Vokes adds.

Ironically, a cash-strapped government is unable to spend the little it had set aside for development, and is diverting this unspent money to security.

Given the near-collapse of statecraft, these would be serious challenges at any time. But the insurgency has made everything much harder. Security costs are soaring, there are indications the military may need more time and an extension of the emergency to force the Maoists back to the negotiating table. The longer the war drags on, the longer it will take for investment, tourism and commerce to return to normal.

Prime Minister Sher Bahadur Deuba rules out resuming talks until the Maoists lay down their arms, and says there can be no development without peace (see interview). But there is a consensus that the military campaign must go hand-in-hand with urgent and effective delivery of basic services and jobs in rural areas.
Krishna Sapkota, chairman of the Kavre DDC summed it up last week: "Without peace there will be no development, and without development, no peace. The underlying reason for violence is our inability to improve peoples' lives."