Kathmandu: The fiscal federalism in Nepal is gradually gaining momentum, yet structural and policy-level challenges persist, calling for effective enforcement measures. At a programme organized by the National Natural Resources and Fiscal Commission (NNRFC) to release the ‘Mirror of Fiscal Federalism-2025’ in the federal capital on Sunday, speakers illuminated both the achievements and ongoing challenges of federalism, as well as the path forward.
According to National News Agency Nepal, Chairman of the National Assembly (NA), Narayan Prasad Dahal, emphasized the significant work the NA is undertaking concerning revenue, resource allocation, and the ceiling of internal loans. He recalled the serious debates on the introduction and enforcement of federalism during the first and second Constituent Assemblies, noting that the new system is gradually gaining pace. However, Dahal stressed that resource sharing is crucial in fiscal federalism, highlighting concerns such as the inability of some local levels to bring budgets on time, employee management issues, and capital spending challenges.
Dahal further criticized the federal government for failing to transfer the allocated funds to sub-national governments promptly. He also pointed out the sub-national governments’ inability to fully utilize their budgets. He argued that improved service delivery and intensified development activities could help dispel the “false narrative of ‘costly federalism’.”
President of the Federalism Strengthening and National Concern Committee under the National Assembly, Sonam Geljen Sherpa, contended that fiscal federalism is currently weakened. He noted that while even remote villages have experienced change, the devolution of power has not fully benefited all people. Sherpa highlighted the reluctance of both central and provincial governments to devolve power to local levels, and even the hesitation of local chiefs to delegate power to ward chairs. He advocated for empowering local levels and fostering a collaborative approach in line with the spirit of federalism.
Former Chairman of the NNRFC, Balanand Paudel, expressed concern over the lack of focus on natural resources at the Commission. He emphasized that sharing natural resources is a sensitive topic, with disputes even arising over fundamental needs like drinking water in the context of royalty sharing. Paudel suggested treating telecommunications royalty similarly to natural resources and advocated for clearer conditional grant distribution, wise public debt usage, and expanding the ceiling of internal loans for mega and national pride projects.
Former Chief Secretary Dr. Baikuntha Aryal pointed out that problems identified at the start of federal implementation remain unaddressed. He called for credible data from government agencies and improved inter-agency coordination. Despite an existing law for eight years to recommend fiscal equalization grants based on expenditure needs and revenue capacity, Aryal noted the lack of clarity on these issues. He suggested amending the Inter-Government Fiscal Arrangement Act and the NNRFC Act to bridge this gap.
Secretary at NNRFC, Dinesh Kumar Ghimire, shared that the publication ‘Mirror of Fiscal Federalism-2025’ was developed based on the challenges of implementing fiscal federalism and the roles various agencies should play in strengthening the system.