Federalism Express

This week, all seven of Nepal’s provincial governments announced their annual budgets even as debate in the federal parliament over the central budget has been stalled for two weeks due to obstruction by the opposition RSP.

There are no big surprises in the provincial Red Books — they are all in the red with reduced allocations from the centre. Even so, while Gandaki and Lumbini have slightly reduced the size of the budget compared to the preceding fiscal year, the budget for the other four provinces are marginally bigger.

Even though revenue is short, the central and provincial governments have chronically been plagued by their inability to spend what has been budgeted, especially under capital expenditure. Five out of the seven provinces have in fact spent less than half of their allocated budget, the other two have fared only slightly better.

The provinces’ underspending, as well as the flurry of last minute budget dispensation across projects (known as ‘असारे खर्च’ after the current Nepali month) has been attributed to competing political interests, mismanagement and kickbacks on projects.

For instance, while Lumbini has been able to spend 59.1% of its allocated capital expenditure, Madhes Province has managed to spend just 16% of its development budget even though it has the second biggest budget among the seven provinces for the upcoming year.

Even as provinces struggle to spend their budgets and implement development projects, the federal leadership in Kathmandu continues to display its reluctance to decentralise power to the provinces, and to hold tightly to the purse strings, rendering the provinces largely functionless.

August marks the tenth anniversary of the promulgation of the 2015 Constitution and the establishment of a three-tiered system of government that envisioned the devolution of political power from Kathmandu to provinces and local municipalities.

In the decade since, local governments have been lauded for their performance as the country’s municipal units saw multi-sectoral grassroots development. Rural municipalities and elected ward councils were forced to be more accountable to voters since they were in close proximity.

However, the mainstream political parties and their leaders have continued to override the authority granted to provincial governments by the Constitution – especially when it comes to revenue collection, policy-making, and decisions on development projects.

Earlier this month, Gandaki Province decided to suspend its newly-introduced Ride Sharing regulatory guideline after the Prime Minister’s office sent a letter instructing it to temporarily halt implementation following nationwide protests by public transport entrepreneurs associations who oppose the new regulation, and many of whom are affiliated to the ruling parties.

The federal government’s circular overriding a provincial decision on local transport went against the Constitution and infringed upon the rights of the provinces.

“Our federalism was supposed to be a cooperative system,” explains federalism expert Khim Lal Devkota. “But citizens and civil society, the political leadership and bureaucracy across all three levels of government have not yet let go of their Kathmandu-centric mindset.”

The dissatisfaction with dysfunctional provincial governments has contributed to the perception that federalism is wasteful and should be scrapped, a narrative that the pro-monarchist parties have used in their rallies to get rid of the 2015 Constitution.

It is true that federalism was an outcome of the peace process, and a demand the Maoists wanted fulfilled in exchange for giving up arms. But devolution was never allowed to deliver at the grassroots.

“Nepal’s three-tired government was the result of our vision not of a limited government, but one with maximised capabilities of looking over all affairs of the state,” explained political scientist Sanjeev Humagain at a recent event discussing the rise of right-wing populism in Nepal and globally.

“But perhaps we have not fully understood the concept of this political system, or we think of federalism as a transitional idea until we eventually adopt another form of governance,” he added.

A recent survey by Social Science Baha gauged how Nepal’s ‘local elite’, people who wield socio-political influence at the subnational level, view federalism. As expected, the survey found that a majority of the respondents feel positively about the performance of local governments.

The survey also showed support for federalism, but there was dissatisfaction with the functioning of provinces, along with recognition that there was too much interference from political parties and their leadership in Kathmandu reluctant to cede authority to them.

‘The state of federal and regional party politics marked by ever-changing alliances leading to frequent changes in government at both levels has eroded confidence in the provincial governments being able to perform efficiently,’ read the report. ‘Government officials and civil society representatives alike also viewed provincial governments as passive recipients of the federal governments’ plans, policies and projects contradicting the very purpose of creating provincial governments in the first place.’

But not everything can be blamed on the central government. Many provincial leaders are happy to be proxies of their parent parties, and lack initiative to use their constitutionally mandated right to self-governance.

Opposition to federalism is also fueled by the idea that it has merely decentralised corruption, that it unnecessarily triplicates overhead costs of government and is wasteful. The general feeling is that it is an expendable and costly second tier of government.

But data contradicts this. Nepal’s Economic Survey 2024/25 shows that the share of provinces in the total national expenditure last year was just 10%, and has remained consistent since the first elections under the federal system in 2017.

Says Khim Lal Devkota: “Federalism is still nascent in Nepal, and we must give it a chance to stand on its feet. Nepal must not be a laboratory to experiment with new systems of governance just because the existing one is not working fast enough for our liking.”