Supporting Nepal’s Historic Transition to Federalism

Challenge

The 2015 Constitution established Nepal as a federal democratic republic with three tiers of government – local, provincial and federal. The country in effect made a historic move from a unitary form of government to a federal system with 753 local levels, seven provincial governments, and one federal government. This shift provides opportunities to decentralize development benefits and make service delivery more effective and accountable. At the same time, state restructuring on this scale is unchartered territory for Nepal and ensuring a smooth transition is a daunting task. Jurisdictional overlap among the three tiers of government, lack of clarity and coherence between policies and devolved powers, reducing duplication of efforts, and creating government capacity are key challenges to Nepal’s successful transition to federalism.

Approach

Launched by the Government of Nepal in September 2018, the Federalism Capacity Needs Assessment (FCNA) was delivered, in September 2019, under the Nepal Federalism Support Platform analytical and advisory service (ASA) provided by the World Bank. The FCNA provided a just-in-time assessment of the capacity needs to implement federalism at the three tiers (local, provincial and federal) of government and recommended a roadmap to improve Nepal’s capacity readiness for federalism implementation.

The assessment covered the federal government, seven provincial governments and 115 local governments, and focused on three main elements of capacity: organizational, institutional and regulatory, and physical infrastructure. The FCNA was endorsed by the government at both the federal and provincial levels.

Results

The World Bank is key development partner supporting Nepal’s federalism agenda. The analysis undertaken through the Nepal Federalism Support Platform, focused on building government ownership of the FCNA and operationalizing the findings, has helped produce several key policy and operational outcomes between 2018 and 2020:

• The government has prepared a Capacity Development Roadmap based on the FCNA findings to guide capacity development and leverage synergies across government and development partner-supported programs.
• The Government of Nepal and World Bank have agreed to a continuous assessment of capacity readiness at the three tiers of government to implement federalism using the FCNA framework.
• The World Bank has helped design a Local Government Census using the FCNA framework.
• The FCNA has provided the baseline information and evidence for the design of a government-led Provincial and Local Government Support Program (PLGSP). The PLGSP, which began in July 2019, is a 4-year, $130 million capacity development project of which $100 million is provided by the U.K.’s Department for International Development (DFID), the Swiss Agency for Development and Corporation (SDC), Norway, European Union, and the United Nations Development Programme (UNDP). The government has contributed $30 million.
• Provincial Chief Ministers have requested that the FCNA be institutionalized as a key intergovernmental coordination mechanism and decision-making tool for the implementation of the federalism agenda.

Bank Group Contribution

The World Bank’s financial contribution and support work for the FCNA began in 2017 and totaled $630,000.

Partners

The FCNA was led by the Government of Nepal with additional financial and technical assistance from United Nations Development Programme (UNDP), the U.K.’s Department for International Development (DFID) and the Swiss Agency for Development and Corporation (SDC). The UNDP independently financed a survey to determine capacity gaps of targeted municipalities and provinces that fed into the FCNA. In 2018-19, DFID and SDC made financial contributions through the Federalism Implementation Support Program, with $715,532 from DFID and $32,957 from SDC. These funds from different sources financed such activities as data collection, analysis, production of outputs in different forms and languages and multi-stakeholder consultations.     

Moving Forward

The FCNA final report was launched in January 2020, and the Government has since developed the FCNA implementation plans. The Government intends to operationalize key FCNA recommendations through the PLGSP, the Government’s main program for capacity development for subnational governments to implement federalism. This program is jointly funded by the Government of Nepal and a number of development partners consisting of DFID, SDC, Norway, European Union, and the United Nations. In response to the FCNA findings, the World Bank is developing the Federalism Filter for Nepal to incentivize intergovernmental coordination and prioritization of capacity building for federalism through World Bank and Development Partner operations in Nepal.

Consultation with Province Chief Ministers and Federal Ministers

Beneficiaries

Beneficiaries of this analytical and advisory work on the transition to federalism include government officials at all three tiers of government, development partners, civil society organizations (CSOs) and academia in Nepal, as well as the private sector. It is also meant to inform the design of World Bank operations in Nepal.

“Nepal’s transition to federalism significantly increases the need to develop capacity at all levels of the government and to modernize the governance system and institutional framework as an ongoing process.” The FCNA “will help in taking on new service delivery responsibilities as required in the federal set-up, and also meet growing demand for better public services.”

Dr. Yuba Raj Khatiwada, former Minister of Finance