Kathmandu, June 9, 2025 - The Federalism and Localization Center (FLC) organized a "Post-Budget Consultation" to analyze the recently unveiled budget and discuss its implications for Nepal’s federal structure. The event brought together policymakers, former ministers, and financial experts to address critical gaps in budgetary allocation and offer insights into improving fiscal practices.
HDI and Population Size Overlooked
Hon. Upendra Yadav criticized the budget for neglecting key indicators like Human Development Index (HDI) and population size, essential factors in equitable budget allocation. He highlighted that subnational governments in countries like India and the United States receive over 60% of the national budget, compared to Nepal’s mere 6-8%.
“We are not prioritizing correctly. The budget must cater to regional needs,” Yadav asserted, emphasizing that Nepal’s federalism needs structural alignment with its developmental goals.
Unique Challenges in Federalism
Hon. Yogesh Bhattrai underscored the uniqueness of Nepal’s federal structure, calling for budgetary practices that reflect the nation’s realities. “While developmental projects are increasing, the quality of human life is deteriorating,” Bhattrai observed, pointing to internal migration pressures, with schools in the Himalayas underutilized and those in the Terai overwhelmed.
He also urged local and provincial governments to diversify revenue sources, stressing that “financial transfers are not aligning with the federal spirit.”
Concerns Over Project Banks and Budget Effectiveness
Former Finance Minister Hon. Barsha Man Pun criticized the ineffectiveness of project banks, blaming inconsistent implementation across administrations. Despite improvements in local governments' revenue diversification, he noted that cooperative overreach often undermines economic acceleration for ordinary citizens.
Fiscal Discipline and Transparency
Hon. Kamala Panta, Chair of the Committee on Development, Economic Affairs, and Good Governance, lamented the lack of fiscal discipline and transparency in provincial governments. “Reports from the Office of the Auditor General show repeated failures in accountability,” Panta said. However, she praised local governments for their relative efficiency, attributing it to clearer precedents.
The Need for Autonomy and Subsidiarity
Shiv Raj Adhikari, Vice-Chair of the Planning Commission of Nepal, highlighted imbalances in vertical and horizontal fiscal relationships. “We must reduce conditional grants and prioritize autonomous funding for subnational levels,” he suggested, emphasizing execution over abstract debates.
Similarly, Mahesh Baral, Joint Secretary of the Ministry of Finance, advocated for applying the principle of subsidiarity—empowering local governments to address community-specific issues more effectively. He called for research into the revenue-generation challenges faced by subnational levels.
Equalization Grants and the Pro-Poor Debate
Vidhyadhar Malik, an expert on federalism, expressed dissatisfaction with the budget, describing it as neither pro-poor nor family-oriented. He warned that the declining equalization grants and increasing conditional transfers could undermine the essence of federalism.
Calls for Reform and Action
The event concluded with a call to revisit fiscal frameworks and prioritize participatory planning. Ganga Dhar Awasthi, a senior expert, pointed out that local governments face restrictions in resource extraction, negatively affecting project demand and planning.
Dr. Khim Lal Devkota, Chair of FLC, emphasized that the discussion should transition from criticism to actionable solutions. “We need to focus on execution and address systemic bottlenecks,” Devkota stated.
The consultation was facilitated by Mr. Prakash Pantha, Executive Director of FLC, with a comprehensive report prepared by Mr. Mohd Ayub, Political Economy Analyst at FLC.
