Problems in Budget Formulation and Implementation after Federalism in Nepal, and Suggestions

1. Introduction

After the promulgation of the Constitution of Nepal (2015), Nepal formally adopted a three-tier federal structure — federal, provincial and local. The constitution and the Intergovernmental Fiscal Management Act, 2074 (2017) assign budget-related responsibilities to all three tiers. The federal budget is formulated by the Ministry of Finance and passed by the federal parliament; provincial and local budgets are formulated by their respective governments. The National Natural Resources and Fiscal Commission (NNRFC) recommends revenue sharing and equalisation grants. In this new setting, budget formulation and implementation have faced several structural, legal and managerial problems.

2. Problems in Budget Formulation

1. Unclear division of fiscal responsibility. The constitution lists federal and provincial powers in Schedules 5–9, but many subjects (education, health, agriculture, water supply) fall in concurrent lists. This creates duplication — both the federal and provincial governments allocate budget for the same programme in the same district.

2. Weak intergovernmental coordination. The National Planning Commission, Ministry of Finance, provincial planning commissions and local bodies do not share a common planning calendar. Local bodies often send plans after the federal budget ceiling is already fixed.

3. Delay in fiscal transfer announcement. The NNRFC's recommendations on revenue sharing and grants are sometimes delayed, so provinces and local bodies cannot finalise their budgets in time. Many local bodies pass their budgets only in Ashad (June), leaving no time for preparation.

4. Dependence on conditional grants. A large share of provincial and local resources comes as conditional grants tied to federal priorities. This reduces the fiscal autonomy of sub-national governments and distorts local needs.

5. Weak revenue forecasting. Federal and provincial budgets are based on optimistic revenue estimates. Shortfalls in VAT, customs and income tax collection force mid-year cuts.

6. Inadequate absorption capacity. Local bodies lack trained financial staff (accountants, planners). Many cannot prepare realistic cost estimates, so budgets are either inflated or under-allocated.

7. Politically driven allocation. Budget allocations are often influenced by constituency interests rather than objective need. "Budget tourism" and duplication of small projects are common.

8. Weak linkage with periodic plans. The 15th and 16th periodic plans set targets, but budget formulation does not always follow the plan's priorities. Capital and recurrent expenditure ratios remain unbalanced.

3. Problems in Budget Implementation

1. Low capital expenditure. Capital spending is often below 70–80% of the allocated amount. Delays in tender, land acquisition and contract award push spending to the last quarter.

2. March–June rush. A large part of the budget is spent in the last three months of the fiscal year, reducing value for money and quality of works.

3. Weak monitoring and evaluation. The Financial Comptroller General Office (FCGO) reports are delayed. Line ministries do not conduct regular field monitoring. Social audits exist but are not effective.

4. Procurement delays. The Public Procurement Act, 2063 (with amendments) is not fully followed. Complaints and disputes delay contract award.

5. Conditional grant release delays. Federal transfers to provinces and local bodies are often released late, so local projects cannot start on time.

6. Weak accountability. Corruption in budget execution, fake bills and incomplete projects are reported. The Commission for the Investigation of Abuse of Authority (CIAA) and the Office of the Auditor General (OAG) point out irregularities every year.

7. Insufficient own-source revenue. Local bodies collect very little own revenue (property tax, business tax). They depend heavily on federal grants, which weakens ownership.

8. Capacity gap in local governments. Newly elected local representatives and staff lack experience in budget execution, accounting and reporting.

4. Suggestions / Recommendations

1. Clear fiscal federalism framework. Amend laws to clearly separate federal, provincial and local subjects. Prepare a common list of programmes to avoid duplication.

2. Strengthen NNRFC and intergovernmental coordination. Finalise revenue sharing and grants before the start of the fiscal year. Hold regular meetings of the Intergovernmental Fiscal Council.

3. Improve planning calendar. Fix a common budget calendar for all three tiers — plan formulation by Magh, ceiling by Chaitra, budget passage by Jestha.

4. Increase own-source revenue. Give local bodies more taxing powers and build their capacity to collect property tax, business tax and service fees.

5. Capacity building of local staff. Provide regular training to accountants, planners and engineers. Recruit qualified financial staff in all local bodies.

6. Strengthen monitoring and evaluation. Use digital systems (e.g., Line Ministry Budget Information System, SuTRA) for real-time reporting. Make social audit and public hearing compulsory.

7. Reform procurement. Simplify tender procedures, use e-procurement, and set strict timelines for contract award and completion.

8. Ensure timely fiscal transfer. Release conditional grants in the first quarter. Link transfers to absorption capacity and performance.

9. Promote accountability. Strengthen the role of OAG, CIAA and parliamentary committees. Punish those involved in budget irregularities.

10. Balance capital and recurrent expenditure. Increase the capital expenditure share and prioritise projects that are ready for implementation.

5. Conclusion

Federalism has brought decision-making closer to the people, but budget formulation and implementation in Nepal still suffer from legal ambiguity, weak coordination, low absorption capacity and poor accountability. Clear laws, timely fiscal transfers, capacity building and strong monitoring are essential to make the federal budget system effective and to ensure that public resources reach the people.

Public Assets: Meaning

Public assets (सार्वजनिक सम्पत्ति) refer to all movable and immovable property, resources, funds and rights owned, controlled or used by the State and its agencies on behalf of the people. They are created and maintained out of public revenue (taxes, fees, foreign aid, loans) and are meant to serve public interest rather than private profit.

They broadly include:

• Physical/immovable assets — land, buildings, roads, bridges, irrigation canals, airports, government offices, schools, hospitals, parks.
• Movable assets — vehicles, machinery, equipment, furniture, computers, stock and stores.
• Natural and financial assets — forests, rivers, mineral resources, government shares in public enterprises, cash reserves, and public funds.
• Intangible assets — intellectual property, licences, spectrum, and the legal rights held by public bodies.

The ownership and use of such assets are governed by laws such as the Public Procurement Act, 2063, the Financial Procedure and Fiscal Responsibility Act, 2076, and the Local Government Operation Act, 2074, which require their use for the purpose for which they were acquired.

Problems in Management and Utilization of Public Assets in Nepal

1. Weak legal and institutional framework — outdated laws, unclear ownership among federal, provincial and local levels, and overlapping jurisdiction lead to disputes and neglect.
2. Political interference and instability — frequent transfer of officials, political appointments and pressure in procurement decisions weaken accountability.
3. Corruption and misuse — collusive bidding, over-invoicing, substandard construction, and misuse of government vehicles and residences.
4. Poor maintenance culture — assets are built but not maintained; roads, buildings and equipment deteriorate before their useful life.
5. Inadequate record-keeping — absence of updated asset registers, weak inventory systems and failure to conduct regular physical verification.
6. Encroachment and illegal occupation — public land, forest and riverbanks are encroached upon by individuals and organized groups.
7. Underutilization and idle assets — government buildings, land and vehicles remain unused or underused while scarce resources are spent on new construction.
8. Weak monitoring and audit follow-up — audit findings are repeated year after year without corrective action.
9. Lack of transparency — decisions on asset disposal, leasing and use are not made public.
10. Limited capacity of officials — inadequate training in asset management, accounting and procurement.

Ways of Solutions

1. Legal and policy reform — amend and consolidate laws; clearly define ownership and use rights of assets among the three tiers of government as per Schedule 8 and 9 of the Constitution.
2. Strengthen asset management systems — maintain a digital, updated asset register for every public body; conduct periodic physical verification and valuation.
3. Improve procurement and disposal practices — enforce competitive, transparent e-bidding; publish contract awards and disposal notices; apply asset-disposal rules strictly.
4. Promote maintenance budgeting — allocate a fixed percentage of capital expenditure for maintenance; adopt a preventive maintenance plan.
5. Enhance transparency and accountability — publish asset inventories, use and disposal decisions; enforce the Right to Information Act, 2064.
6. Strengthen oversight bodies — empower the Office of the Auditor General, CIAA and Public Accounts Committee; ensure timely follow-up on audit reports.
7. Capacity development — train officials in asset management, accounting and procurement; introduce asset management as part of civil service training.
8. Use of technology — adopt GIS mapping of public land and assets; use digital tracking for vehicles and equipment.
9. Public participation and social audit — involve local communities and user committees in planning, monitoring and protection of public assets.
10. Rationalize and commercialize idle assets — lease or repurpose unused government land and buildings to generate revenue instead of letting them decay.
11. Institutional coordination — establish a clear coordinating mechanism among federal, provincial and local governments for asset transfer and management.
12. Reward and sanction — reward officials and offices with good asset management records; take strict action against those responsible for loss, misuse or encroachment.

Conclusion: Public assets are the material foundation of public service delivery. Their proper management requires a combination of legal clarity, transparent systems, capable institutions and active public oversight. Only then can the State ensure value for money and equitable benefit to citizens.

Rights relating to education guaranteed by the Constitution of Nepal (2072)

1. Article 31, Right to education (Part 3, Fundamental Rights):
   • Every citizen has the right to access basic education.
   • Basic education is compulsory and free, and secondary education is free.
   • Citizens with disabilities and the economically poor have the right to free higher education as provided by law.
   • Visually impaired citizens have the right to free education through Braille, and citizens with hearing or speech impairment through sign language, as provided by law.
   • Every Nepali community living in Nepal has the right to acquire education in its mother tongue up to secondary level, and to open and run schools and educational institutions as provided by law.
2. Article 39, Rights of the child: every child has the right to education, along with protection from exploitation.
3. Article 40, Rights of Dalits: Dalits have the right to free education from primary to higher level with scholarships.
4. Article 42, Right to social justice: includes provisions for education of marginalised and disadvantaged groups.
5. Article 51, Directive principles and policies: the State is directed to provide scientific, technical, vocational and quality education, and to expand access to it.
6. Schedule 5-9: education is a shared responsibility of federal, provincial and local governments, with local governments running basic and secondary education.

Has the government invested adequately? An analysis

Progress made

• Net enrolment in primary school is above 95 per cent, and literacy has risen from about 54 per cent (2001) to about 76 per cent (2021 census).
• Free textbooks, scholarships for Dalit and girl students, mid-day meals and the Compulsory and Free Education Act, 2075 show legal and policy commitment.
• The absolute education budget has grown, and local governments now manage schools directly.

Why investment remains inadequate

• Quality gap: large spending goes to salaries, leaving little for classrooms, laboratories, libraries, ICT and teacher training. Learning outcomes in language and mathematics are weak.
• Inequality: Dalit, Janajati, girl, disabled and remote Karnali children still have higher dropout rates. "Free" education often covers only tuition, not the other costs.
• Implementation gaps: the right to free secondary education and for persons with disabilities is not fully met, and coordination between the three tiers of government is weak.
• Learning losses and digital divide after COVID-19, and high dropout after Grade 8 and 10.

Conclusion: Nepal has built a strong constitutional and legal framework and expanded access, but investment is still below international benchmarks and unevenly used. To fulfil the right to education in practice, the State should raise the allocation toward 20 per cent of the budget, spend more on quality, teacher training and infrastructure, target marginalised groups, and strengthen federal-local coordination.

Meaning of Rule of Law

The Rule of Law means that a state is governed by law and not by the arbitrary will of any individual. Its main elements are:

1. Supremacy of law: law is above everyone, including rulers and officials.
2. Equality before law: all persons, whatever their position, are subject to the same law.
3. Due process: no one may be deprived of life, liberty or property except by procedure established by law.
4. Independent and impartial judiciary: courts can check the legality of acts of the executive and legislature.
5. Accountability of government: the government itself must act within the limits of the constitution and law.

A. V. Dicey classically explained the concept; in simple words it is "a government of laws, not of men".

How the Constitution of Nepal, 2072 has ensured the Rule of Law

1. Supremacy of the Constitution (Article 1): it is the fundamental law, and any law inconsistent with it is void to the extent of the inconsistency.
2. Popular sovereignty (Article 2): sovereignty and state authority rest with the people, not with any person or group.
3. Preamble and basic principles: commitment to democracy, the rule of law, human rights, and an independent and impartial judiciary.
4. Fundamental rights (Part 3, Articles 16-46):
   • Right to live with dignity (Art. 16) and freedom (Art. 17).
   • Right to equality, including equality before law and equal protection of law (Art. 18).
   • Right relating to justice (Art. 20): grounds of arrest must be told, a lawyer may be consulted, the person must be produced before a judicial authority within 24 hours, there is a fair trial and presumption of innocence, and no retroactive punishment or double jeopardy.
   • Rights of victims of crime (Art. 21) and right against torture (Art. 22).
   • Right against preventive detention (Art. 23), which is allowed only in narrow circumstances and for a limited time.
5. Right to constitutional remedy (Article 46): a person whose rights are violated can approach the Supreme Court or High Court under Article 133 and Article 144, so rights are enforceable.
6. Independent judiciary (Part 11, Articles 126 onward): the Constitution provides that judicial power is exercised by courts, with security of tenure, and judges appointed on the recommendation of the Judicial Council, protecting them from executive pressure.
7. Judicial review: the Supreme Court can declare a law void if it is inconsistent with the Constitution (Article 133(1)) and issue writs such as habeas corpus and mandamus.
8. Separation of powers and checks and balances: the federal Parliament (Part 8), the Executive (Part 7) and the judiciary (Part 11) each have defined functions, and the Executive is accountable to Parliament.
9. Constitutional bodies for accountability: the Commission for the Investigation of Abuse of Authority (Art. 238), the Auditor General (Art. 241), the Public Service Commission (Art. 243) and the National Human Rights Commission (Art. 248) check abuse of power and protect rights.
10. Directive principles and policies (Part 4): the State is to pursue policies of good governance, justice and the rule of law.
11. Federal structure: powers of federal, provincial and local governments are defined by the Constitution (Schedules 5-9), limiting concentration of power.

Conclusion: The Constitution of Nepal has established the Rule of Law through constitutional supremacy, justiciable fundamental rights, an independent judiciary with judicial review, separation of powers and independent accountability bodies. Its real value, however, depends on honest implementation, strong institutions and respect for court decisions.