‘Transparent fiscal architecture necessary’

Kathmandu, September 17

As the country is preparing for an ambitious shift from a unitary to a federal system of government, closer attention to sequencing political, financial and administrative decentralisation will be key, says the World Bank in its ‘Nepal Development Update - 2017’ unveiled today.

Starting in fiscal 2017-18, a large proportion of federal spending is expected to be passed on to subnational governments, ultimately increasing public spending. However, update cautions that unresolved issues surrounding the implementation of new federal architecture could challenge budget execution, particularly during upcoming year.

Nepal’s new fiscal federalism system suggests a marked asymmetry between stronger decentralisation of spending responsibilities and relatively unchanged low decentralisation of tax collection powers, notes the update.  Similar imbalances hold true between regions across the country.

“The subnational governments will play an increasingly critical role in Nepal’s public expenditures,” said Takuya Kamata, World Bank’s country manager for Nepal. “A system of fiscal transfers that is designed for transparency and predictability and supported by a small set of simple rules, could go a long way in helping meet development objectives of federal Nepal.”