World Bank builds support for fiscal federalism in the country

Kathmandu, June 14

The World Bank has approved the Second Programmatic Fiscal and Public Financial Management Development Policy Credit (DPC2) Project that supports the Nepal government’s efforts to establish a framework to move towards fiscal federalism and improve the policy framework for public financial management.

The implementation of reform actions under the $100 million project is coordinated by the Ministry of Finance. It builds on reforms supported under the first Development Policy Credit Project, which was approved in March 2018, as per a media release.

This DPC series supports reforms to advance Nepal’s federalism agenda, under two pillars. The first pillar supports measures to establish fiscal federalism through various legislation, policies and regulations. An umbrella legislation, enacted at the federal level, will guide budget execution and improve the accounting and financial reporting framework, and will form the basis of model laws to be adopted by local governments, to govern their budget processes.

The second pillar supports reforms to strengthen the policy framework for public financial management at the sub-national levels. This will be achieved through legislation and regulations that govern the budget cycle and promotes transparency and accountability to citizens, guides preparation of the Medium-Term Expenditure Framework, strengthens expenditure control, and supports the development of a revenue collection system. These reforms also include gender-responsive budgeting, and measures to address Nepal’s vulnerability to climatic shocks and improve disaster risk management.

“We are here to support Nepal’s federalism and development narrative, which requires our sustained engagement with the government of Nepal together with the country’s development partners,” the release has quoted Idah Z Pswarayi-Riddihough, World Bank country director for Maldives, Nepal and Sri Lanka, as saying.

“As guided by the Country Partnership Framework for Nepal, this project will effectively contribute to strengthening public institutions.”

The DPC2 project builds on the reforms supported by the first Development Policy Credit to establish legal frameworks to govern resource allocation across the three tiers of government and guide operations of local governments. It also supported measures to strengthen budget execution and public financial management systems at the federal level.

Nepal’s transition to a federal state aims to bring services closer to the people and to increase the government’s effectiveness in the delivery of social and infrastructure services.