Education is the driving force behind the development of conscious, capable, productive and well-informed citizenry and plays a crucial role in determining a number of social and economic outcomes. Investment in education contributes to lower crime rates, greater social cohesion and builds the foundation for sustainable development.

However, education sector has not received adequate funding in the least developed countries where school system not only suffers from operational inefficiencies but also with high student dropout rates. Fortunately, Nepal government has accorded high priority to education sector since the advent of democracy in 1991. The government increased its expenditure in education from Rs. 2082.3 million in 1990/91 to Rs. 17220.6 million in 2004/05. The share of government expenditure allotted to education is about 15% of total budget.

However, the overall picture of education system has not been satisfactory as indicated by factors such as pupil to teacher ratio, teacher to school ratio, gender parity in education, physical infrastructure and dropout rates. Moreover, Nepal is not only facing challenges in expanding primary and secondary education due to limited resources, inequality and inefficiency but also to achieve universal primary education and eliminate gender disparity to meet the Millennium Development Goals (MDGs). Not to forget the dismal quality of public education system, which caters to 90% of the population that cannot afford a better education.

The greater the concentration of education expenditure at the lower levels, particularly primary, the greater the impact will be on increasing equity. Expenditures on higher secondary and tertiary education have a retrogressive effect on income distribution. These expenditures cannot be justified by the stated objective of increasing equity. The current level of resources could be used more effectively even within current distribution pattern.

In an effort to make education accessible to every citizen, it is essential to launch both formal and informal education programmes as a part of national policy. Similarly, the existing gender disparity in education programmes needs to be eliminated, thus improving the quality of education in public schools.

The justification for subsidising primary schooling is greater than subsidising secondary schooling, subsidising which is in turn more justifiable than subsidising higher education. Another important fact is that centralised approach to management of educational institutions has hindered stakeholders’ assuming greater accountability. A decentralised approach would help empower school management committees by increasing the involvement of local government and communities. Similarly, the limited financial resources require prioritisation of expenditures, reduction in project portfolio and reallocation of funds for recurrent activities. The government should provide subsidies at the level where the poorest of the students can benefit.