Governance challenges in federal structure

  • With poverty, regional imbalance and unemployment, implementing federal system will not be easy
- Yogendra Subedi

May 31, 2018-

The recently published World Bank Report ‘Public Launch of the Systematic Country Diagnostics of Nepal (2018)’ says Nepal needs to immediately change the development model in order to succeed its federal system. The report further says the present model has failed to achieve rapid development and poverty reduction goals. Nepal has entered into a federal structure when both foreign investments and remittances are decreasing. This is quite alarming.

Implementing federal system will not be a simple move. As declared on September 2017 there are now 6 metropolitan and 11 sub-metropolitan cities, 276 municipalities, and 460 rural municipalities a total of 753 entities in 77 districts. Two districts have been newly created. Not only have the number of municipalities and their boundaries changed in this structure, but also redistributed of authority at the designated level. Indeed it is a huge fundamental shift in governance architecture.   Though a political transition has been achieved, social and economic transitions remain far-off.

The challenges

Poverty, regional imbalance and unemployment remain Nepal’s major problems. The idea of federal structure emerged as a political agenda against unitary system after the success of people’s movement in 2006. Like in other federal countries, provinces demand the additional expenditure as they face new challenges.


Meeting additional administrative and bureaucratic expenses is a new challenge. The inadequate number of civil servants with low technical skill and minimum logistic support are other constraints. The government has introduced an adjustment program for the civil servants in order to place in the new administrative system through Civil Servants Integration Bill.  This includes a provision of ‘Golden Handshake’ for employees who opt for voluntary retirement. They can receive a pension of seven years at one go. But this has not motivated civil servants who are not willing to move in the provinces or local bodies unless promoted or get handsome salaries. ‘Golden Handshake’ adds further financial burden to the state treasury. However, Prime Minister KP Oli has a different opined that old bureaucrats be retained for their experience in a transition.

Disaster brings more challenges. When hazard strikes, the existing plans, policies, and guidelines are unlikely to be smoothly operated. This is so because the Local Governance and Community Development Program (LGCDP), and Local Disaster Risk Management Planning (LDRMP) or the 14 steps planning process will not be functional as they are based on the functionaries of previous local bodies. In the new structure, their roles are yet to be defined. Several questions arise viz who has the responsibility in case of disaster, and under what mandate? The DRR/ M Act 2074 is yet to be followed by the guidelines and regulations. The local bodies need these provisions to go into action for disaster management.  

Whether it is for disaster management or for meeting other needs, local bodies need funds. Not all the provinces are at the same level in term of revenue collection and resources generation. Thus implementing fiscal federalism to ensure sustainability and independence is another major challenge. The sub-national units need to be resourced with a proportionate share of revenue distribution and natural resources. Indeed this will increases the financial burden, and the start-up cost may rise

to billions of rupees. If the state fails to allocate required sources of income among the federal states, the regional disparity will accentuate. Generating resources by the provinces themselves for sustainability is both opportunity and challenge. How does this work out if the national treasury is empty as indicated by the Finance Minister’s white paper?

In the present federal structure, the bonding element will be lost if local bodies with diverse culture and interest begin to vent their own grievances and ambitions. The result might lead to fragmentation.  In Solukhumbu District’s then Tingla VDC, the entire villagers neither turned up in the local election nor did they file candidacy to express their dissatisfaction over the restructuring of VDC against their interest.

What next?

The focus of governance should be on transparency and accountability of agents and institutions in order to make federal structure successful. Other pillars such as participation, rule of law, responsiveness, equity, consensus, and efficiency are equally crucial.  The primary effort should be in making the government officials efficient so that they provide prompt services to the public.  In the past civil servants were criticised for being political workers than those who delivered services. This perception needs to change.

While federalism may lead to development, it may also lead to chaos if not dealt properly. Nepal remains in the list of least developed countries and its economic development pathway must be robust than the present. This would require a strong financial equalisation policy, which in turn, can be an effective tool even to manage conflict. The federal-state can give voice to the suppressed and help them gain their identity but at the same time, if economic and fiscal management challenges are not addressed, the country will experience a new disaster.

Subedi is a senior researcher at the Institute for Social and Environmental Transition (ISET)

Published: 31-05-2018 07:35

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