Nepal has been able to make an important progress in the implementation of federalism following the promulgation of the federal constitution in September 2015. As per a study on the Federalism Capacity Needs Assessment (FCNA), the country has made headway in creating key institutional setups within the period. FCNA is an assessment of Nepal’s capacity needs focusing on the state and local governments to enforce federalism. Led by the Government of Nepal with the support of the World Bank and UNDP, the FCNA was jointly undertaken by the Georgia State University and Nepal Administrative Staff College which was initiated in September 2018 and completed in December 2019. The assessment was first of its kind in the country. While making the assessment, the team had applied informant interviews, desk reviews and questionnaires. With the adoption of the federal constitution, the country has made a historic move from a unitary form of government to a federal system. The new system aims to build accountability of three levels of the government.

The FCNA covered the federal government, seven state governments and 115 local governments. The study focused on three main elements of capacity: organisational, institutional and regulatory, and physical infrastructure. Establishing key institutional structures, strengthening the regulatory environment and strong initial progress in the adjustment of personnel in all levels of the government have been measurable achievements as identified by the FCNA. The assessment also revealed that the state and local governments accounted for about 34 per cent of total national expenditure, suggesting strong government acknowledgment of the importance of fiscal federalism. The assessment, however, pointed out gaps between the needs and existing capacity at all levels of government to manage new functions. Minister for Finance Dr. Yuba Raj Khatiwada, while speaking at a briefing organised in Kathmandu recently, said that Nepal’s transition to federalism significantly increased the need for developing capacity at all levels of the government and modernise the governance system. Minister Khatiwada also stated that the federal setup would help in taking on new service delivery responsibilities to meet growing demand for better public services.

The FCNA has recommended a strategic approach to capacity building for federalism, including the need to prioritise measures to strengthen the foundations for intergovernmental and inter-ministerial coordination and monitoring of the implementation of federalism. This type of approach is essential to make necessary reforms in governance and improve the service delivery system. It called for a roadmap essential to help improve the country’s capacity readiness for federalism. Even the chief ministers of five states appreciated the process and agreement of the findings and recommendations of the FCNA. It is an assessment of the country’s capacity needs in the State and local governments to implement federalism, along with a roadmap of priorities for all three levels of governments over the short and medium terms. The assessment is sure to provide a vital baseline for the implementation of federalism in the country and capacity requirements to lead the new system of governance to success. The most relevant and feasible recommendations made by the FCNA must be enforced on a priority basis.