Strengthening Fiscal Decentralization in Nepal’s Transition to Federalism

This publication examines progress on the four main components of fiscal decentralization in Nepal since the country’s shift to a federal structure of governance in 2015. It covers the constitutional and legislative framework, implementation, reform efforts, and recommendations in (i) public expenditure assignment and budgeting, (ii) revenue mobilization, (iii) intergovernmental fiscal transfers, and (iv) subnational borrowing. The report also provides an overview of the institutional arrangements in Nepal for achieving the objectives of fiscal federalism, highlights reforms still needed, and draws lessons for a robust fiscal decentralization framework. It could also be useful to policymakers and stakeholders contemplating a similar state transition in other countries.