In Nepal, although political instability imposes challenge on the country’s development, reforms toward improving service delivery and accountability have begun. The Immediate Action Plan (IAP) in 2002 contained three types of reforms:
- - Prioritizing public expenditures;
- - Improving local delivery of social services; and
- - Fighting corruption and improving accountability.
The Poverty Reduction Strategy identified decentralization as one of the priorities for poverty alleviation. The Local Self Government Act (LSGA) of 1999 defines three types of local bodies, and endows them with some revenue powers and expenditure responsibilities.
To move ahead with fiscal decentralization, a Local Bodies Fiscal Commission (LBFC) was formed in 2002. One of the main objectives of this commission is to develop the fiscal transfer system from the central government to local governments that currently lack transparency both in the vertical share and in the horizontal distribution.
- Challenges include:
- - Functions and responsibilities assigned to local bodies are unclear, and overlap with those of the central government;
- - Local revenue power is limited;
- - The grant system lacks transparency; and
- - Internal conflict has stalled the process of devolution.
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