It is not the opposition or detractors of the government but the sitting prime minister, KP Sharma Oli, who is critical of how the government(s) is functioning. He has repeatedly expressed dissatisfaction with the work of all three tiers of government. In November, he lambasted 'non-performing' federal government ministers and threatened to sack them. Last Sunday, while addressing a conclave of elected municipal chiefs/deputy chiefs from the party, he sought an explanation for their “inability to perform as per people's expectation”.

Sadly, the prime minister's repeated concerns are a vindication of the increasing public disenchantment with the overall performance of the state and its component units. The prime minister, who is expected to offer a solution to the condensing national gloom, seems to be the one complaining. Instead of putting forward workable solutions and mobilising the state mechanism for execution, he expects some panacea from his subordinates, both in his party and the government. On all three major fronts—making the political system a vehicle for mass optimism, improving the economic security of the nation and its citizens, and ensuring that at least the basic public services are accessible to common people, true to the prime minister's words—the state has proven comprehensively dysfunctional.

Making federalism work

All key stakeholders—political organisations, elected executives, and administrative architecture—have blatantly ignored the imperative of making federalism fully functional and instrumental for better governance and economic growth. There are hardly any efforts to mobilise the existing structures and institutions. Although there may not be any tangible political discord between the federal and provincial and also provincial and local levels, the status quo approach at each level constrains optimal outcomes from intergovernmental governance.

The Inter-provincial Council, provisioned in Article 234 of the Constitution, may be invoked for better cooperation between the federation and the provinces. Similarly, Article 235 assigns the Provincial Assembly to coordinate with the local levels and “to settle disputes, if any”. However, these mechanisms are rarely used to solve problems. The Council met only once at the behest of the chief ministers and has been ostracised ever since.

Section 16 of the Federation, Province and Local Level (Coordination and Interrelation) Act, 2020 instituted a National Coordination Council “to manage the coordination and interrelations between the federal, provincial, and local levels”. The law has given the council extensive powers, including coordination between the three levels, addressing the complexities of implementing the national plan, coordinating the implementation of large development projects operated at the inter-province level and facilitating discussions among the three tiers of government.

If activated, these processes provide insights into the core of the problem and help in charting solutions. However, the council has not met since its second meeting on February 7, 2024. Parliament has yet to proactively enact dozens of laws critical for the functioning of the federal administration. Human resource and knowledge constraints at the local levels have hindered their efforts to present a true government with the scope and capacity to deliver.

Money matters

Similar to the governance paradigm, there are institutional arrangements to address economic issues. As a constitutional body, the National Natural Resource and Fiscal Commission has the authority to facilitate and advise governments of all levels for better mobilisation of resources. Section 33 of the Intergovernmental Fiscal Arrangement Act, 2017, has set up an Intergovernmental Fiscal Council for consultation and coordination among the governments on fiscal arrangements. It is headed by the federal and provincial finance ministers, who are ex-officio members. The National Planning Commission, as the outdated central planner, is still bleeding the state exchequer. All these institutions seem to be confining their roles to narrow interpretations of constitutional or legal mandates, impervious to the current rapid downward spiral of the economy.

Despite the rise in remittance inflows and the increase in foreign exchange reserves, other economic fundamentals are worrisome. Revenue collection is at least 13 percent short of the average quarterly target. In the first five months of the fiscal year, capital expenditure has reached only 11.6 percent of the allocation, and the trade deficit shows no sign of shrinking. Further, youth exodus has only accelerated. The government's utter disinterest in policy tweaking for corrective measures, let alone the introduction of monetary stimulus to boost consumer confidence, is manifested in these dormant legal and institutional edifices.

Institutional inefficiency

Several studies have firmly established a positive correlation between the efficiency of public institutions and economic/developmental outcomes. Recent Nobel laureates Daron Acemoglu and James Robinson argue that “the main determinant of differences in prosperity across countries are differences in economic institutions.” Nepal's public administration is marred with multiple traits that make inefficiency horizontally and vertically pervasive. It is process-oriented, slow-moving, unskilled and usually rent-seeking or extractive.

Nepal's poor ability in project administration is evident in the time and cost overrun of 24 large projects designated as projects of national pride. According to a study by the National Planning Commission, the cost of these projects being constructed by the government is an extra 150 percent. Having begun with 17 projects 12 years ago, the list of the national pride projects has now gone up to 24, of which only four have been completed. The initial cost of Rs1 trillion is estimated to have climbed to Rs2.5 trillion.

With federalism, the role of subnational governments has substantially expanded. However, the unavailability and instability of the administrative and technical staff in the locations, particularly in far-flung municipalities, has been a bottleneck to service delivery and project implementation. Lack of coordination among key government ministries/agencies has proven to be the main deterrent for domestic and foreign investors.

The cumulative outcome is that the entire state mechanism is becoming dysfunctional, which has both causal and reverse-causal effects, such as slow growth, poor facilities, mass desperation and incessant exodus of youths. There seems to be no agency presence for a bold and decisive course correction.