Nepal Capacity Needs Assessment for the Transition to Federalism July 10, 2019 Empowered lives. Resilient nations. *Prepared by the International Center for Public Policy in the Andrew Young School of Policy Studies at Georgia State University ii ACKNOWLEDGEMENTS AND STAFF This report is a product of a team from the Andrew Young School of Public Policy (AYSPS) at the Georgia State University and the Nepal Administrative Staff College. The sponsors of this report are the Government of Nepal, MOFAGA (LGCDP), the World Bank and the United Nations Development Programme (UNDP). The overall report and survey for seven provincial governments and 50 local governments were funded by the World Bank under Contract #7188807. The survey of 65 additional local governments for this study was funded by the MOFAGA through UNDP under Contract UNDP/CONT/34/2018. The project benefitted from the comments of governments in Nepal and from Development Partners; however, the views expressed in the report are those of the authors and not of the Government of Nepal, the World Bank, or the United Nations Development Programme (UNDP). Below is a list of contributing staff for this report. PROJECT STAFF Roy Bahl, Georgia State University, Team Leader Trilochan Pokharel, Nepal Administrative Staff College, Deputy Team Leader Andrey Timofeev, Georgia State University, Intergovernmental Relations Expert Lee Higgins, Georgia State University, Survey Design Expert Madhu Raman Acharya, Nepal Administrative Staff College, Public Administration Expert Tulasi Sharan Sigdel, Nepal Administrative Staff College, Subfederal Administration Expert Saurav Shamsher J.B. Rana, The World Bank, Consultant Amanda Manandhar-Gurung, GESI Expert iii EXECUTIVE SUMMARY INTRODUCTION 1. Implementing the shift to federalism in Nepal is a big task – one that only a few low-income countries around the world have attempted. It is especially challenging in Nepal where the administrative capacities of provincial and local governments to deliver and manage services are not yet well developed, and where the federal government has little experience with managing an intergovernmental system. 2. This research and analysis were carried out at the request of the Government of Nepal to assess challenges and opportunities in implementing the new federalism. The core work of this project (Federalism Capacity Needs Assessment, or FCNA) has two parts. The first is to examine and identify the gap between the needs and the capacity of provincial and local governments to manage their assigned service responsibilities under the new system. The second is to examine and assess the capacity of the federal government to regulate and manage the way the federalism transition is rolled out, and its capacity to manage the intergovernmental system thereafter. Both components use a broad definition of capacity, including organizational (physical and human) and institutional (laws and regulations) elements. Many important issues are not taken up in this project, e.g., a parallel analysis of service delivery needs and capacity, the gap between expectations of citizens and service delivery. In the sample survey results reported below, we take up only the administrative involvement of provincial and local governments with service delivery. This analysis does not address the issues facing individual provincial or local governments or make monetary estimates of the fiscal gaps on a sector-by-sector basis. The results of this work and the purpose of this analysis should help smooth the transition to the new federalism and help in identifying next steps in implementation. The analysis in this report covers the period to April 1, 2019, and so important initiatives enacted and completed after that time are not included. IMPLEMENTATION ISSUES 3. Much has been accomplished since 2015. Elected PLGs are functioning, gender diverse and inclusive local assemblies are doing business along the lines suggested by the Constitution of Nepal, 2015 (2072), and budgets have been approved and audited. At the federal level, several framework laws have been passed, the NNRFC secretariat has implemented an intergovernmental transfer system, and the initial phase of staff adjustment at the provincial and local levels has been completed. 4. But there is much still to be done. Important national framework legislation has not yet come online, in part because such a profound paradigm shift in Nepal has resulted in complicated political economy considerations requiring time-consuming navigation and because a strong “champion” for pushing the devolution agenda is yet to emerge in this new structure. Implementation at the relatively nascent local level has also posed a challenge. There was a general push to get going with local self-governance even though elected provincial and local government officials, and many voters, were not yet familiar with their new powers and responsibilities. Finally, the transition to federalism has been constrained because it went forward without the benefit of a comprehensive implementation plan or a timetable for sequencing the introduction of iv new policies. DEVOLUTION OF GOVERNMENT EMPLOYMENT 5. The Constitution assigns important functional responsibilities to provincial and local governments and mandates that they have significant autonomy in deciding how services will be delivered. To date, the new system is characterized by a combination of devolution of some powers to PLGs and retention of others by the federal government. 6. A centerpiece of the Nepal strategy for implementing devolution would appear to be a shift of employees from the federal government service to those provincial and local governments where service responsibility is now assigned. MOFAGA carried out analyses to guide the number of employees to be put in place at each level of government and worked out a plan for individual assignments. 7. The civil service adjustment program will not result in completely filling the capacity- needs gap of subfederal governments in this initial level of employment devolution. Neither is it likely to provide enough initial management capacity, with the right skills, to meet the needs of provincial and local governments, especially in technical areas such as engineering and accounting. PROVIDING A LEGAL FRAMEWORK FOR FEDERALISM 8. For Nepali federalism to be implemented successfully, a significant amount of framework legislation is required. This includes laws to assign expenditure, revenue, and public management responsibilities among the three spheres of government and to enable the issuance of necessary laws at the provincial and local government level. Much has been accomplished, but the time it has taken to pass or amend some national framework and operations legislation has contributed to a limited clarity in the division of responsibilities and powers of the different levels of government, uncertainties about operating procedures, and an inability of local and provincial governments to deliver on all of their new responsibilities. The Civil Servant Adjustment Act was passed in February 2019 and the federal civil service law that will empower provincial public service commissions to recruit and hire employees was still under review at the time of this writing. The passage of provincial and local laws is also a challenge because the legal training and background of staff at the PLGs level is so far limited. INSTITUTIONAL AND ORGANIZATIONAL ARRANGEMENTS 9. The Constitution calls for the empowerment of three institutions that are particularly important to moving the implementation of federalism forward. • Public service commissions are to be formed in each province. The powers of the provincial commissions will be set by provincial law, within the framework set by the federal law (which now has been passed). But the federal civil service legislation that will empower each provincial commission to recruit and hire is not yet in place. • An Inter-Provincial Council (IPC) is provided for in the Constitution to settle disputes of a political nature between the federation and province and among provinces. The membership includes the Prime Minister, the Ministers of Home Affairs and Finance, and v the Chief Ministers of the Provinces. The inputs of the Inter-Provincial Council in planning for the remainder of the implementation of the federal system is important. Thus far, the IPC has had two formal meetings. • The National Natural Resources and Fiscal Commission is charged with recommending/determining the distribution of revenues to provincial and local governments from the consolidated fund. A Secretariat to the Commission is functioning and has established an interim system of intergovernmental transfers. In March 2019, the President appointed a chair, but the full membership of the commission had not been nominated at the time of this writing. CAPACITY BUILDING AND TRAINING 10. The expected staff level, including service delivery employees, in the seven provincial governments is about 21,000, and that in the 753 local governments is about 66,000. There are about 37,000 newly elected local government officers, and 550 elected provincial government officers. Retooling employees and management in Nepal and educating lawmakers about their new duties will be no small job, and it will be expensive. 11. There is no survey of public sector training needs in place in Nepal. That is to say, there is not yet a plan that lays out the kind of training and capacity building that is necessary for government officials