Nepal’s economy has grown from NPR 120 billion to over NPR 6 trillion in three decades, poverty has fallen to about 20 percent, and internet and mobile subscriptions now approach 40 million- yet too many young Nepalis still see migration, not domestic jobs, as their best option. This paper argues that completing the federal architecture, rebalancing a budget where roughly 60 percent is locked in recurrent spending, and leveraging digital and local governance reforms can convert a fiscally heavy state into a high-performing system that delivers credible “opportunities at home.

Executive Summary

Nepal has undertaken an ambitious federal governance reform that created a three‑tier state with 753 local governments and a significantly expanded frontline bureaucracy in health, education and basic services. The public sector now manages over 200,000 civil personnel through a central Personnel Information System and oversees thousands of schools and nearly 8,800 public health facilities, illustrating the scale and reach of the state apparatus. At the same time, consolidated expenditure has grown to around NPR 1.4 trillion in 2023/24, with about two‑thirds absorbed by recurrent spending such as salaries, allowances and routine operations, and less than one‑fifth going to capital investment.

Recent budgets and macro data show both progress and strain. The federal budget for FY 2082/83 totals NPR 1.964 trillion, with 60 percent allocated to recurrent expenditure, 21 percent to capital, and 19 percent to debt servicing, financed by NPR 1.315 trillion in revenue and substantial domestic and external borrowing. The economy is projected to grow by about 4.6 percent, with GDP nearing NPR 6.1–6.2 trillion and per capita income around USD 1,500, but public debt has climbed to roughly 40–45 percent of GDP, and capital budget execution remains weak. Within this context, several expert reviews and political proposals have argued that Nepal’s federal government still carries more ministries and overlapping portfolios than its constitutional role requires, suggesting scope to streamline the cabinet structure and focus the center on policy, regulation, and standards.

Despite these constraints, human development outcomes have improved markedly: HDI has risen into the medium category; life expectancy exceeds 71 years; literacy now covers more than three‑quarters of the population; and monetary poverty has fallen to just over 20 percent, with inequality declining. Yet employment generation at home has lagged behind labor force growth, driving large‑scale migration and heavy reliance on remittances rather than domestic productivity and jobs.

Sectoral evidence shows that federalization has helped expand access but not consistently improved quality. Health facilities, hospital beds, and health workers have increased, but service quality and staffing are uneven across geography, and capital projects are delayed by weak planning and procurement. Education has seen strong gains in enrolment and school infrastructure, but learning outcomes remain low, reflecting politicized teacher management and fragmented responsibilities. In infrastructure, road length, electricity generation, and internet penetration have grown rapidly, yet chronic under‑execution of capital budgets and governance weaknesses in project selection, maintenance, and regulation limit the impact on productivity and inclusion.

The analysis suggests that governance reforms- not just more spending- are decisive for improving service delivery and creating “opportunities at home.” Clearer functional assignments across tiers, rationalization of federal ministries and agencies, stronger public financial management, professionalized and performance‑oriented civil service management, empowered and accountable local governments, and strategic digitalization emerge as high‑impact levers. Recent data from the Public Service Commission, which recommended 2,592 candidates for permanent appointment in 2081/82 (including over 1,000 from inclusive categories), highlight both the dynamism and the cost implications of Nepal’s public administration pipeline- and the need to ensure these new recruits are deployed and managed in ways that tangibly improve services and citizens’ trust.

1. Introduction

Nepal’s transition to a federal democratic republic has fundamentally reshaped its governance architecture, with the explicit promise of better service delivery and more inclusive development outcomes. ¹ Governance reform is central to translating this constitutional promise into tangible improvements in health, education, jobs, agriculture, basic infrastructure, and poverty reduction.

This paper reviews the current status of Nepal’s governance and bureaucracy, examines the cost and structure of the state, and analyses how ongoing and proposed reforms can improve service delivery and opportunities at home.

2. Current Governance Structure and Bureaucratic Landscape

2.1 Federal architecture and levels of government

Nepal is a federal democratic republic with a three-tier structure: the federation, seven provincial governments, and 753 local governments (6 metropolitan cities, 11 sub-metropolitan cities, 276 municipalities, and 460 rural municipalities). ² Each local level is further divided into a total of 6,743 wards.

This new structure, introduced by the 2015 Constitution and operationalized after the 2017 elections, is designed around principles of cooperation, coexistence and coordination among the three tiers, with substantial functional responsibilities assigned to local governments in health, education, basic services, and local economic development.

2.2 Size of the state: Employees and institutions

Official statistical publications provide good visibility on the scale of Nepal’s public sector institutions, though comprehensive counts that aggregate all permanent civil servants, security forces, teachers, and contract staff across all three levels remain fragmented.

Key indicative data points include:
Civil service: The Statistical Pocket Book reports time series on gazetted and non‑gazetted civil servants, showing several tens of thousands of core civil servants employed by the federal government; these are complemented by large cadres in education and security, and by provincial and local government staff. ³

Economic establishments and employment: The National Economic Census 2018 recorded about 923,000 persons engaged in establishments (1+ workers), with significant employment in services such as education, health, trade, and financial services, many of which are regulated or delivered in partnership with government. ⁴

Public health institutions: By 2023/24 there were 8,746 public health facilities, including 345 hospitals, 149 primary health care centers, 3,742 health posts, 4,084 sub‑health posts, and 426 Ayurvedic centers, with 18,640 public sector hospital beds. ⁵

Schools and teachers: In 2023/24, there were 17,257 basic schools (grades 1–5), 6,648 basic level schools (6- 8), and 6,493 secondary schools (9- 10), with 5,049 schools running grades 11- 12, and 8,149 institutional (private) schools.⁶ These schools employ a very large share of public employees and contract teachers, even if the statistics separate public and private ownership.⁶

In addition, the Department of National Personnel Records (Rastriya Kitabkhana) now manages physical and digital records for more than 200,000 civil personnel through the central Personnel Information System, providing an approximate sense of the scale of the core civil service cadre across the federal structure. ³⁰

These numbers illustrate that the “public sector” in practice extends far beyond core ministries to include large service-delivery workforces in health and education.

2.3 Fiscal size and cost of running the bureaucracy

Government expenditure has expanded substantially over three decades. According to the Ministry of Finance and Nepal Rastra Bank data, total central government expenditure rose from NPR 23.5 billion in 1990/91 to about NPR 1,408.0 billion in 2023/24. ⁷ Over this period, recurrent expenditure (which includes wages, salaries, allowances, pensions, and operating costs) has consistently taken the largest share.

In 1990/91, recurrent expenditure was NPR 6.8 billion out of a total of NPR 23.5 billion.⁷ By 2023/24, Nepal Rastra Bank reports that recurrent expenditure had increased to around NPR 951.64 billion, compared to capital expenditure of NPR 191.75 billion and financial (financing) expenditure of NPR 264.63 billion.²⁸ This reinforces the picture from National Statistics Office data that the state’s budget is heavily skewed towards recurrent, consumption-type spending.

Looking ahead, the federal budget for FY 2082/83 (2025/26) envisages a total outlay of NPR 1,964.11 billion, of which NPR 1,180.98 billion (about 60.1 percent) is allocated for recurrent expenditure, NPR 407.89 billion (around 20.8 percent) for capital expenditure, and NPR 375.24 billion (about 19.1 percent) for financing and debt servicing.²⁷ On the financing side, revenue is projected at around NPR 1,315 billion, with the remaining NPR 595.66 billion deficit to be met through a mix of domestic borrowing, foreign loans, and grants.²⁷

Execution patterns further highlight structural issues: in the first three months of FY 2024/25, total government expenditure reached NPR 329.20 billion, yet only NPR 29.37 billion of this was capital spending, with the bulk again absorbed by recurrent items. ²⁹

More detailed fiscal analysis from the Office of the Financial Comptroller General shows that recurrent spending- primarily salaries, allowances, social security, and administrative operations- dominates government expenditure, while capital spending on infrastructure is persistently low and slow to execute.⁸ For example, in the first quarter of FY 2082/83 only 4.7 percent of the total annual capital budget had been spent, compared to 21.75 percent of recurrent allocations, highlighting structural inefficiencies in translating budgets into infrastructure and service assets.⁸

At the same time, the civil service wage bill has been rising, with dearness allowances increased periodically (e.g., dearness allowance raised to NPR 5,000 per month in 2025 for civil servants) even in years when basic salaries are not adjusted.⁹¹⁰ While this helps protect real incomes of public employees, it also locks in higher recurrent obligations, which is reflected in the roughly 60 percent share of recurrent expenditure in the current federal budget.²⁷

2.4 Governance outcomes: Human development, poverty and inequality

Despite fiscal and governance constraints, Nepal has achieved notable progress in human development:

• The Human Development Index (HDI) improved from 0.404 in 1990 to 0.622 in 2023, moving Nepal into the medium human development category. ¹¹
• Life expectancy at birth rose from 54.3 years in 1991 to 71.3 years in 2021.¹²
• Literacy increased from 39.6 percent in 1991 to 76.2 percent in 2021. ¹³
• National poverty (headcount) declined from 41.8 percent in 1995/96 to 20.3 percent in 2022/23; rural poverty fell from 43.3 percent to 24.7 percent in the same period.¹⁴

While remittances have played a strong role in poverty reduction, international analysis (World Bank, ADB) and national plans emphasize that governance reform and better public services are critical to sustain growth, expand jobs, and reduce multidimensional poverty. ¹⁵¹⁶

Table 1: Bigger to better services: Long‑run patterns

Dimension	Early 1990s / baseline	Recent situation	Pattern / interpretation
Size of the budget	Total central government expenditure NPR 23.5 billion in 1990/91. ​	About NPR 1,408 billion in 2023/24; federal budget NPR 1,964.11 billion in FY 2082/83. ​	The fiscal scale of the state has expanded around sixty‑fold, but volume has not automatically translated into better outcomes. ​
Spending mix	Recurrent expenditure NPR 6.8 billion out of NPR 23.5 billion total in 1990/91. ​	Recurrent about NPR 951.64 billion vs capital NPR 191.75 billion in 2023/24; about 60% recurrent, 21% capital, 19% financing in FY 2082/83. ​	Budgets have become structurally recurrent‑heavy, locking in wage and allowance obligations while capital and non‑salary inputs remain under‑funded and under‑executed. ​
Public debt & fiscal space	Debt ratios lower than today’s 40- 45% of GDP. ​	Public debt around NPR 2.7 trillion, roughly 43- 44% of GDP, with revenue ≈ NPR 1,315 billion and a deficit ≈ NPR 596 billion in FY 2082/83. ​	Fiscal space has tightened, leaving less room for inefficiency or a continuously expanding wage bill. ​
Human development	HDI 0.404 in 1990; life expectancy 54.3 years; literacy 39.6%; poverty 41.8% in 1995/96. ​	HDI 0.622 in 2023; life expectancy 71.3 years; literacy 76.2%; poverty 20.3% in 2022/23; inequality (Gini) down from 41.4 to 30.0. ​	Human development has improved substantially, but sustaining gains will require stronger governance and domestic job creation, not just remittance‑driven consumption. ​
Employment and migration	Smaller labor force, agriculture share over 75%, lower formal migration flows. ​	Labor force around 13.9- 14 million; agriculture about 50.1% of workers; hundreds of thousands of labor permits issued annually. ​	Nepal has shifted towards services and migration‑driven livelihoods, while domestic job creation and productivity lag behind the aspirations of a young workforce. ​
State apparatus & bureaucracy	Around 1,100 public health facilities and 4,570 public hospital beds in 1990/91. ​	8,746 public health facilities and 18,640 public sector hospital beds by 2023/24; over 200,000 civil personnel in the Personnel Information System; 2,592 PSC recruits in FY 2081/82. ​	The reach of the state has grown dramatically, but recruitment and deployment have not yet produced commensurate improvements in service performance. ​
Service access- health & education	Fewer facilities and schools; lower enrolment and literacy; weaker local presence. ​	Thousands of health posts and hospitals; 17,257 basic schools and 6,493 secondary schools in 2023/24; literacy more than doubled. ​	Federalism has clearly expanded access, yet quality, equity and outcomes remain uneven, revealing an unfinished shift from “more” to “better.” ​
Infrastructure & connectivity	Black‑topped roads 3.1 thousand km; electricity generation 285 MW; internet users near zero. ​	Black‑topped roads 19.2 thousand km; generation 3,602 MW; around 39.9 million internet users and 29.7 million telephone users by 2024/25. ​	Connectivity has increased sharply, but weak capital execution, maintenance and regulation limit productivity and inclusion gains. ​
Economic structure	Agriculture about 48% of GDP in 1990/91. ​	Services about 62% of GDP in 2024/25; agriculture about 26%; industry 12%. ​	Nepal now has a service‑dominated economy, but realizing its potential depends on better governance of infrastructure, regulation and human capital. ​

Source: National Statistics Office (Statistical Pocket Book Nepal 2024; Nepal in Figures 2025); Ministry of Finance (Economic Survey 2081/82; Budget Speech 2082/83); Nepal Rastra Bank; Public Service Commission 66th Annual Report; World Bank (Nepal Country Economic Memorandum 2025).​

3. Governance Reform and Service Delivery: Sectoral Perspectives

3.1 Health

The health sector offers a clear illustration of how governance reforms can expand coverage but also create new coordination challenges.

3.1.1 Expansion of facilities and workforce
Between 1990/91 and 2023/24, the number of public health institutions increased from 1,100 facilities (including hospitals, health posts, and Ayurvedic centers) to 8,746 facilities, and public sector hospital beds increased from 4,570 to 18,640.⁵ Over time, responsibility for many of these facilities has shifted from central line agencies to local governments under federalism, with local governments mandated for basic health services and primary care.

The Statistical Pocket Book also records growth in registered doctors and nurses over recent years, indicating expansion of human resources for health. ¹ However, maldistribution persists, with rural and remote municipalities still facing shortages in skilled staff and specialist services, despite the formal expansion of facilities.

3.1.2 Governance bottlenecks and reform priorities
Key governance issues affecting health service delivery include:

• Fragmented roles between federal, provincial, and local levels in financing, staffing, procurement, and standards, leading to duplication and gaps.¹⁵
• Delays in capital expenditure for health infrastructure because of weak project preparation, lengthy procurement, and limited local capacity. ⁸
• Variations in local government capacity to plan, manage, and supervise health facilities.

Reforms that can improve service delivery in health include:

• Clearer delineation of functions and financing responsibilities across tiers (e.g., federal stewardship, provincial referral networks, local primary care). ¹⁵
• Strengthening local governments’ technical and managerial capacity for health planning, procurement, and HR management. ¹⁵
• Performance-based grants to incentivize coverage and quality improvements, especially in maternal and child health, immunization, and non-communicable disease services. ¹⁵

Evidence from the expansion of immunization coverage, maternal mortality reduction, and the rapid growth of health posts suggests that when financing, staffing, and accountability are aligned, Nepal can deliver strong results even with limited resources. ¹⁷

3.2 Education

3.2.1 Access and infrastructure
School expansion has been a major governance and service delivery achievement. The number of basic and secondary schools increased substantially from 1990 to 2024, with 17,257 basic schools (1- 5), 6,648 basic (6- 8), and 6,493 secondary (9- 10) schools in 2023/24, plus 5,049 schools offering grades 11- 12. ⁶ The literacy rate more than doubled between 1991 and 2021.¹³

Responsibility for basic and secondary education has been devolved to local governments, with the federal government maintaining roles in curriculum, standards, and financing. ²

3.2.2 Quality, governance and reform
Persistent challenges in education governance include:

• Teacher management: Politicization in teacher deployment, disparities in teacher–student ratios, and parallel systems of permanent, relief, and contract teachers.
• Learning outcomes: Despite high enrolment, learning achievement remains low, particularly in public schools, with inequalities across geography and socio-economic groups highlighted in various sector analysis. ¹
• Overlap and fragmentation between federal, provincial, and local responsibilities for school supervision and quality assurance. ¹⁶

Reforms to improve service delivery focus on:

• Clarifying teacher management authority at local level while ensuring merit-based recruitment and transparent transfer rules. ¹⁶
• Strengthening school-level accountability through school management committees, community participation, and public disclosure of learning results.¹⁶
• Using conditional grants and performance-based financing to align incentives with learning outcomes (e.g., supporting early grade reading, STEM, and digital learning initiatives).

International partners and government strategies emphasize that better governance- especially in teacher management, school financing, and local oversight- is essential to translate expanded physical access into quality learning.

3.3 Jobs and economic opportunity

Despite progress in human development, job creation within Nepal has lagged behind labor force growth, driving large-scale migration.

3.3.1 Labor force and migration
Labor force figures from national surveys indicate a labor force of around 13.9 million people aged 15- 64, with significant shares engaged in agriculture and informal services.⁴ Large numbers of Nepalis continue to seek foreign employment, with labor permits issued in the hundreds of thousands annually. ¹⁸

A recent World Bank Country Economic Memorandum argues that while Nepal has “nearly eradicated extreme poverty,” this success has been largely driven by remittances, and the economy’s productive capacity and job creation potential remain underutilised.¹⁵ The report calls for reforms to “unlock domestic opportunities,” including improving the investment climate, export competitiveness, and use of hydropower and digitalisation.¹⁵

3.3.2 Governance constraints on jobs
Governance-related constraints that limit domestic job creation include:

• Weak capital budget execution, which slows infrastructure projects and reduces their employment and productivity impacts. ⁸
• Complex regulatory processes, fragmented responsibilities, and policy uncertainty across federal, provincial and local levels, affecting private investment and SME growth. ¹⁵¹⁶
• Limited coordination between skills development initiatives and labor market demands, leading to skills mismatch. ¹⁵

Reforms that can improve service delivery for jobs include:

• Streamlining business regulation and licensing across tiers, with one-stop centers and digital platforms.¹⁵
• Improving public investment management, project preparation, and procurement to accelerate infrastructure delivery.⁸ ¹⁵
• Strengthening local governments’ roles in local economic development, SME support, and employment services, aligned with national policies.¹⁶

3.4 Basic infrastructure: Transport, electricity, and irrigation

Infrastructure expansion is a core channel through which governance reforms influence service delivery and economic opportunities.

3.4.1 Transport and connectivity
Black-topped road length increased from 3.1 thousand km in 1990/91 to 19.2 thousand km in 2024/25.¹⁹ Telephone users rose from 0.0057 million in 1990/91 to 2.97 × 10 million (approx. 29.7 million) in 2024/25, and internet users from virtually zero in 2005/06 to 3.99 × 10 million (approx. 39.9 million) in 2024/25.¹⁹ These investments have significantly improved connectivity for households, firms, and service providers.

However, the persistent gap between allocations and actual capital spending, and issues such as poor maintenance, low-quality construction, and politicized project selection, reflect governance shortcomings more than resource scarcity.⁸

3.4.2 Electricity and hydropower
Electricity generation rose from 285 MW in 1990/91 to 3,602 MW in 2024/25.¹⁹ Yet this remains only about 3.6 percent of Nepal’s estimated hydropower potential of 83,000 MW.²⁰ The rapid scaling-up of generation in recent years has reduced load shedding and created surplus during rainy seasons, but transmission constraints and governance issues in power planning and regional trade limit the full benefits.²⁰

Improved governance in energy- transparent regulation, accountable public utilities, competitive procurement of projects, and better coordination with local governments on land and environment- can directly enhance reliability, reduce costs, and foster industrial and digital service growth.

3.4.3 Irrigation and agriculture-support infrastructure
Irrigated land increased from about 849,000 hectares (8.49 “hundred thousand hectares”) in 1990/91 to 1.573 million hectares in 2024/25.¹⁹ Over the same period, production of major crops such as paddy, maize, fruits and vegetables has grown, with paddy production reaching 5.486 million tons and vegetables 4.44 million tons in 2023/24.²¹

Despite this progress, agriculture remains vulnerable to climate shocks, fragmented holdings, and limited value chain infrastructure. Governance reforms that improve:

• Water users’ associations and participatory irrigation management,
• Coordination between federal irrigation agencies and local governments, and
• Linkages between agricultural extension, credit, and markets

are key to leveraging infrastructure for productivity and rural livelihoods.

3.5 Agriculture, livelihoods and poverty reduction

The share of the labor force in agriculture has fallen from over 75 percent in 1991 to around 50.1 percent, reflecting structural transformation and migration.²² Poverty headcount has declined significantly, but rural poverty and multidimensional poverty remain concentrated among smallholder farmers, landless households, and disadvantaged groups.

Development partners such as the Asian Development Bank emphasize that strengthening governance, commercializing agriculture, and investing in rural infrastructure (roads, irrigation, energy) are central to inclusive growth and poverty reduction.¹⁶ Their assessments link improved local governance, community participation, and decentralized service delivery with better outcomes in WASH, primary education, and rural livelihoods.¹⁶

Table 2: Federalism’s mixed report card: Access vs quality

Sector	Expansion under federalism	Persistent gaps in quality / governance	Overall pattern
Health	Public health institutions increased from 1,100 in 1990/91 to 8,746 by 2023/24; public hospital beds from 4,570 to 18,640; more registered doctors and nurses. ​	Mal-distribution of staff, especially in rural and remote municipalities; uneven availability of essential drugs and diagnostics; delays in capital projects due to weak preparation and procurement. ​	Coverage and infrastructure expanded, but service quality and equity depend on better staffing, financing and project management. ​
Education	17,257 basic schools (1- 5), 6,648 basic (6- 8), 6,493 secondary (9- 10) and 5,049 schools with grades 11- 12 in 2023/24; literacy more than doubled since 1991. ​	Learning outcomes remain low, particularly in public schools; politicized teacher management, parallel teacher categories, and fragmented supervision across tiers. ​	Physical access and enrolment are near universal, but governance of teachers and accountability for learning lag behind. ​
Infrastructure (transport, electricity, connectivity)	Black‑topped road length rose from 3.1 to 19.2 thousand km; electricity generation from 285 MW to 3,602 MW; internet users to about 39.9 million; telephone users to about 29.7 million. ​	Chronic under‑execution of capital budgets; poor maintenance and construction quality; transmission and regulatory bottlenecks limit full use of hydropower and connectivity. ​	Networks have grown, but weak project selection, execution and regulation constrain their impact on productivity and inclusion. ​

Source: National Statistics Office (Statistical Pocket Book Nepal 2024; Nepal in Figures 2025); sector data as detailed in Section 3.​

4. How Governance Improvements Enhance Service Delivery

This section synthesizes how specific governance reforms can improve service delivery in the sectors highlighted: health, education, jobs, infrastructure, agriculture, and poverty reduction.

4.1 Clarifying functions and reducing fragmentation

Under federalism, overlapping mandates and unclear division of responsibilities have emerged across the three tiers of government. Clear functional assignments- backed by appropriate fiscal transfers and legislation- can:

• Reduce duplication of agencies and programs, especially in health, education, agriculture extension, and local infrastructure.
• Improve accountability, as citizens know which tier is responsible for which service.

Allow economies of scale in specialized functions (e.g., tertiary hospitals, national exams) while keeping local services close to communities.

Evidence from Nepal’s local service delivery studies shows that where roles, financing, and local accountability mechanisms are clear, local governments are better able to deliver services responsive to local needs.²³

4.2 Strengthening public financial management and capital spending

Improving budget formulation, execution, and monitoring is essential to shift resources from recurrent consumption to productive investment and quality services. Key reforms include:

• Medium-term expenditure frameworks that link planning and budgeting across tiers, aligned with the Sixteenth Plan and Vision 2100 targets.²⁴
• Stronger project preparation and appraisal, reducing “budget dispersion” across many small, low-impact projects.⁸¹⁵
• Procurement reform and digital systems to reduce delays and corruption risks, especially in infrastructure, health and education projects.⁸

As capital expenditure execution improves, infrastructure such as roads, schools, health posts, and irrigation schemes can be completed on time, directly improving access to services and reducing costs for users.

4.3 Professionalizing the civil service and managing the wage bill

A capable, motivated, and accountable civil service is central to service delivery. Governance reforms in this area include:

• Merit-based recruitment and promotion, reducing political interference.
• Performance management systems that link appraisal and incentives to service delivery indicators (e.g., learning outcomes, health coverage, project completion).
• Managing the wage bill by aligning staffing levels and pay structures with fiscal realities and service priorities, while protecting frontline staff in health and education.

Table 3: Nepal’s Civil Service: Awaits Reform

Dimension	Evidence	Interpretation
Scale of core civil service	Department of National Personnel Records manages files for over 200,000 civil personnel through the central Personnel Information System. ​	The bureaucracy is large and embedded across tiers, so improvements in its performance have system‑wide implications. ​
New recruitment and inclusion	Public Service Commission recommended 2,592 candidates for permanent appointment in FY 2081/82, including 1,056 from inclusive categories (women, Dalits, Madheshis, indigenous peoples, persons with disabilities, backward areas). ​	The civil service is becoming more representative, reflecting deliberate use of inclusive quotas. ​
Wage bill and allowances	Recurrent expenditure dominated by salaries, allowances, pensions and operations; dearness allowance raised to NPR 5,000 per month in 2025 even when basic salaries did not change. ​	Wage and allowance growth protects staff incomes but further tilts budgets towards recurrent spending, squeezing fiscal space for capital and non‑salary inputs. ​
Deployment and performance systems	Recruitment largely rules‑based, but transfers and promotions often influenced by politics; performance appraisal not strongly linked to service delivery indicators. ​	Without stronger performance management, rising headcount and pay do not automatically translate into better frontline services. ​
Overall pattern	Large, more diverse civil service with rising costs; weak links between pay, deployment and measurable results. ​	The central challenge is to shift from head‑count expansion to competency‑based recruitment, transparent deployment and performance‑oriented management. ​

Source: National Statistics Office; Ministry of Finance; Public Service Commission 66th Annual Report; related budget and wage‑bill data.​

Data on the growth of civil servant numbers and rising recurrent expenditure suggest that without reforms, wage and allowance growth can crowd out capital investment and critical non-salary inputs, undermining service quality. Improving HR management helps ensure that the cost of bureaucracy produces commensurate improvements in services.

Recent Public Service Commission data underline the scale of annual inflows into the system: in FY 2081/82, the Commission recommended 2,592 candidates for permanent appointment (2,583 in the civil service and 9 in the National Human Rights Service), including 1,056 candidates from legally defined inclusive groups, illustrating both the volume and the diversity of new recruits entering the public administration each year.³¹

4.4 Local governance, participation and accountability

Decentralization offers opportunities to tailor services to local needs, but results depend on local governance quality.

Table 4: Local governments: What strong vs weak governance looks like

Aspect	Stronger‑performing local governments	Weaker‑performing local governments	Implications for federalism
Planning and budgeting	Use participatory planning and ward‑level budgeting; link plans to medium‑term priorities. ​	Prepare plans late or mechanically; weak links between plans, budgets and implementation. ​	Participation and planning discipline help align spending with local needs and improve service delivery. ​
Transparency and accountability	Disclose budgets and results; run social audits and public hearings; use citizen charters and grievance redress systems. ​	Limited public disclosure; weak or absent social accountability mechanisms; citizens often unaware of entitlements. ​	Visible, simple accountability tools build trust and pressure for better performance. ​
Administrative and technical capacity	Have adequate staff with skills in planning, PFM and procurement; increasingly use digital tools. ​	Staff are too few or poorly matched to functions; low capacity in procurement and contract management. ​	Capacity and staffing patterns heavily shape whether devolved mandates translate into effective local services. ​
Local economic development role	Support SMEs, cooperatives and value chains; coordinate infrastructure, skills and market linkages. ​	Focus mainly on small, fragmented projects; limited strategic engagement with local businesses and value chains. ​	Active, outward‑looking municipalities are better placed to turn federalism into local opportunity. ​

Source: World Bank (Local Service Delivery in Nepal 2014); National Statistics Office; case evidence summarized in Section 4.4.​

Mechanisms that improve service delivery include:

• Participatory planning and budgeting at municipal and ward levels, incorporating inputs from excluded groups, women, and youth.
• Social accountability tools such as public hearings, citizen charters, community score cards for schools and health facilities, and grievance redress systems.²³
• Transparent publication of budgets, expenditures, and service standards at the local level, using digital platforms where possible.¹⁵¹⁶

Studies on local service delivery in Nepal have found that stronger community participation and local oversight can improve responsiveness and reduce leakages in programs such as education grants, health outreach, and rural infrastructure.²³

4.5 Digitalization and data-driven governance

Digitalization has emerged as one of Nepal’s quiet governance successes, cutting across sectors and tiers of government. E-treasury and revenue platforms, online Public Service Commission (PSC) applications, and the emerging Personnel Information System demonstrate how basic processes can shift from cumbersome paper files to efficient digital workflows. This transition highlights both transformative opportunities and inherent risks.

Digitalization serves as a cross-cutting enabler of better governance and service delivery:

• E-government indices reflect gradual improvements in Nepal’s online services, e-participation, and telecommunication infrastructure.
• Expanding internet connectivity- from near-zero users in the early 2000s to nearly 40 million subscriptions by 2024/25- powers digital platforms for tax administration, social transfers, registries, education, and health services.

Table 5: From paper to digital: What changes for citizens and the state

Dimension	Paper-based processes	Digital systems under federalism	Why It matters
Access and time	Citizens travel to offices, queue, and submit physical forms; processing is slow and dependent on individual officials.	Online applications (e.g., PSC exams, tax/revenue systems, emerging service portals) reduce travel and accelerate processing.	Shorter queues and faster decisions make the state more predictable and citizen-friendly.
Transparency and discretion	Rules often opaque; files delayed or lost; informal payments hard to detect.	E-treasury, revenue systems, and integrated financial platforms create digital trails and standardize workflows.	Digital records shrink space for petty corruption and simplify audits.
Data for decisions	Information fragmented across paper registers; hard to aggregate or analyze.	Personnel Information System and financial/administrative databases enable real-time, analyzable data across tiers.	Better data drives evidence-based budgeting, HR management, and service monitoring.
Inclusion and risks	Familiar but slow, error-prone, and hard to scale.	40 million internet users enable services, but gaps in skills, access, privacy, and cybersecurity risk new exclusions.	User support and safeguards prevent swapping old bottlenecks for digital ones.

Source: National Statistics Office (Nepal in Figures 2025; Statistical Pocket Book Nepal 2024); Ministry of Finance system descriptions; PSC online application experience; connectivity data from Sections 3.4 and 4.5.

These shifts go beyond technical upgrades- they reshape governance incentives and information flows. When executed well, digitalization curbs petty corruption, accelerates routine services, and yields data for improved budgeting, HR management, and monitoring. Yet without robust user support, cybersecurity, and inclusion measures, platforms risk replicating old inefficiencies while excluding those lacking connectivity or digital skills.

Key digital reform opportunities include:

• Reducing petty corruption and rent-seeking in licensing and service access.
• Improving targeting and delivery of social protection, scholarships, and agricultural subsidies.
• Enabling remote learning and telehealth in remote areas.

Effective digital governance demands proactive steps on data privacy, cybersecurity, and inclusion to ensure equitable access for all citizens.

5. Governance Reform, Poverty Reduction, and “Opportunities at Home”

Finally, governance reform is not just about institutional design- it is about creating conditions where citizens see a future within Nepal.

Table 6: Governance reform and “opportunities at home”: From trend to task

Dimension	Long‑run trend	What it means for “opportunities at home”	Governance reform task
Growth and structure of the economy	Nominal GDP rose from NPR 120 billion in 1990/91 to about NPR 6.107 trillion in 2081/82; real growth projected at 4.61 percent in 2024/25; services now around 62% of GDP, agriculture 26%, industry 12%. ​	Nepal is richer and more service‑based, but growth remains modest relative to aspirations and still relies heavily on external demand and remittances. ​	Use public investment and regulation to crowd in private activity, especially in services, industry, and value‑added agriculture, rather than just expanding the size of the state. ​
Debt, deficits and fiscal space	Federal public debt around NPR 2.7 trillion, roughly 43–44% of GDP, with a moderate fiscal deficit. ​	There is room to borrow, but not to waste, making the quality of capital projects and social spending critical for jobs and productivity. ​	Re-balance expenditure towards well‑prepared, growth‑enhancing investments and high‑impact social programs, while managing the wage bill and recurrent pressures. ​
Poverty and inequality	Poverty headcount fell to about 20.3% in 2022/23; Gini coefficient declined from 41.4 (2003/04) to 30.0 (2022/23); multidimensional poverty has also reduced, with provincial variation. ​	Nepal has made real inclusion gains, but pockets of deprivation and spatial inequality persist, especially in rural and lagging regions. ​	Target governance reforms and investments towards lagging provinces and groups, using local governments and performance‑linked transfers to close service gaps. ​
Jobs and migration (implied from earlier sections)	Large labor force (around 13.9–14 million), declining share in agriculture, continued large‑scale out‑migration and dependence on remittances. ​	Many households escape poverty through migration rather than domestic jobs, so “opportunities at home” remain limited for youth. ​	Improve investment climate, infrastructure reliability and skills systems so that firms can grow and create decent jobs domestically. ​
Quality of core services	Expanded networks in health, education, roads, electricity and digital connectivity, but persistent gaps in quality, equity and capital execution. ​	Human capital and productivity gains are constrained by uneven learning outcomes, health coverage, and infrastructure reliability. ​	Strengthen sector governance: clarify functions across tiers, improve public financial management, and professionalize the civil service around measurable service outcomes. ​
Local governance and participation	Stronger formal mandates and resources at local level, but highly variable capacity, participation and transparency across municipalities. ​	Where local governance works, citizens experience better services and local economic development; where it is weak, frustration with federalism grows. ​	Invest in local institutions, participatory planning and social accountability, and link part of intergovernmental transfers to transparency and performance benchmarks. ​
Digital transition	Rapid expansion of internet and mobile subscriptions to almost 40 million, and rollout of e‑treasury, revenue, and PSC online systems. ​	Digital tools can make services faster and fairer, but without safeguards and support they can exclude those without access or skills. ​	Deepen digital and data governance, focusing on high‑impact platforms (PFM, HRMIS, citizen services) with strong inclusion, privacy and cybersecurity provisions. ​

Source: Ministry of Finance (Economic Survey 2081/82); National Statistics Office (Nepal in Figures 2025; Statistical Pocket Book Nepal 2024); World Bank (Nepal Country Economic Memorandum 2025); Vision 2100 and Sixteenth Plan summaries as cited in the paper.

5.1 Macroeconomic and human development trajectory

According to the Economic Survey 2081/82 and recent National Statistics Office estimates, nominal GDP increased from NPR 120 billion in 1990/91 to about NPR 6.107 trillion in FY 2081/82, with real economic growth projected at 4.61 percent for 2024/25.²⁵²⁶ Over the same period, per capita income indicators have risen substantially, with per capita gross national income estimated at around USD 1,517 and per capita GDP around USD 1,496 in 2024/25.²⁵²⁶ The sectoral composition of GDP shifted from an agriculture-dominated economy (48 percent of GDP in 1990/91) to one led by services (around 62 percent of GDP in 2024/25), with agriculture at about 26 percent and industry at 12 percent.²⁵

The Economic Survey and related summaries also point to a federal public debt stock of around NPR 2.7 trillion- roughly 43- 44 percent of GDP- alongside a moderate fiscal deficit, underscoring the need to use borrowing for productive, growth-enhancing investments.²⁶

Poverty headcount fell to about 20.3 percent in 2022/23, and inequality measured by the Gini coefficient has declined from 41.4 in 2003/04 to 30.0 in 2022/23.¹⁴ Multidimensional poverty has also reduced, though with significant provincial variation.¹⁶

5.2 Role of governance in sustaining inclusive growth

The World Bank’s Country Economic Memorandum argues that to transform these gains into sustainable, inclusive growth and decent jobs, Nepal must address structural governance constraints: low productivity, weak investment climate, and limited domestic job creation.¹⁵ The government’s Vision 2100 and Sixteenth Plan similarly highlight good governance, social justice, and productive jobs as central pillars, with targeted investments projected across public, private, and cooperative sectors.²⁴ Improved governance and service delivery can support “opportunities at home” in several ways:

• Better health and education services increase human capital, productivity, and employability.
• Reliable infrastructure and energy lower costs for businesses, making local investment more attractive.

Effective local governments can foster local economic development, support MSMEs, and create place-based employment opportunities, particularly in agriculture value chains, tourism, and services.

5.3 Strategic directions for governance reform

Building on evidence and policy documents, some strategic directions include:

• Completing the federalism architecture: Finalizing laws, regulations, and inter-governmental fiscal arrangements to clarify roles, strengthen provincial and local capacity, and ensure predictable financing for core services.
• Rationalizing federal ministries and agencies: Consolidating overlapping federal ministries and departments in line with constitutionally assigned functions, so that the federal government concentrates on policy, regulation, standards, and strategic coordination, while provinces and local governments take the lead on implementation. This entails reducing the number of federal ministries to a streamlined configuration broadly consistent with past administrative reform commission recommendations (for example, moving from more than 20 ministries towards a smaller set organized around core cross‑cutting functions), and realigning staff and budgets accordingly. In practice, such rationalization can reduce fragmentation, lower administrative overheads linked to multiple ministerial layers, and- more importantly- create clearer lines of accountability for health, education, agriculture, and infrastructure outcomes, as citizens, parliaments, and oversight bodies can more easily see which tier and which institution is responsible for what.
• Rebalancing expenditure: Gradually shifting the composition of expenditure from recurrent to capital and high‑impact programs, while improving the quality and targeting of social security spending.
• Improving public sector performance: Civil service reform, performance-based management, and anti-corruption measures to ensure that the cost of bureaucracy translates into better outcomes.
• Deepening digital and data governance: Leveraging digital platforms for service delivery, PFM, and citizen engagement, while ensuring inclusion and data protection.¹⁹
• Strengthening local governance and participation: Investing in local capacities, institutions, and participatory mechanisms so that municipalities and rural municipalities can effectively deliver on their expanded mandates.²³

Table 7: From reform areas to visible citizen benefits

Reform area	Core governance action	Visible benefit for citizens
Completing the federalism architecture	Finalize and enforce clear functional assignments and inter‑governmental fiscal arrangements so each tier knows its responsibilities and financing streams. ​	Less buck‑passing between levels of government, clearer service mandates, and fewer delays in getting basic services and local projects funded. ​
Rationalizing federal ministries and agencies	Consolidate overlapping ministries and implementation units so the center focuses on policy, regulation, standards and coordination, while provinces and local governments lead delivery. ​	Fewer confusing federal actors, faster decisions, and clearer accountability for health, education, agriculture and infrastructure outcomes. ​
Re-balancing expenditure	Gradually shift spending from recurrent wages and low‑impact programs towards well‑prepared capital projects and essential non‑salary inputs, while improving the targeting of social security. ​	Better roads, schools, health posts and irrigation that are completed on time and stocked with medicines, textbooks and maintenance budgets. ​
Improving public sector performance	Make civil service management more merit‑ and performance‑based, strengthen anti‑corruption measures, and align staffing with frontline priorities. ​	More responsive teachers, health workers and local officials, and fewer experiences of “offices without services.” ​
Deepening digital and data governance	Expand high‑impact digital platforms (PFM, e‑procurement, HRMIS, citizen services) with strong inclusion, privacy and cybersecurity safeguards. ​	Faster, more predictable services such as payments, registrations and licenses, with reduced petty corruption and fewer in‑person visits. ​
Strengthening local governance and participation	Invest in local capacities and make participatory planning, public disclosure, social audits and grievance redress standard practice. ​	Citizens see and influence how money is spent in their municipalities, and can demand better schools, health posts and local infrastructure. ​

Source: World Bank (Nepal Country Economic Memorandum 2025); National Statistics Office; Vision 2100 and Sixteenth Plan; and governance reform evidence summarized in Section 5.3.​

If pursued consistently, these reforms can help ensure that governance structures are not merely costly bureaucracies but efficient, accountable systems delivering health, education, jobs, infrastructure, and dignity at home.

6. Way forward

Nepal’s federal transition has built a large and far‑reaching state, but the current equilibrium is fiscally heavy, administratively fragmented, and only partially translating into quality services and jobs at home. The evidence shows three broad tensions: (i) a structurally high recurrent wage‑and‑allowance bill versus low and under‑executed capital expenditure; (ii) expanded infrastructure and service networks versus persistent gaps in quality and equity; and (iii) rising human development indicators versus slow domestic job creation and continuing out‑migration.

Addressing these tensions requires a pragmatic, sequenced reform agenda rather than another round of high‑level blueprints.

First, the federalism architecture needs to be completed in practice, not just on paper. This means finalizing and enforcing clear functional assignments and inter‑governmental fiscal arrangements so that each tier knows its core responsibilities in health, education, agriculture, and local infrastructure- and is financed accordingly. In concrete terms, federal line ministries should be trimmed back to genuine policy and regulatory roles, while provinces and local governments receive predictable conditional and equalization grants linked to specific service standards and outcomes.

Second, the machinery of government at the federal level itself must be rationalized. Multiple reviews of the federal transition point to overlapping portfolios and “vertical” replication of functions across a large number of ministries that no longer match the unbundled constitutional lists.⁶⁵⁷⁹ Moving from more than 20 federal ministries towards a smaller, functionally coherent set- grouped around core cross‑cutting areas such as economic management, social sectors, infrastructure, natural resources, and justice- would clarify who is responsible for what, reduce administrative overheads associated with many separate ministerial centers, and make it easier for Parliament and citizens to hold specific institutions to account for service outcomes. Crucially, any such restructuring should be paired with a deliberate reallocation of implementation units, staff, and budgets to provincial and local governments, so that rationalization does not become a recentralization of devolved functions.

Third, public financial management reforms must directly tackle the recurrent- capital imbalance and chronic under‑execution of the development budget. Medium‑term expenditure frameworks should cap overall wage‑bill growth relative to revenue and debt sustainability, while protecting and gradually increasing the share of resources for frontline non‑salary inputs and well‑prepared capital projects. This is not just a technical exercise: at the ministry and local‑government level, it means cancelling or consolidating politically motivated “pet” projects, prioritizing a smaller pipeline of high‑return investments in energy, transport, irrigation, and digital infrastructure, and enforcing time‑bound procurement and contract management.

Fourth, civil service and HR management reforms must shift from head‑count expansion to performance and deployment. With over 200,000 civil personnel on the books and thousands more added annually, Nepal has an opportunity to re‑profile the bureaucracy towards frontline and technical roles in health, education, agriculture and infrastructure while gradually reducing administrative redundancies. Practically, this implies: competency‑based recruitment and promotion; transparent, rules‑based transfers; better utilization of PSC entrance and inclusive quotas to fill priority posts; and performance agreements linking managers’ progression to service delivery indicators.

Fifth, local governance and accountability mechanisms need to be deepened so that citizens can see and influence how resources are used. Participatory planning, ward‑level budgeting, disclosure of budgets and results, citizen charters, social audits, and community score cards for schools and health facilities are not “add‑ons” but core instruments to align services with local needs and reduce leakage. National agencies and development partners can support this by standardizing simple, comparable local‑level indicators for education, health, WASH and local infrastructure, and by making fiscal transfers partly contingent on transparent reporting and citizen engagement.

Sixth, digitalization should be targeted where it can simultaneously improve integrity, efficiency, and inclusion. Priority areas include: rolling out integrated financial management systems and e‑procurement across all tiers; expanding the Personnel Information System into a full HRMIS with attendance, deployment, and performance data; digitizing key citizen services (registration, licensing, social protection) with strong identity verification; and using data platforms to monitor learning outcomes, health coverage, and project implementation. Early experience from treasury, revenue, and PSC online application systems suggests that well‑designed digital reforms can reduce discretion, speed up processes, and generate actionable data- provided they are accompanied by user support and strong safeguards for privacy and cybersecurity.

Finally, all these reforms need to be framed explicitly around the goal of expanding “opportunities at home”: more reliable and equitable health and education services, predictable and affordable infrastructure, a better climate for private investment and entrepreneurship, and targeted support to smallholders and MSMEs. By anchoring governance reform in visible improvements- such as shorter queues in health posts, better learning outcomes in public schools, fewer days to start a business, or more reliable irrigation water- political leaders can build and sustain public support for what is otherwise a technically complex and politically contested agenda.

A revised, synthesized, and public-facing version of the article in Nepali language is available at Onlinekhabar, published on April 1, 2026.

References

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2. National Statistics Office. Nepal in Figures 2025, “Introduction” and Table 1.7 (federal structure, number of local governments and wards).​
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