Nepal’s political leaders and economists prepare for federal fiscal future

Forum of Federations President George Anderson recently shared his expertise at a seminar on fiscal federalism for Nepal’s political leaders.

Fiscal federalism, as opposed to political federalism, examines the respective roles of different orders of governments regarding the raising and spending of revenues. What sounds deceptively simple can as in marital relations make or break a federation.

The United Nations Development Programme in Nepal organized a seminar on Fiscal Federalism in Nepal. George Anderson, President of the Forum of Federations, shared his expertise on the matter with members of Nepal’s Constituent Assembly recently elected to write Nepal’s new constitution – economists and political leaders. He was joined by Professor Christina Murray from South Africa and Professor Hans F. Illy from Germany.

Certain criteria help us evaluate fiscal federalism. They are beautiful sounding words like economic efficiency, equity, administrative simplicity, accountability, vertical balance, predictability, and stability. The economics of a household could be judged along the same criteria.

In his presentation Mr. Anderson discussed these criteria along with the principles and practices of expenditure responsibilities; the practices of allocation of specific revenue sources in different federal countries; intergovernmental revenue sharing and transfers; economic management in federalism a crucial issue in any federation; and the role of different institutions involved in fiscal arrangements (e.g., fiscal forums, advisory commissions, institutions to control corruption, the courts, and other government enterprises).

Of great interest to his Nepali audience were Mr. Anderson’s observations and predictions about Nepal’s federal arrangements. He predicts that the federal government is likely to dominate revenue collection and that the sub-national governments will be funded by a combination of shared taxes and conditional and unconditional grants. The fiscal differences between regions could be minimized by revenue sharing. In addition, the issue of resource revenue – and especially revenue from hydro-power – is a long-term issue in Nepal. Nepal should carefully consider the borrowing rights of sub-national governments and the accountability of the money received from the central government.

The ensuing discussion ranged from the tax structure, state borrowing, and the power of the sub-national government to negotiate with foreign investors, to the spending capacity of the sub-national government and its relationship to political autonomy. A few female participants asked questions about how to preserve women’s rights in a federal system. Some participants from ethnic/ marginalized communities raised similar questions concerning how to preserve the rights of indigenous people over the exploitation of natural resources.

The event took place on September 16, 2008 in Kathmandu.

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