Provinces still struggle to stand on their own fiscal feet

 Federalism in form, dependency in practice

From timid tax policies to revolving-door chief ministers, Nepal’s provinces have failed to translate autonomy into economic strength

 

Kathmandu, Jan. 3

In the past eight years since their creation, the provinces have failed to demonstrate their interest or innovation in finding new sources of internal revenue and expand their tax base. Reliance on the traditional sources and weak revenue administration have miserably restrained the provinces from strengthening their economy.

Currently, provinces are banking on transportation, agriculture, natural resources like construction materials and house-rent for their revenue while experts say that agriculture is not and should not be a major source of revenue. As it is in the phase of development and directly connected with the livelihood of many, it should rather be facilitated, except the commercial farming and agro-processing industries.

However, the provincial governments couldn't effectively tax the construction material industries such as collecting and distributing sand, gravel and stones. "All the provinces are following a similar traditional trend. All of them lack innovative approach and long-term strategies for revenue growth," said Keshav Raj Dhakal, Spokesperson of the National Natural Resources and Fiscal Commission (NNRFC).

A trend analysis of the Provincial Revenue (2018/19-2025/26) by a team led by Dr. Khim Lal Devkota – a Constitutional Assembly Member and expert in federalism – for the Federalism and Localisation Centre (FLC), found that agriculture's contribution is the lowest in the local tax revenue of the provinces.

"Excluding revenue sharing and royalties, motor vehicle tax contributes the largest share to the country’s local tax revenue, with 32.83 per cent. This is followed by land and property registration fees, which account for 31.21 per cent. The contribution of business registration fees stands at 18 per cent," concluded the report.

 

Spending priority, earnings unheeded      

While the governments at all levels required to follow a mandatory rolling three-year budget plan – the Medium-Term Expenditure Framework (MTEF) which requires the resource forecasts and performance targets along with detailed expenditure strategies, the sub-national governments are more focused on expenditure. As the plans and budgets have been the tools to accommodate the political and development commitments of the political leaders, projects are included in the budget at a whim of a leader or the ruling political party.

The NPC and the NNRFC have observed that revenue mobilisation plan has rarely been the priority of the provincial governments, even their budgets are largely dependent on federal grants and revenue sharing.

Former Member of the National Planing Commission (NPC) Min Bahadur Shahi said that provincial governments failed to exercise the rights stipulated for them. "At the least, they could effectively collect revenue from public commons like forests, and river and mine-based construction materials," he said.

According to Dhakal, most of the interactions with the federal government or planning agencies are centred on grant and revenue distribution. Tax expansion plan, revenue growth and reforms generally don't get priority in such meetings.

According to the Schedule 6 of the Constitution of Nepal 2015, land and property registration fees, motor vehicle tax, entertainment tax, advertisement tax, tourism tax, tax on agricultural income, service charges and fees, penalties and fines fall under the rights of the provinces.

 

Need for risk-takers

The autonomy of provinces has remained limited to the Constitution and policy documents as they look up to the federal government for financial support and development execution. They seem to be shying away from exercising their autonomy in critical areas such as tax. This is because no leaders want to take a risk of displeasing their voters. The house-rent tax is a case in this regard.

For example, Karnali projects to raise just Rs. 1.37 billion in revenue in the current Fiscal Year 2025/26 from internal sources against its annual budget of Rs. 32.99 billion. The province raised Rs. 100 million in the first quarter of this fiscal.

Likewise, Sudurpaschim estimates to manage Rs. 1.65 billion from internal sources for its budget of Rs. 33.47 billion. Koshi and Gandaki aim to raise Rs. 5.5 billion and Rs. 5.46 billion in revenue, Lumbini Rs. 7.78 billion, Madhes Rs. 9.5 billion and Bagmati Rs. 28.8 billion. Average share of internal revenue to the provincial budget ranges from about 5 per cent to 20 per cent with Bagmati being an exception.

According to FLC's analysis, internal revenue constitutes about 20 per cent share in the total income of the provinces. Including the revenue sharing, its share rises to 54.58, and share of federal grants is 45.42 per cent.

There are not only failures. Bagmati has collected 31.44 per cent of its annual revenue in the first five months of the current FY 2025/26 while the federal government's achievement stands at about 27 per cent. Bagmati collected Rs. 1.50 billion in internal revenue against the annual target of Rs. 4.77 billion. But overall receipt of the province in the five months is 24 per cent.

 

Discouraging scorecard

All seven provinces in Nepal have performed poorly in the annual evaluation by the NNFRC in 2023/24, with only Koshi scoring above the 40 – which is pass mark. The remaining six failed, with Madhes Province recording the lowest score of 20.5, Karnali 25.9, Sudurpaschim 26.1, Lumbini 34.4, Bagmati 36.1 and Gandaki 38.5.

The assessment, based on 19 fiscal, budgetary and governance indicators, found the provincial average score to be 32.25. In contrast, local governments performed better, with most scoring above 50.

According to Dr. Devkota, delay in the formulation of basic legal instruments such as Civil Service Act in provinces has also serious repercussions on their performances. He suggested the CMs to remain united to exert legitimate pressure to the federal government and their respective party committees. To the least, they should learn from the local bodies, he said.

The federal government exhibited negligence in formulating the umbrella frameworks to facilitate the sub-national governments. The latter designed the laws related to civil servants and police personnel but in absence of the umbrella legal instruments from the federal government, they remained idle. The intergovernmental council has also turned into a mechanism that only conducts meetings but achieves no progress.

While speaking at the establishment day of the PAs in 2024, former CM of Karnali, Raj Kumar Sharma, aptly defined the situation of freedom to the provinces, “How can you swim in deep water when you are thrown into it with your hands and legs tied. I don’t know if saying this is appropriate, but the situation has been the same for us."

However, although the provincial leaders agree that their failure is partially caused by the federal government's failure in building the required legal and policy framework in time, they never get united for the same cause.

 

41 governments in eight years

In a sheer display of political instability in the federal republic, the seven provinces got 41 chief ministers in the past eight years.

Lal Babu Raut of Madhes Province has remained so far the only Chief Minister to complete his full term at office. But the same province turned into political battleground in its second Provincial Assembly (PA) with five CMs from five different parties in just two-and-a-half years. Jitendra Prasad Sonal of Loktantrik Samajwadi Party and Saroj Yadav of CPN-UML served for 24 days each as Madhes CM. Meanwhile, Province Chief Sumitra Subedi Bhandari lost her post after appointing Saroj Yadav the CM and administering the oath of office at a hotel in Bardibas.

The provinces were created on September 20, 2015, while provincial assemblies were formed after the elections on November 26 and December 7, 2017. The first provincial government was formed in Karnali on February 15, 2018.

In general overview, Karnali is comparatively more stable than the other provinces with four CMs so far with two each – Mahendra Bahadur Shahi and Jeevan Bahadur Shahi, and Raj Kumar Sharma and Yam Lal Kandel – serving during the first and second PAs.

While Gandaki, Lumbini and Bagmati witnessed six CMs each in the past eight years, Koshi went through the worst experience in political stability with eight CMs – five in the last two-and-a-half years. Currently, Hikmat Kumar Karki is serving as the CM for the third time during this PA along.

Likewise, Sudurpaschim Province got five CMs.

 

Lack of political autonomy

It is no secret that the provincial governments and political leaders make their moves at the signal of federal government and their party central committees. "Provincial committees of the political parties are not autonomous while senior and competent leaders do not want to go down to the provinces. As a result, governments there have become an appendage of the central government," said Dr. Devkota.

To their worst, this is happening at a mutual consent of the political party, federal government and the provincial governments.

According to Dr. Devkota, Madhes led by Lal Babu Raut, Gandaki led by Prithvi Subba Gurung and Lumbini led by Shankar Pokhrel had a courage to resist the pressure from the federal government.

Within a year, Gurung called a meeting of the CMs in Pokhara and exhibited a unity among the provincial governments. A 29-point federal legal roadmap was also developed during that period. The centre had a majority government led by powerful Nepal Communist Party (NCP) that, in the beginning, assured a political stability which also sent a similar message to the provinces, said Dr. Devkota. He added that while the first inter-state council was called after 40 years in India, it was convened in a year after the formation of the first provincial governments.

While Madhes was vocal against the federal government for various other reasons and fought for its cause, Gurung and Pokhrel fought against their own party leadership to make their way through to institutionalise federalism.

But during the second Provincial Assembly, senior leaders joined the batch of leaders at the federal level which turned the provincial politics more immature. They are more centre-oriented and pay less attention to the public issues and political stability. As the governments formed and fell every now and then, provinces miserably failed in effective development planning, resource mobilisaion and revenue collection. This further detached them from the masses.

An official at the NPC said that the situation has deteriorated to such an extent that chief ministers are meeting even the section officers at the NPC and Ministry of Finance to get their projects included in the federal budget or get financial assurance for provincial projects.

 

Dancing to the tunes of centre

Later, the number of ministries at the provinces was increased multiple times to adjust the leaders from the ruling coalition which mostly happened at the direction of the federal government and central committees of the parties participating in the coalition.

"A new culture has been developed – the provinces seek centre's opinion and the latter directs the former," said Dr. Devkota.

This political culture is rooted so deep that the provinces couldn't function independently even when the country has a civilian government and large political parties are hesitant to exercise their political muscle.

Shahi, who is also the founder chairperson of Karnali Integrated Rural Development and Research Centre and General Secretary of the Former Planners Forum Nepal, said that the senior leaders discourage the youth leaders and federal government discourages the provinces on the pretext of lacking 'capacity'.

"We have developed a system that bars the sub-national governments from being progressive. Entire system is process-oriented and no one cares for the outcome and its impact on people," he said.

Shahi maintained that Kathmandu takes decision about the ministers and alliance in the provinces. The provincial committees of the parties neither have power nor desire to intervene in such affairs.

According to Dr. Devkota, the power of the government was devolved and restructured in the federal model but the political parties didn't restructure them according to the newly evolved system. 

Published in The Rising Nepal daily on 4 January 2026. 

Prachanda leaving for New Delhi

Kathmandu, Jan. 4

Coordinator of Nepali Communist Party (NCP) Pushpa Kamal Dahal Prachanda is flying to India to participate in ‘Unity message assembly and interaction programme’ organised by the Nepali Society in New Delhi.

According to the organiser, the programme is scheduled for Monday, January 5, with an aim of further strengthening mutual harmony, cooperation, and commitment to a shared future within the Nepali community in India.

Prachanda will address key topics concerning the shared interests of the Nepali community, strengthening of Nepal-India relations, challenges and opportunities faced by the Nepali diaspora, and the importance of unity and cooperation.

“The primary goal of the event is to unite Nepali brothers and sisters living in India, while fostering an enhanced sense of social and political awareness. The programme holds particular significance, given the ongoing efforts of the Nepali society in India to advocate for the rights, identity, and continued cooperation of Nepali expatriates,” read a statement forwarded by Prachanda's secretariat.

Before flying to India, Prachanda also held a meeting with CPN (UML) chairman KP Sharma Oli on Sunday. 

Published in The Rising Nepal daily on 5 January 2026. 

Dialogue begins in Nepali Congress to resolve convention issue

 Kathmandu, Jan. 3

In order to bring the debate that began in connection with the Nepali Congress General Convention to a logical conclusion, both the establishment faction and the non-establishment faction have engaged in phased dialogue. Senior leaders have begun discussions with the aim of resolving, through consensus, the debate that has arisen over the party’s 15^th General Convention and a Special General Convention.

A meeting of the Nepali Congress Central Executive Committee held on Poush 18 decided, by a majority, to hold the 15^th General Convention in mid-May 2026.

Meanwhile, the non-establishment faction in the party has begun preparations for a Special General Convention on January 11-12. Following the announcement of separate conventions within the party, leaders have been engaged in internal and bilateral discussions.

Party President Sher Bahadur Deuba, Acting President Purna Bahadur Khadka, Central Committee member Ramesh Lekhak and other leaders held discussions on Saturday morning on possible ways to resolve the disputes seen within the party. The meeting also discussed finding a smooth point of departure to address the debate that has emerged regarding the regular and special conventions.

After the announcement of the Special General Convention, General Secretaries, Gagan Kumar Thapa and Bishwa Prakash Sharma, consulted legal experts. They sought legal opinion on the basis that, in accordance with provisions in the party statute, 54 per cent of convention representatives have already submitted signatures and an application demanding a special general convention, and that the convention has been called for January 11-12.

Former President of the Nepal Bar Association and senior advocate Gopal Krishna Ghimire, who participated in the discussion, said that Article 17(2) of the party statute contains a mandatory provision requiring a special general convention to be convened within 90 days if 40 per cent of convention representatives submit an application, and therefore suggested that the process could proceed.

“What the party statute says is what must be done. It is everyone’s duty to abide by the statute. And, according to the statute, the Nepali Congress must go for a special general convention,” he said.

Constitutional expert and senior advocate Purna Man Shakya said there was principled agreement with the decision of the general secretaries to move ahead with the Special General Convention. He said, “Since the convention representatives have already submitted their signatures and there is a provision requiring a special general convention under the statute, it would be better to implement it.”

General Secretary Sharma stated that the decision to move forward with the process of a Special General Convention was taken because the regular convention had not been held according to the stipulated schedule. He added that a special general convention would bring renewed momentum to the party and made it clear that the party would remain united.

Meanwhile, Congress leader Dr. Shekhar Koirala has held discussions with close associates, central members, and leaders regarding the intensifying disputes within the party after the announcements of the regular and special general conventions.

According to Congress Joint General Secretary Jiwan Pariyar, discussions have focused on the internal crisis within the party, the upcoming elections, and other issues facing the country. During the meeting, there was an agreement to draw the attention of the party leadership to arrange for members to resume their previous responsibilities once disciplinary actions taken by the party’s disciplinary committee are revoked.

Published in The Rising Nepal daily on 4 January 2026. 

Election date will not be postponed: Minister Kharel

Chitwan, Jan. 3

Minister for Communication and Information Technology Jagdish Kharel has said that the date of the election will not be postponed.

Talking to journalists in Bharatpur, Chitwan, on Saturday, he urged the public not to follow rumours suggesting that the election date would be changed.

“The country has already entered the election phase. All political parties have begun the electoral process. In such a situation, saying that the date will be postponed is a meaningless reaction,” he said.

While inspecting the newly constructed building of the National News Agency, Minister Kharel requested media organisations to focus on creating a positive election environment. He said, “The parties have already submitted their closed lists of the proportionate representatives (PR) candidates. Election-focused programmes have begun. The Commission has already moved forward with its work.”

Meanwhile, during another discussion held at the building of the Federation of Nepali Journalists, Chitwan branch, Minister Kharel stressed that everyone working in all media outlets in Nepal should be affiliated with the Social Security Fund (SSF). He said that employees and journalists associated with state-run media are being enrolled in the SSF.

Government media such as Gorkhapatra Corporation and Nepal Television have joined this process.

Stating that preparatory work is under way to sustain self-employed and independent media, he said, “In particular, work is being done on how to move forward by linking new media—such as YouTube, online television and similar platforms—with the state.”

According to him, the public welfare advertisements must be organised so that everyone can benefit from them.

Noting that he has received information that some media outlets are on the verge of closure due to weak financial conditions, he said, “The government will work towards resolving the problems of all media outlets. It has been difficult to improve the financial situation because, in many cases, a single journalist is running a single media organisation.”

Published in The Rising Nepal daily on 4 January 2026. 

Khalti users to withdraw cardless cash from ATMs

 Kathmandu, Jan. 2

Users of the Khati Wallet can now withdraw cash using the Khati app at Nabil Bank ATMs. A partnership agreement has been signed between Nabil Bank and Khati Wallet for this service.

According to the agreement, Khati Wallet users will be able to withdraw funds from Nabil Bank ATMs across the country without using a card, simply by accessing their wallet. The bank stated in a statement on Friday that the agreement was made to link the wallet and ATM transaction systems.

Wallet users can withdraw a maximum of Rs. 5,000 daily and a maximum of Rs. 25,000 monthly.

Nabil Bank's Deputy CEO Adarsha Bajgain said that this agreement will help extend the bank’s ATM network to wallet users. "This new service will not only save customers time but also eliminate the hassle of card management. Nabil Bank’s commitment to digital transformation in Nepal's fintech ecosystem will be further strengthened," he said.

Likewise, Khati Wallet's CEO, Praveen Regmi, highlighted that this collaboration with Nabil Bank is a significant step towards building a digital economy. According to him, this agreement will help establish easy access for app users across the bank’s extensive network, as we continue our efforts to make financial transactions faster, easier, and inherently secure.

To use the service, Khati Wallet users first need to select the ‘Cardless Withdrawal’ option in the Khati Wallet app, where they will enter the amount they wish to withdraw. After confirming the details, they will receive an OTP (One-Time Password) on their mobile.

Then, users must go to the ‘Cardless Withdrawal’ option on the bank’s ATM screen and enter their mobile number in the wallet section. After entering the OTP received on their mobile, the amount entered in the wallet will be displayed on the ATM screen, and the user can withdraw the cash.

This service will be available at any time. The bank stated that this is an excellent option, especially for those who do not have an ATM card but need to withdraw cash easily.

Nabil Bank serves over 2.5 million customers through 268 branches and 321 ATMs across the country.

Published in The Rising Nepal daily on 3 January 2026. 

Youth, salaried employees vulnerable to 'get-rich-quick' virtual assets schemes

Kathmandu, Jan. 1

An analysis of the Financial Intelligence Unit at the Nepal Rastra Bank (NRB) revealed that 75 per cent of individuals suspected of involvement in Virtual Assets-related activities are between 21 and 35 years of age. Students (29 per cent) and salaried employees (21 per cent) constitute the largest occupational groups.

Virtual assets are digital forms of value such as cryptocurrencies–such as Bitcoin and Ethereum–stablecoins, utility tokens, and other tokenized assets that can be traded, transferred, or used for payments and investments.

"This represents a critical vulnerability indicator. This digitally proficient demographic is disproportionately targeted by, and vulnerable to, online investment scams and 'get-rich-quick' schemes," said the NRB in its Strategic Analysis Report, 2025 on Virtual Assets published on Thursday.

According to it, this finding highlights a significant gap in financial literacy and consumer protection, underscoring the urgent need for targeted public awareness campaigns, particularly for young adults and students.

Key typologies observed in VA-related activities include illegal foreign exchange transactions, hundi, online fraud, disguising the true nature of business activities while engaging in cryptocurrency trading, and the use of money mules involving the bank accounts of family members and relatives.

The NRB informed that although the virtual assets related Suspicious Activity Report or Suspicious Transaction Report (SARs/STRs) at the concerned reporting agencies have shown a fluctuating trend, the number has gone up significantly in recent years.

"Thirteen STRs/SARs were reported in 2021, rising sharply to 173 in 2022. The number declined to 138 in 2023 before increasing again to 252 in 2024," read the report.

As of 16 July 2025, a total of 82 VA-related STRs/SARs have been reported.

A significant majority (91.19 per cent) of virtual asset (VA)-related STRs/SARs were reported by commercial banks.

According to the NRB, this may be attributed to the use of bank accounts for VA-related activities, including the receipt of returns on virtual asset investments.

The integration of all commercial banks into the goAML system (an electronic reporting and analysis platform used for anti–money laundering and counter-terrorist financing (AML/CFT) purposes) and the strengthening of suspicious transaction reporting mechanisms may also have contributed to the higher level of reporting.

Likewise, most VA-related STRs/SARs have been disseminated to the Nepal Police, followed by the Department of Revenue Investigation. The majority were forwarded to the Nepal Police, as they are responsible for investigating predicate offences such as the use of virtual assets and hundi-related activities. Only six cases were disseminated to the Department of Money Laundering Investigation (DMLI).

The central bank said that while most analyses resulted in suspicion of the use of virtual assets, only a limited number of cases could be directly linked to money laundering through virtual assets.

VA-related STRs/SARs are primarily triggered by ongoing transaction monitoring conducted by banks and financial institutions (BFIs), as well as information received from informal sources, such as emails or screenshots indicating that a customer’s account is linked to VA-related applications like Binance.

Other key drivers include direct enquiries from law enforcement and investigative agencies, and intelligence received from walk-in customers.

In a few instances, money mules were found to be unaware that their accounts were being used for VA-related activities or of the legal prohibitions governing such activities. The NRB said that some individuals were found to have misused dollar cards to purchase cryptocurrency, while others defrauded victims by persuading them to transfer funds in exchange for promised high returns through crypto or Bitcoin investments.

"As Nepal remains in the early stages of digitisation and technological adoption, other predicate offences and illegal activities—such as digital fraud, investment scams, online gambling and hundi—are increasingly intertwined with the use of virtual assets, making them more susceptible to money laundering, terrorist financing and proliferation financing risks," read the report.

The continued rise in VA-related STRs, despite the legal ban on the use of virtual assets, suggests that restrictive measures alone are insufficient to mitigate these risks, concluded the NRB indicating to the need for a strategic shift—from a total prohibition towards enhanced detection, investigation and public awareness—to effectively manage the evolving threat, which is increasingly operating within the informal and illicit economy.

The report suggested that the reporting agencies should practice thorough monitoring of customer transactions and behaviour from deviations from expected patterns, particularly where virtual asset involvement is suspected. It also recommended for the timely update of the KYC (Know Your Customer) information, timely reporting, and regular training and public awareness.

The NRB also stressed on the capacity building of the law enforcement agencies to enhance investigators' skills, cross-agency information sharing and integration, enhancement of investigative tools and techniques, and forging foreign cooperation and partnerships. 

Published in The Rising Nepal daily on 2 January 2026. 

Rs. 5.48 billion insurance amount paid for losses incurred during Gen Z movement

Kathmandu, Jan. 1

The non-life insurance companies have paid around Rs. 5.48 billion so far to the insured parties, including advance payments, out of a total of 3,316 insurance claims related to physical and other losses incurred during the recent Gen Z movement.

The total claimed amount is about Rs. 23.47 billion.

According to the updated data submitted by 14 non-life and four micro non-life insurance companies to the Nepal Insurance Authority (NIA), the total amount paid by insurers, under property insurance, is Rs. 3.93 billion. It is out of 712 claims with a total claimed amount of approximately Rs. 19.05 billion.

Under motor insurance, out of 2,321 claims with a total claimed amount of approximately Rs. 3.46 billion, around Rs. 1.39 billion has been paid.

Similarly, 226 claims were made under engineering and contractors’ all-risk insurance. In this category, while total claimed amount was Rs. 553.9 million, only Rs. 83.6 million has been paid. Under transit insurance, out of 12 claims with a total claimed amount of approximately Rs. 16.9 million, around Rs. 15.5 million has been paid.

Meanwhile, Rs. 3.02 billion in reinsurance claims has been paid to insurers, including advance payments, the NIA informed in a statement on Thursday.

"For the settlement of insurance claims related to physical and other losses incurred during the Gen Z movement, Nepal Reinsurance Company has paid reinsurance claims to non-life insurance companies amounting to Rs. 3.02 billion, including advance payments," it said.

According to updated data received from the company, a total of 2,863 reinsurance claims have been submitted to it by 14 non-life insurance companies, with a total reinsurance claim amount of Rs. 16.62 billion.

Published in The Rising Nepal daily on 2 January 2026.