Municipalities in Nepal stand at a crossroads, facing complex challenges posed by the rapid urbanization the country is witnessing. New towns have emerged to accommodate the nation’s growing urban population while existing ones have expanded rapidly over the last decades. The rapid growth of towns has placed municipalities at the forefront of managing the country’s escalating urbanization challenges, the mismanagement of which can severely impact urban well-being. While the pressure on local governments to address the issues before them is mounting, they remain poorly financed and functionally restrained, risking the perils of haphazard urbanization, the consequences of which bear serious repercussions.
Local governments in Nepal were entrusted with key responsibilities after the adoption of federalism in 2015, and they now have local health, education, agriculture and several other functions under their remit. They are entitled to receive federal grants, provincial budget transfers and shares from tax collections to support their finances, and can even borrow if required. Uniquely, the country’s municipalities are assuming responsibilities at a time when local governments globally face mounting civic challenges amplified by climate change. This makes Nepal’s federalization process both crucial and delicate, but the agenda remains politically deprioritized and institutionally stalled, and several provisions surrounding federalism fail to be implemented.
While the dynamics of federalism in the country are in a state of flux, an argument that makes the case for fast-tracking the power transfer to local governments is that delaying this process has high costs. Research shows that countries urgently need to increase municipal investments to sustain civic well-being, and Nepal is no exception. Municipalities need to invest now in establishing planned colonies to curb informal settlements that cause urban congestion. They need to invest now in disaster management measures that wreak havoc in cities every monsoon. They need to commit resources now to urban mobility, pollution management and green infrastructure without which livability in towns will remain compromised and deteriorate over time. These investments need to be made at a speed that matches the rapid urbanization Nepal is witnessing. The World Bank reports that Nepal is the fastest urbanizing country in South Asia, giving the Himalayan nation only a small window to make these time-sensitive investments that will profoundly dictate the quality of life in the country.
Many cities in Nepal are already facing the fallout of failing to act on time, and Kathmandu stands as a prime example. The capital’s congested urban sprawl is the result of poor governance during the 2000s when rapid urbanization overwhelmed the government’s capacity to manage the city’s haphazard growth. Kathmandu’s inadequate road infrastructure, lack of open spaces and inefficient transport networks are direct consequences of years of flawed planning and neglect of municipal priorities. Besides the government’s poor policy foresight, this outcome exposes the general underestimation of municipalities as important actors in driving development, gravely ignoring their vital role in enhancing citizens’ quality of life. Birgunj, Biratnagar and Bhairahwa are other major cities that have struggled to manage their rapid urbanization and now face pressing urban issues like congestion, poor mobility and limited open spaces for recreation.
Despite the urgency of interventions, local governments are able to do little to address the issues before them. In addition to the federal government's reluctance to devolve key functions, municipalities face critical financing challenges that constrain their ability to act. The budgets of most local governments are already under strain from the extensive responsibilities they manage with limited resources, leaving little room for investment in high-cost urgent interventions. Most local units have limited self-generated revenue and lack the capacity to improve tax administration or diversify income sources. The Intergovernmental Fiscal Arrangement Act 2074, the legislation that outlines financial relationships between three levels of government, allows sub-national governments to secure domestic loans, but municipalities have failed to borrow due to their low creditworthiness.
International aid and urban climate finance that support municipal investments are in their early stages, and accessing these funds is challenging for Nepal where data on municipality-level financing needs are not robust. Internally, the municipal financing environment isn’t favorable either, with the Town Development Fund being the only specialized municipal lender. Despite receiving support from global development partners, the fund is able to cater to only a fraction of local governments and mostly engages in financing small to medium-scale projects. This combination of limited resources and a nascent borrowing environment creates a substantial funding shortfall for Nepal’s municipalities, leaving them helpless to act.
It is concerning to see the level of government closest to the citizens, and bearing prime functional responsibilities, face challenges of such magnitude. Even more concerning is the lack of recognition of local governments as powerful entities capable of improving lives at scale through the powers vested in them. While the role of the federal and provincial governments is important for driving national growth, municipalities overwhelmingly fulfill the more immediate needs of daily life that define our day-to-day well-being. Hence, empowering municipalities with resources to invest in pressing municipal needs is imperative.
The federal government, media, policy professionals, and most importantly, the public, need to view municipalities as important stakeholders whose performance greatly shapes the quality of lives we live. It is of critical importance that local governments are given their due means to perform their functions and make the interventions that are the need of the hour. Failing to do so will leave our cities vulnerable and depress the already poor quality of urban life in many parts of the country. Though reforms are underway, their pace is below the mark and stakeholders’ efforts lack the required enthusiasm. Municipalities are in a race against time, and we must act promptly to use the window of opportunity before the time runs out.
The author is research fellow at the Nepal Economic Forum
