With the federal budget for the upcoming fiscal year announced, it is crucial to review the transparency of the system by which the budget is made. Budget formulation and public finance management systems in Nepal have undergone significant changes in recent years, especially after the implementation of federalism in 2015. Participatory budgeting and public accountability are repeated themes in every budget announcement. Political parties boast of presenting citizen-centric budgets that promise to improve governance quality and address corruption. While the Ministry of Finance has made attempts to deliver on these claims, gaps still remain.
In a survey conducted by the International Budget Partnership (IBP) in 2023, Nepal was ranked 58th out of 125 countries for budget transparency, displaying moderate performance in public access to credible budget information. While this performance is relatively better compared to other South Asia countries, it falls short of standard international benchmarks. During six rounds of IBP surveys between 2010 and 2023, Nepal’s budget transparency score averaged 42, consistently remaining below the ‘sufficient score’ of 61.
Untimely and limited disclosure of key budget documents, combined with the absence of a citizens’ budget, and limited public participation in budget formulation, are key bottlenecks that keep the country’s budget transparency low.
Political interference in the budget-making process is another factor that impedes transparency. Rent-seeking behaviour and political lobbying to alter tax rates in favour of interest groups are not uncommon in Nepal. In 2022, the then-finance minister, Janardan Sharma, had to temporarily resign following allegations that he had employed two unauthorized persons to tweak tax rates the day before the 2022-23 budget was presented. In 2023, allegations emerged that information about tax increases on electric vehicles was leaked to car dealers, who then rushed to bring the cars into Nepal before the budget was presented. In both instances, the finance ministers were given a clean chit. Such instances significantly dent the country’s image on budget transparency internationally.
In addition to the above factors, a major driver of Nepal’s poor budget transparency is low public accountability. Citizens possess limited knowledge of the budget-making process and public financial management (PFM) systems, resulting in low budget literacy levels in the country.
This knowledge gap is driven by the complexity of our PFM system and the scarcity of resources for citizens to learn about Nepal’s budget management.
The World Bank’s Third Public Expenditure and Financial Accountability Assessment assigns Nepal a ‘C’ rating regarding access to fiscal information, highlighting large gaps in the availability of critical public finance data. Implementing federalism has further layered PFM processes, increasing the already wide public fiscal knowledge gap. And during this time, there have been limited initiatives by the government to educate taxpayers about how public money is being raised and spent.
The above discussion does not mean that a complex fiscal system is an unwanted system. Complexity can ensure accountability, improve public participation and establish best practices for fiscal management. However, it should be complemented by enhancing public knowledge of how fiscal systems work in the country. Taxpayers should get to know how their tax money is being spent and how effectively the government is utilizing the funds to deliver welfare outcomes. As sub-national governments now bear significant expenditure responsibilities, public fiscal education has become particularly important. It can empower the masses to hold their electorates accountable and enable them to demand services that sub-national governments are constitutionally mandated to provide.
Research from the World Bank suggests that there is a systematic relationship between budget literacy and budget transparency. Budget literacy initiatives can effectively close the budget transparency feedback loop by enhancing the citizens’ capacity to analyze their government’s fiscal data and scrutinize budgets. Research also confirms that participatory budgeting is strongly associated with a reduction in extreme poverty and an increase in access to basic services.
While several initiatives exist that can enhance budget literacy, there are a few practical ones that are feasible in Nepal’s context. Two important interventions stand out: one, publishing a citizen’s budget that presents and summarizes key budget information in a less technical, easy-to-understand format (a practice many countries undertake); two, introducing budget literacy components in education curricula to build an understanding of public finance management among students and youth. The IBP has consistently urged Nepal to adopt these interventions, particularly the publication of a citizens’ budget, as a crucial step toward improving budget literacy.
Other potential interventions include creating interactive online platforms that act as a single-source-of-truth for public finance data, conducting awareness programs at the community level, and undertaking extensive consultations with civil society for budget formulation. These interventions have the potential to significantly enhance Nepal’s fiscal transparency and bring its scores in line with international standards.
Public accountability starts with education. We need to proactively learn about the country’s fiscal system and empower ourselves to constructively criticize the government in cases of failures and inefficiencies. Key government stakeholders—the Ministry of Finance, the Office of the Auditor General, Public Expenditure and Financial Accountability Secretariat, and others, need to build the enabling frameworks. Think tanks and development agencies need to enhance their role in reporting on Nepal’s public finance management and help bridge the knowledge gap. Generating public interest in this critical but often overlooked field is important as we enter the new fiscal year, and all stakeholders must play their part to this end.
