Nepal currently has foreign debt amounting to Rs. 3.2 trillion. The government also owes Rs. 56 billion to construction entrepreneurs, Rs. 24 billion in COVID-19 insurance claims, Rs. 43 billion under the health insurance programme, and Rs. 7 billion in outstanding payments to milk and sugarcane farmers.
Meanwhile, Nepal has increasingly become vulnerable to natural disasters, including flash floods, earthquakes and pandemics. Since the adoption of federalism, secularism and republicanism, government expenditure has increased substantially. The establishment of seven provinces and 753 local bodies has created a huge administrative burden, while domestic revenue remains insufficient even to meet recurrent expenditure. As a result, the government has increasingly relied on borrowing to finance its regular expenses, leaving limited resources for development.
The situation has become even more challenging following successive natural disasters. Additional funds are required for rescue, relief, reconstruction and resettlement. The government has yet to fully resettle victims of the Rukum earthquake, while reconstruction of structures damaged by the devastating 2015 earthquake remains incomplete. The Rasuwa flash floods have added another enormous financial burden, with roads, bridges, hydropower projects, villages and towns requiring reconstruction.
Nepal cannot meet these growing obligations simply by relying on grants and donations. Billions of rupees will be required to rebuild damaged infrastructure and resettle communities swept away by the August 26 floods.
This is therefore the time to seriously rethink government expenditure. Non-productive administrative structures must be reduced, and the present system of seven provinces and 753 local bodies should be restructured according to the country’s financial capacity.
There is no alternative to cutting unnecessary expenditure and redirecting public resources towards development, reconstruction and disaster preparedness. A country struggling to finance basic development cannot afford an oversized administrative structure.
We therefore strongly urge the government and the political parties to undertake fundamental political and constitutional reform. The present constitutional arrangement should be abandoned as soon as possible and the 1990 Constitution be restored as a framework for a leaner, more efficient and financially sustainable state.
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