Implementing federalism: The case of Nepal.

The new Constitution of Nepal established a federal system of governance in 2015. Implementation began in 2018 following the 2017 subnational elections. The new system is comprised of seven provinces and 753 local governments. The constitution assigns important functional responsibilities to provincial and local governments and mandates that they have significant autonomy in deciding how services will be delivered. Subnational governments accounted for over one‐third of total government expenditures planned for FY2021, financed primarily by intergovernmental transfers. This paper describes the new federal system, discusses the early implementation successes and challenges, and draws some lessons from Nepal's experience. Applications for Practice: The main lesson learned from Nepal's experience is the clarity of purpose that guided the reform design. It shows that a comprehensive fiscal decentralization program can be successfully introduced in smaller countries.Nepal employed innovative tools: (i) in assigning expenditure responsibilities to the different levels of governments the decisionmakers used an "unbundling" approach; and (ii) they put an institution, interprovincial council, in charge of resolving disputes.There also are lessons to be drawn from Nepal's failures: (i) failure to appoint a blue‐ribbon commission of experts to design and coordinate the federalism implementation plan—this would have allowed the government to set a timeline for the rollout of the full reform and steered the government toward focusing on better sequencing of reforms; and (ii) failure to provide for the data and other information needed to monitor economic development, expenditure needs, and fiscal performance. [ABSTRACT FROM AUTHOR]