The federal Health Ministry last week announced that the government would no longer bear the expenses of testing or treating all Covid-19 patients, except the economically deprived, differently-abled and helpless, single women, senior citizens, frontline health workers, sanitisation and security personnel, and government employees working in high-risk frontlines. No sooner had the decision been made public in Kathmandu than the chief ministers of Province 1, Gandaki and Lumbini sprang up to declare that such testing and treatment would continue in their provincial hospitals regardless of whatever the central government said. Later, the chief ministers of Bagmati and Sudurpaschim followed suit.

Nepal’s federal polity rightly acted to assert its authority in the interest of the people. It can be safely construed that the provincial governments instantly recognised the incompetence and foolhardiness of the federal government at a time when both confirmed cases of coronavirus infections and deaths thereof are startlingly on the rise. Amidst Prime Minister Oli’s often repeated demeaning remarks about federalism that ‘sub-national’ governments are mere ‘subordinates’ to the central government, this ‘counter’ to the centre from the chief ministers, despite their limitations of being disciplined cadres of a highly regimented, now ruling Nepal Communist Party, is a welcome bold step. More interesting than that, at least four of them—Sher Dhan Rai, Dormani Poudel, Prithvi Subba Gurung and Shankar Pokharel, the chief ministers of Province 1, Bagmati, Gandaki and Lumbini respectively—happen to vouch for unconditional personal loyalty towards Oli. Gurung went on to the extent of urging the federal government to withdraw this decision.

The most critical trigger to their political willpower and decisions here is the philosophy of federalism and decision-making autonomy inherent in the framework. One of the most desirable characteristics of a federal form of governance is better understanding of public preferences by the sub-national units compared to the distant central government. The chief ministers’ courage to come out of the cocoon of their communist party discipline certainly suggests that they too have the required grasp of ‘preference matching theory in federation’ between the electorates and their elected representatives.

Bungling federalism

It can be safely argued that had the KP Oli government duly recognised and utilised the federal administrative strength of Nepal, the spectre of coronavirus containment and the cure of infected ones would have been far better than where we are now, or, at risk of facing even worse.

The central government perhaps deliberately shied away from timely empowering the sub-national governments—mainly the provincial and a few hundred capable municipal governments—to procure the necessary health equipment and basic medicines, establish adequate hospitals and testing centres, and provide preliminary relief to the economically vulnerable to survive and to small enterprises to sustain themselves. It comprehensively failed to provide the necessary funds, mobilise the necessary health professionals and coordinate particularly with the local levels that are in the obvious frontline in the fight against the virus.

There is no convincing ground why the federal government is taking so many irrational decisions so often that are blatantly against the public interest. For example, the current decision of the federal government not to finance the testing and treatment of Covid-19 cases, as made out by the official mouthpieces, is meant to alleviate the burden of the national exchequer that is ‘running out of funds’, is totally unsubstantiated. According to recent Nepal Rastra Bank data, unspent amounts sitting idle in various accounts of the government totalled Rs208 billion as of mid-September 2020. Gross foreign exchange reserves increased to $12.2 billion in the same period. Both the current account and the balance of payment are at a surplus of Rs26.07 billion and Rs67.63 billion respectively. Capital expenditure has reached barely 7.15 percent of the budgetary allocation while a quarter of the fiscal year is about to pass. This only vindicates that what is lacking is not funds in the treasury but vision and leadership in the government. This all-enveloping government apathy to the suffering of the common people and a summarily resigned approach despite the availability of such a comfortable fiscal space is totally unfathomable.

Role of sub-national units

The assertion of the chief ministers to continue to provide Covid-19 related health services free of cost has deeper political symbolism. The federal government appears to be trying to straighten up its initial aberration. However, there are several practical bottlenecks for the sub-national governments to deliver real benefits to the people as promised by the state governments unless the federal government corrects its ways and mends regressive decisions. For example, the hospitals, labs and other health infrastructure owned by the provincial governments, let alone the municipal governments, are far smaller in size than those under the federal government.

For all sub-national governments, the practice of independent fiscal management still remains an insurmountable challenge. Their main source of revenue for them is still the formula-based fiscal transfer from and tax revenue sharing with the centre. It is still marred by a number of structural issues related to policy and institutional arrangements. First, the federal budget of even this fiscal year, despite the virus pandemic and reduction in other developmental activities, has provided very limited flexibility to the sub-national governments to expend equalisation grants by changing their original heads of allocation.

Second, legal and institutional mechanisms for provincial and municipal debt/deficit financing are not yet in place. Article 59 (7) of the constitution says, ‘Provisions relating to the management of budget deficits and other fiscal disciplines of the Federation, State and Local level shall be as provided for in the Federal law’. But the federal law to deal with provincial and municipal budget systems as mentioned here is nowhere in sight. Despite the benign approach of the chief ministers to provide free treatment to Covid-19 patients, their resource mobilisation capabilities, therefore, could soon become exhausted.

Third, the challenge of taking the municipalities, at least the richer and larger ones, on board for now to tackle the Covid-19 pandemic is even more daunting. It needs a separate and dedicated framework within the federal scheme which has neither been contemplated by the federal nor the provincial government. Regardless, the elected executives of the sub-national units must continue to flag up their constitutional rights on federalism, exactly in the fashion the chief ministers of the provinces have done regarding Covid-19 treatment.