The Constitution of Nepal guarantees health as a fundamental right and assigns responsibilities across federal units: The federal government oversees policy, standards, specialised services and disease control; provinces manage health services; and local governments are responsible for basic health and sanitation. This framework is further guided by the National Health Policy 2019, which aims to ensure equitable access to quality care.

The 16th Periodic Plan emphasises affordable and equitable health services to attain the 2030 SDG goal of Universal Health Coverage, and the focus on technological integration. Despite its constitutional importance, the health sector remains modestly financed, accounting for only about 4-6 percent of the total government budget. The Ministry of Health’s allocation increased from Rs56.4 billion in FY 2018-19 to Rs95.8 billion in FY 2025-26, but its share has largely stagnated, peaking at 7.5 percent during Covid-19 (FY 2021-22) before declining to 4.9 percent, which remains below WHO international standards.

The financing structure reflects a gradual shift towards decentralisation: The share allocated to subnational levels rose from about 40 percent in FY 2018-19 (7.4 percent to provinces and 32.2 percent to local levels) to 42.2 percent in FY 2025-26 (6.3 percent to provinces and 35.9 percent to local levels). Local governments now receive nearly 36 percent of the Ministry of Health budget, indicating increasing priority to frontline funding. However, most transfers remain conditional grants, and both the National Assembly’s Federalism Committee and the National Natural Resources and Fiscal Commission have recommended linking these transfers to broader sectoral outcomes rather than narrowly defined conditions.

Nepal’s total health sector expenditure increased from Rs103.1 billion in FY 2022-23 to Rs116 billion in FY 2024-25, accounting for about 5.5 to 6.4 percent of total consolidated public expenditure. The federal government remains the largest spender in absolute terms (Rs52 to 57 billion annually), followed by local governments (Rs30 to 38 billion), while provincial spending has gradually increased (around Rs18 to 20 billion). However, in relative terms, provinces allocate the highest share of their budgets to health (around 9 to 10 percent), compared to about 4 to 5 percent at the federal level and 7 to 9 percent at the local level, indicating that provinces place the greatest fiscal emphasis on health even though the federal government dominates overall spending.

Out of the total Ministry of Health budget of Rs95.80 billion in FY 2025-26, Rs55.39 billion (57.8 percent) is allocated at the federal level, Rs6.05 billion (6.3 percent) to provinces, and Rs34.36 billion (35.9 percent) to local governments. A closer look at the federal allocation shows that spending is heavily concentrated in a few major programmes: The Integrated Health Infrastructure Development Program alone accounts for 21.4 percent of the federal health budget, followed by the Health Insurance Board with 18.1 percent, the Health Sector Reform Programme with 12.1 percent, and the Targeted and Social Security Service Programme with 11.1 percent. The Family Welfare Programme accounts for 5.8 percent, the Health Management Programme for 3.1 percent, the National Academy of Science and Technology (including Bir Hospital) for 2.6 percent, and the Rapti Academy of Health Sciences for 2.1 percent. This demonstrates that federal financing remains dominated by infrastructure, insurance, reform and centralised institutional spending.

At the provincial level, the conditional grant allocation is also highly concentrated: The Family Welfare Programme alone accounts for 52.7 percent of the total provincial health conditional grant, followed by the Health Sector Reform Programme (16.3 percent), Nursing and Social Security Services (7.0 percent) and Curative Services (5.5 percent). Other programmes, such as Epidemic Disease Control (4.7 percent) and Health Management (3.9 percent), receive moderate shares, while the remaining programmes each account for less than 3 percent, indicating that provincial spending is heavily concentrated in reproductive health, system reform and service delivery functions.

At the local level, the pattern is even more concentrated towards frontline services: The Primary Health Care Programme alone absorbs 59.8 percent of the total local-level conditional health grant, followed by the Health Sector Reform Programme (19.3 percent) and the Family Welfare Programme (10.6 percent). Together, these three programmes account for nearly 90 percent of total local health spending. The remaining allocations, such as nursing services (3.8 percent), curative services (3.3 percent) and others, are relatively small. However, it is important to note that at the local level, salaries of health workers dominate, consuming nearly 61 percent of the local health budget, leaving limited room for infrastructure, training or innovation.

Focusing only on the seven provinces, the total allocation to the health sector in FY 2025-26 stands at Rs26.19 billion. An analysis based on functional classification shows that the largest share is allocated to public health services (39.9 percent), followed by hospital services (34.7 percent), with other allocations including ‘health not elsewhere classified’ (14.2 percent), health research and development (5.4 percent), outpatient services (3.7 percent) and pharmaceuticals and medical equipment (2.1 percent).

At the federal level, the health budget is dominated by public health services (42.2 percent) and hospital services (39.6 percent), with health research and development receiving a substantially higher share (12.6 percent) than at the provincial level. Outpatient services (2.4 percent) and pharmaceuticals and medical equipment (2.7 percent) receive smaller relative allocations federally, while the ‘health not elsewhere classified’ category accounts for just 0.6 percent of the federal health budget. This suggests that federal health spending is heavily concentrated in public health, hospital care and research.

Despite constitutional devolution, several issues remain. Functions pertaining to vertical programmes and management of national hospitals have become recentralised under the federal government. Overlaps and duplications are widespread: The responsibility for registration, licensing and regulation of nursing homes and other health institutions has been assigned to all three levels and significant overlaps also exist in preventive, curative, promotive and palliative care, as well as in traditional medicine practices like Ayurveda and homeopathy. Although local governments have exclusive rights over basic health and sanitation, federal interference continues to restrict their autonomy.

There is a mismatch between functional assignments and technical capacities, with limited resources for infrastructure, training and digitalisation at subnational levels. Weak functional coordination among the three tiers results in duplication of similar health functions, and local governments have limited real autonomy because health workers and support staff continue to be recruited by the federal level. There is also a persistent tendency to replicate similar projects and programmes across all three levels, leading to wasted resources.

Moving forward, Nepal must shift from formal devolution to meaningful implementation. This requires aligning financial resources with assigned responsibilities, increasing provincial budgets and capacities, and introducing performance-based grant mechanisms to promote accountability and efficient resource utilisation. Priority should be given to building local governments’ institutional and technical capacities, investing in training and digitalisation, and addressing disparities in health access for underdeveloped provinces and marginalised communities. Without these reforms, Nepal’s federal health system risks remaining centralised in practice while being federal only in name.