This Sunday (April 26) marked one month since Balendra Shah assumed leadership of the government of Nepal. In governance practice, the first 100 days are often treated as a ‘honeymoon period,’ a time to observe rather than criticise. Yet, as the saying goes, the morning shows the day. A notable step has been the government’s public release of a 100-point reform agenda. It proposes reducing the number of ministries to 17, restructuring or abolishing unproductive boards and committees, and ensuring transparent, corruption-free public service delivery. Additionally, the government has issued a national commitment document on constitutional amendment that reflects key provisions from major party manifestos. It emphasises strengthening intergovernmental relations, eliminating duplication across tiers of government and establishing a high-level administrative restructuring commission. These early initiatives signal a reform-oriented direction, though their credibility will depend on effective implementation in the months ahead.

During this period, Prime Minister Shah invited the chief ministers of all provinces to discuss the challenges of implementing federalism. While reports suggest that the prime minister largely listened in other meetings, he engaged in genuine dialogue with chief ministers. Following these interactions, the chief ministers appeared encouraged, signalling a positive shift in federal-provincial engagement. These developments suggest that the government is taking provincial concerns seriously and is committed to advancing federalism. However, tangible results are yet to be seen.

At the core of federalism implementation in Nepal lies the unbundling of functions across the three tiers. The Unbundling Report (2017) remains the foundational framework, yet its limitations are widely acknowledged. The National Assembly’s Federalism Implementation Special Committee recommended its revision, and although a draft was prepared with the participation of provincial and local governments, it has not been made public. This delay represents a structural bottleneck, as key laws and institutional arrangements, from the Allocation of Business Rules to the Local Government Operation Act, derive their clarity and legitimacy from this framework. Without revisiting and refining it, overlaps and inconsistencies will persist.

This challenge is also evident in project implementation. Constitutionally, the federal government should focus on projects of national pride and inter-provincial connectivity, provinces on strategic provincial initiatives and local governments on local infrastructure and service delivery. In practice, however, all three levels continue to operate across overlapping domains, resulting in duplication and inefficiency. The Parliamentary Special Committee of the National Assembly has recommended clear thresholds: The federal government should not undertake road projects below Rs150 million, and provinces should avoid those below Rs20 million.

However, during the tenure of Prime Minister Pushpa Kamal Dahal, the federal threshold was reduced to Rs30 million, and even this limit was not effectively enforced. Proposals from the Committee to rationalise project allocation have neither been aligned with policy nor implemented in practice. The result is a fragmented development landscape where accountability is diffused, and ownership remains weak. The government must take this issue seriously and introduce clear legal provisions to enforce discipline.

Equally critical is the long-delayed Federal Civil Service Law. Subnational governments still lack full administrative autonomy. Continued federal control over personnel management undermines the essence of federalism. The government’s commitment to enact this law within 45 days is therefore significant, but the law’s substance will matter more than its speed. It must ensure that provinces and local governments have accountable administrative structures. The current centrally controlled deployment of chief administrative officers and secretaries at the provinces illustrates the problem, leaving subnational governments dependent on Singha Durbar and prone to inefficiencies, instability and allegations of patronage. A more rational interim approach would be to delegate authority to provinces for managing local-level personnel until a comprehensive legal framework is in place.

In a positive move towards federalism, the government has released its draft of the Civil Service Bill for public comment. It is notably more supportive of provincial and local government than the previous draft and deserves a favourable reception.

The major weakness lies in the inactivity of intergovernmental coordination bodies. The Inter-Provincial Council has not met since 2018, and although the National Coordination Council convened in 2023 and made important decisions to reduce duplication and improve coordination, implementation has been lacking. Federalism is not self-executing; it requires continuous dialogue and institutionalised coordination. Reviving these platforms is essential for resolving disputes, aligning policies and fostering cooperative federalism. Strengthening and reforming the mechanisms for coordination is also a key feature of the commitment paper regarding constitutional amendment.

Legal and structural bottlenecks also persist in areas such as land acquisition, where outdated provisions in laws like the Forest Act and Land Acquisition Act hinder infrastructure development at the provincial and local levels. Similarly, the role of institutions such as the National Natural Resources and Fiscal Commission must be strengthened. At present, project selection and budget allocation are often influenced by political and bureaucratic discretion, undermining transparency and efficiency. This institution was designed to bring objectivity and rule-based fiscal transfers and planning; it must be empowered accordingly.

The government discusses reforming the Planning Commission in its roadmap, but fails to mention the functional scope of the Fiscal Commission. Improving this aspect is vital for the effective implementation of fiscal federalism.

The issue of fiscal transfers further exposes the imbalance within the federal system. While functions have been devolved, financial resources have not followed proportionately. The share of fiscal equalisation grants has declined from over 10 percent in the early years of federalism to around 7.6 percent in FY 2025-26. At the same time, more than 60 percent of responsibilities previously handled by the federal government have shifted to subnational levels. This mismatch between responsibilities and resources weakens service delivery and fuels the perception that federalism is ineffective, when in reality the problem lies in the incomplete application of the ‘finance follows function’ principle.

The finance minister recently released Nepal’s current economic status report, noting that while provincial and local governments account for roughly one-third of total public expenditure, their revenue collection remains below 10 percent. This reflects a structural reality: When major revenue sources and fiscal powers remain centralised, subnational governments will inevitably have limited revenue capacity. The constitutional design anticipates this gap to be addressed through a robust fiscal transfer system. However, provincial and local governments must also improve the utilisation of their own-source revenue powers.

These challenges are not isolated policy concerns; they are interconnected pillars of federalism implementation. Over the past eight years, evidence from practice, parliamentary studies, and subnational experience consistently shows that federalism in Nepal is constrained not by its constitutional design but by gaps in execution, particularly the misalignment among authority, resources and institutional capacity.

Early signals from the government led by Shah, especially the 100-point governance reform agenda, are encouraging. These signals, however, must now translate into decisive action. Beyond policy commitments, implementation must follow. The prime minister’s pledge in Janakpur that citizens should not need to travel to Kathmandu to secure their rights must be realised through concrete reforms. Ultimately, success will depend on delivering real institutional change.