NEPAL

With the promulgation of the new Constitution of Nepal in 2015, the country moved from a unitary form of government to a federal structure, with the devolution of inherent state powers (funds, functions and functionaries) to the subnational level. The federal structure’s relations are based on the principles of cooperative, coexistence and coordination. Hence, Nepal’s federalism is known as “cooperative federalism”. Article 56 of the Constitution establishes three spheres of government in Nepal: the Federation, provinces and local levels (villages and municipalities). The Constitution establishes the forms of relationship between levels of government and assigns to the Federation all the responsibilities not explicitly assigned to the states or local governments (residual powers). The Constitution also establishes the functioning of provincial and local legislatures along with powers to enact their own laws for the exclusive functions, elections at all levels of government and the allocation of both revenues and responsibilities. The division of exclusive functions between the federal, provincial, and local levels is outlined in schedules 5, 6 and 8 of the Constitution. Schedules 7 and 9 outline the list of concurrent powers to be jointly executed by all three levels of government, respectively.

Nepal has historically had a unitary system of governance under different political regimes, from a party-less system under the monarchy, to the multiparty democracy, which was also marked by socio-political conflict that extended between 1996 and 2006. Then, discussions on the restructuring of the state and the devolution of powers to the subnational government level got prominence during the peace process, which ended with the singing of a Comprehensive Peace Accord in 2006, opening the way for more profound decentralisation and governance reforms. The new constitution and the federal structure of Nepal are both outcomes of the peace process.

Currently, subnational governments in Nepal enjoy considerable authority and autonomy in the form of political, administrative and fiscal aspects. Transitioning into federalism is a historic and new practice to Nepal. As a result, Nepal is facing challenges in implementing the federalism some level of conflicts at the political level and some dissatisfaction at the people’s level particularly in basic service delivery and materialization of changes as envisioned by the constitution.

The executive role in the provinces falls to the Provincial Council of Ministries. The President appoints a Chief of Province in each province and he/she, in return, appoints the leader of the majority party in the provincial assembly as the Chief Minister, who is responsible for establishing the Provincial Council of Ministries. At the local level, on the other hand, the executive power rests with the Village Executive or the Municipal Executive, which are led by a democratically elected Chief/Chairperson and Deputy Chief/Deputy Chairperson. Nepal completed election of local governments in two cycles, in 2017 and 2022.

Other laws that regulate the operation of and the relationship between levels of government in Nepal are the Inter-Governmental Fiscal Arrangement Act 2017, the Employees Adjustment Act 2017, the Local Government Operations Act 2017, Financial Procedures and Accountability Act 2019, Federal, Provincial and Local Level Coordination and Inter-relations Act 2020 along with a number of Local and provincial Acts.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	PROVINCIAL LEVEL	TOTAL NUMBER OF SNGs (2020)
276 urban municipalities (Nagarpalika) 460 rural municipalities (Gaunpalika) 6 metropolitan cities 11 sub-metropolitan cities		7 provinces (Pradesh)
Average municipal size: 38 695 inh.
753		7	760

OVERALL DESCRIPTION: As of 2014, prior to the country restructuring, there were 75 districts, 3914 village development committees, 6 metropolitan cities and 11 sub-metropolitan cities and 58 municipalities. During the course of 2015 and 2017, the number of municipalities increased according to the classification established by the Local Level Restructuring Commission.

As a result, 7 provinces with 753 local government units were established. Any future change in the number and delimitation of local administrative units shall be made by a resolution passed by a two-thirds majority of the members of the municipality affected by the change. This change will be submitted to the provincial government, which will then recommend it to the Government of Nepal.

PROVINCIAL LEVEL: There are 7 provinces at the provincial level, that are currently sub-divided into 77 districts at the provincial level, which are led by an elected District Assembly and a District Coordination Committee (DCC) appointed by the latter. The DCC is mandated to coordinate among the local governments and monitor their performance. Moreover, in the district, numerous federal government agencies are established headed by the Chief District Officer, appointed by the federal government. Provinces’ assemblies have enacted numerous laws, including budget laws.

MUNICIPAL LEVEL: Local governments are subcategorised according to their population, resources and basic infrastructure: metropolitan cities, sub-metropolitan cities, urban and rural municipalities. The classification criteria are outlined in the Local Government Operations Act 2017 and include minimum population and income requirements that depend on the geographical location of the local government. Municipalities must have an average annual domestic income of at least NPR 10 million (about USD 1 million) for the last five years in the Himalayan region and at least NPR 30 million (about USD 3 million) for other districts. Sub-metropolitan cities must have an average income of at least NPR 250 million (about US$ 25 million) and metropolitan cities at least NPR 1 billion (about US$ 100 million) over the past five years. For metropolitan cities, the minimum infrastructure and facilities include requirements such as 75% of the total length of roads should be concrete, higher education institutions, and specialized service hospitals with at least 500 beds.

HORIZONTAL COOPERATION: The constitution regulates in its Article 233 how the provinces will be related, and establishes that the provinces can assist each other, exchange information and coordinate to execute their activities jointly. The creation of the Inter-province Council is also established, chaired by the prime minister and made up of the Chief Ministries of all the states, which is responsible for settling political disputes arising between the Federation and a province and between states. At the lower level, there are no regulations regarding inter-municipal cooperation. In 1994, the Municipal Association of Nepal (MuAN) was established as a non-governmental organisation with the purpose of helping to build stronger and more resilient municipalities, and to put forward plans and policies to foster inter-municipal co-operation.

The Constitution provides the three levels of government with five lists of powers: three exclusive lists (Annexes 5, 6 and 7 of the Constitution), a concurrent federal-state list of competencies (Annex 8) and a concurrent federal-state-local government list (Annex 9). These responsibilities and their distribution are also detailed in the Local Governance Operations Act 2017, which lays the foundation for co-operation, co-existence and co-ordination between levels of government.

A 2019 report by the National Association of Rural Municipalities in Nepal established that there are considerable overlaps between the functions of the different levels of government and that local governments often see their authority overruled. During 2021, MuAN representatives demanded less interference from the provinces and the Federation and greater clarity from the federal government for the exercise of their municipal powers. In 2020 it was announced that the Local Governance Operation Act 2017 would be amended, but to date no changes have been made.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Provincial level	Municipal level
1. General public services (administration)	State civil service and other government services; State Public Service Commissions	Management of the local services
2. Public order and safety	State police and peace and order; State bureau of investigation; Civil and criminal procedures (shared with federal)	Town police
3. Economic affairs / transports	Intra-State trade; State highways; Exploration and management of mines; Industries, mines and physical infrastructure (shared with federal); Agriculture and livestock development; Factories and industrialization; Casinos and lottery (shared with federal)	Local roads, rural roads, agro-roads; Irrigation (shared with state and federal); Agriculture and animal husbandry; Agro-products management; Animal health; Cooperatives and local markets management
4. Environment protection	Use of forests and waters; Management of environment within the State; Rescue, relief and rehabilitation from natural and human disasters (shared with federal)	Environment protection and biodiversity; Protection of watersheds, wildlife, mines and minerals; Disaster management (shared with sate and federal)
5. Housing and community amenities	Management of land; State level electricity, irrigation and water supply; Land policies (shared with federal); Planning, family planning and population control (shared with federal)	Local level development plans and projects; Distribution of house and land ownership certificates; Master plan and urban infrastructure
6. Health	Health services	Basic health and sanitation management of senior citizens and people with disability&
7. Culture & Recreation	Protection and use of languages, scripts, cultures, fine arts and religions; Cinemas and sports (shared with federal)	Protection and development of languages, cultures and fine arts
8. Education	State universities; Higher education; Libraries; Museums	Basic and secondary education
9. Social Welfare	Management of trusts (Guthi); Social security and poverty alleviation (shared with local and federal); Employment, trade unions and labour rights (shared with federal)	Management of senior citizens, persons with disabilities and the incapacitated

Scope of fiscal data: Provinces (Pradesh) and municipalities (urban, rural, metropolitan and sub-metropolitan).

Other

Availability of fiscal data: Low

Quality/reliability of fiscal data: Low

General introduction: The Constitution has provisioned for exclusive as well as concurrent revenue assignments for all tiers of government. Article 60 defines the general principles of the distribution of sources of revenue across the three levels of governments, which are determined following the recommendations of the National Natural Resources and Fiscal Commission (NNRFC). It also established that the federation, states and local governments have taxing power in their fiscal jurisdiction and collect revenue from such sources. In 2016, a National Urban Development Strategy (NUDS) was adopted as the framework for steering local development. In order to achieve the development objectives outlined in the NUDS, the municipal financing system was built on three components: Own Source Revenue (OSR), Inter Government Fiscal Transfers (IGFT) and the local borrowing framework, within which the Town Development Fund (TDF) plays a central role. In 2019, Nepal enacted the Financial Operations and Financial Accountability Act, which seeks to order the functioning of the tax system in the country and make it more transparent and accountable.

Subnational, state and local government expenditure by economic classification
2020	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total expenditure	487	160	327	12.2%	4.0%	8.2%	44.2%	14.5%	29.7%	100%	32.8%	67.2%
Inc. current expenditure	266	68	197	6.6%	1.7%	4.9%	38.7%	10.0%	28.8%	54.5%	25.7%	74.3%
Compensation of employees	116	12	104	2.9%	0.3%	2.6%	49.1%	5.2%	43.9%	23.9%	10.6%	89.4%
Intermediate consumption	76	189	58	1.9%	0.5%	1.4%	68.1%	16.6%	51.6%	15.6%	24.4%	75.6%
Social expenditure	12	3	9	0.3%	0.1%	0.2%	7.3%	1.9%	5.5%	2.5%	25.4%	74.6%
Subsidies and current transfers	60	34	25	1.5%	0.9%	0.6%	41.3%	23.7%	17.6%	12.2%	57.4%	42.6%
Financial charges	2	0.3	1	0.04%	0.01%	0.04%	5.6%	0.8%	4.8%	0.4%	15.0%	85.1%
Others	0	0	0	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
Incl. capital expenditure	222	91	130	5.5%	2.3%	3.3%	53.4%	22.0%	31.4%	45.5%	41.3%	58.7%
Capital transfers	0	0	0	0.0%	0.0%	0.0%	0%	0.0%	0.0%	0.0%	0.0%	0.0%
Direct investment (or GFCF)	222	91	130	5.5%	2.3%	3.3%	53.4%	22.0%	31.4%	45.5%	41.3%	58.7%

EXPENDITURE: In 2020, subnational spending accounted for 44% of total public spending, of which 15% and 30% corresponded to state and local governments, respectively. This is evidence of the profound institutional changes that Nepal has undergone in the last decade, as in the fiscal year 2013/2014 the share of public spending made at the local level did not exceed 8%. On the other hand, the current distribution of expenditures by economic classification within local governments also reflects the deepening of fiscal decentralization in Nepal. While in FY 2013/14 72% of local government spending corresponded to capital expenditure, by 2020 this share had dropped to 40%, given the significant increase in current spending (60% of total) in categories such as staff compensation (32%) and intermediate consumption (18%) to fulfil the responsibilities that have been progressively delegated to subnational governments.

DIRECT INVESTMENT: Between 2018 and 2019, direct investment at the subnational level increased significantly, becoming half of public investment at the national level and going from 3.4% to 5.5% of annual GDP. The largest increase occurred at the local level, where direct investment increased by 107% between one year and another and went from 1.7% to 3.3% of GDP.

Since 1990, Nepal has been seeking to encourage the participation of the private sector in the financing of public investment. The Public-Private Partnership Policy 2072 (2015) established as an objective that the private sector reaches a 50% participation in public investment. This regulation, as well as the Public-Private Partnership and Investment Act of 2019, allow PPP projects to be implemented at all levels of government, although at the subnational level they must be advised and approved by the Ministry of Finance or the Investment Board. Several provinces have elaborated their own PPP Bills. According to the World Bank's PPP Knowledge Lab, since 1990, 39 public-private partnership projects have been implemented in Nepal, with a total investment of 2.8 billion dollars.

Subnational, state and local government expenditure by functional classification
2020	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total expenditure by economic function	487	160	327	12.2%	4.0%	8.2%	-	-	-	100.0%	100.0%	100.0%
1. General public services	134	64	69	3.3%	1.6%	1.7%	22.0%	10.6%	11.4%	27.4%	60.2%	21.1%
2. Defence	0	0	0	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	31.7%	0.0%
3. Security and public order	5	3	2.4	0.1%	0.1%	0.1%	9.0%	4.9%	4.2%	1.1%	17.6%	0.7%
4. Economic affairs/transports	126	60	66	3.2%	1.5%	1.7%	36.4%	17.4%	19.0%	26.0%	2.7%	20.2%
5. Environmental protection	7	3	4	0.2%	0.1%	0.1%	43.5%	17.0%	26.5%	1.4%	7.8%	1.2%
6. Housing and community amenities	82	16	66	2.1%	0.4%	1.6%	71.7%	14.3%	57.4%	16.9%	0.4%	20.1%
7. Health	31	7	24	0.8%	0.2%	0.6%	43.0%	9.8%	33.2%	6.4%	0.0%	7.3%
8. Recreation, culture and religion	8	1	7	0.2%	0.02%	0.2%	52.7%	6.7%	46.0%	1.6%	39.8%	2.1%
9. Education	86	5	81	2.1%	0.1%	2.03%	68.1%	3.6%	64.5%	17.6%	0.0%	24.9%
10. Social protection	8	1	8	0.2%	0.01%	0.2%	10.7%	0.8%	10.0%	1.7%	39.8%	2.3%

As a result of the re-allocation of responsibilities and public expenditure after the approval of the Constitution of 2015, subnational governments have gained a significant participation in overall public spending in areas related to social development, such as housing (72%), education (68%), recreation (53%), environmental protection (44%) and health (43%). Other categories, such as defence, security, public order and social protection, have continued to take place at the national level.

Provinces are mostly responsible for general public services (60.2% of their expenditure), followed by recreation and social protection. By contrast, the main categories of spending for local governments are education, general public services, economic/transport and housing.

Subnational, state and local government revenue by category
2020	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total revenue	592	182	410	14.8%	4.5%	10.2%	60.2%	18.5%	41.7%	100.0%	100.0%	100.0%
Tax revenue	136	69	67	3.4%	1.7%	1.7%	17.8%	9.0%	8.8%	23.0%	37.9%	16.3%
Grants and subsidies	385	110	275	9.6%	2.7%	6.9%	-	-	-	65.0%	60.4%	67.0%
Tariffs and fees	64	1	62	1.6%	0.04%	1.6%	-	-	-	10.8%	0.8%	15.2%
Income from assets	8	2	6	0.2%	0.04%	0.2%	-	-	-	1.3%	0.9%	1.5%
Other revenues	0	0	0	0.0%	0.0%	0.0%	-	-	-	0.0%	0.0%	0.0%

OVERALL DESCRIPTION: Local governments rely heavily on grants from the federal government. According to the Intergovernmental 2017 Finance Management Act, local governments receive four types of federal grants, namely the fiscal equalisation, conditional, complementary (matching) and special grants. The grants are transferred by the federal government based on NNRFC’s recommendation. Despite such provisions, there is a need for additional capacity to administer revenues at the local level and there is still no policy nor guidelines in place to regulate how to do so.

TAX REVENUE: The sources of tax revenue for the municipalities are the integrated property tax (IPT), the house rent tax, the house and land registration fee (HALT), the vehicle tax, the land revenue tax, the entertainment tax, the advertisement tax and the business tax. The provinces participate in the collection of many of the local taxes, such as the house and land registration fee, vehicle tax, entertainment tax and commercial video tax. The provinces have the exclusive collection of the tax on agricultural income. VAT, PIT and CIT are collected by the federal government. In an effort to decentralise the revenue side, the Fiscal Arrangement Act 2017 established “revenue-sharing”, whereby both provinces and local governments must receive 15% of fiscal resources from VAT and excise duties.

Although subnational governments remain highly dependent on inter-governmental transfers, the share of their revenue that corresponds to own source revenue (OSR) has slowly increased following decentralisation reforms. While between 2008 and 2014 OSR at the local level accounted for 27% of total revenue, in 2020, it accounted for 33%. At the local level, the 15% of VAT that local governments receive from the federal government is the most important tax revenue. In 2020, this amount represented 54% of tax revenue and 9% of total local government revenue. At the provincial level it is the same, as the allocation of 15% of VAT represents 46% of state tax revenue and 18% of total state revenue. Fees are also an important source of own income for local governments. In 2020 they represented 46% of total revenue and 15% of tax revenue. The federal government also transfers 25% of royalties received from the use of natural resources to state and local governments.

GRANTS AND SUBSIDIES: Intergovernmental transfer criteria and allocation formulas are outlined by the 2017 National Natural Resources and Fiscal Commission Act and the 2017 Intergovernmental Fiscal Arrangement Act. Currently, the types of grants municipalities receive are both conditional and unconditional.

The unconditional capital grant comprises two systems that are (a) basic (fixed) entitlements grants, and (b) a formula-based grant determined by (i) population (50%), (ii) weighted poverty (25%), (iii) surface area (10%), and (iv) weighted tax effort (15%). Performances are assessed as per indicators set in the Minimum Conditions and Performance Measures (MCPM) system. The conditional grants are allocated to States and local governments to implement specific projects commissioned by federal and State governments in various sectors including health, education, social security, agriculture, forest and environment, irrigation, energy, infrastructure. Furthermore, the latest national budgets assign complementary grants to States and local governments for projects concerning the improvement of drinking water services and river control. The NNRFC has also fixed a minimum level of grants for local governments units to enhance federalism and their right to choose their development priorities.

Intergovernmental Fiscal Transfers (IGTF) are the main source of funding for most municipalities. In 2020, income from intergovernmental transfers corresponded to 65% of the total income of subnational governments. At the state level they were equivalent to 60%, while at the local level they accounted for 67%.

ⓘ No detailed data available for this country

FISCAL RULES: According to the Constitution and federal laws, subnational governments are allowed to borrow to finance public infrastructure and budget deficits. The NNRFC is in charge of providing yearly recommendations on the debt ceiling based on assessment of internal revenues. For the FY 2020/21, the NRFC raised the ceiling for subnational governments from 10% to 12% of their total own sources and revenue-sharing revenues. For the federal government, in the same period the debt ceiling was raised from 5% to 10% of the projected GDP. The Town Development FUND prepared a Municipal Finance Framework within the 2015 National Urban Development Strategy, which has the purpose of: analysing municipal revenue and making suggestions to enhance the autonomy of local governments; proposing how to expand borrowing options for municipalities; and outling a business plan for the TDF to have a key role in financing local governments through debt.

DEBT: The framework provided by the National Urban Development Strategy establishes that both provincial and local governments may borrow funds from two main sources, the Town Development Fund (TDF) and financial institutions. The TDF was set up by the 1997 Town Development Fund Act, which grants the TDF the autonomy to function as a financial intermediary institution for the development of urban infrastructure in Nepal. It is currently the only public sector organization to finance urban infrastructure and does so by applying long-term financing schemes. Its restructuring is currently being discussed.

However, borrowing has not been a major source of municipal financing, as there is a lack of regulatory instruments for the financial market mechanisms to be properly leveraged by provinces and local governments. So far, the TDF has only been mobilised to finance a few urban infrastructure projects and there is still no similar institution at the provincial level.

TERRITORIAL MANAGEMENT OF THE CRISIS: The distribution of responsibilities between levels of government in Nepal does not refer to the management of pandemics, but assigns the management of communicable diseases to the federal government and the management of disasters (natural or human) to local governments; although the latter competence is also concurrent with the provinces and the Federation. This ambiguity, added to the lack of appropriate multilevel dialogue and coordination mechanisms, have caused lack of coordination and technical problems in managing the pandemic. Despite having approved its Disaster Risk Reduction and Management Act in 2017, which established the institutional mechanisms for managing a pandemic, the federal government chose to resort to laws such as the Infectious Disease Act 1963 and the Local Administration Act 1971, which assigns the federal government and sometimes the provinces greater power in issuing orders and designing responses to the crisis.

The COVID-19 Prevention and Control High Level Coordination Committee (HLCC) was set up as the main mechanism to respond to the crisis. The Committee was later replaced by the COVID-19 Crisis Management Centre (CCMC), which is led by the Deputy Prime Minister and other ministers, and includes no representatives from subnational governments nor consulted them in the decision-making process. In turn, provincial and local replications of the federal CCMC were created in subnational governments. These subnational committees were led by the Chief Ministers and the Mayors, respectively, and their functions were to establish isolation and quarantine facilities, enable test labs, manage medicines and equipment, and distributing relief packages. Most of these actions were instructed from the federal level, therefore, the handling of the crisis by the provinces and municipalities was rather restricted.

The federal government set up a provincial disaster management committee in each province of the country to coordinate national actions with authorities at the territorial level (mainly the Chief District Officers, appointed by the federal government). It was said that this, by not directly coordinating with the elected authorities, further affected the ability of subnational governments to deal with the crisis. In addition, the Federation established the COVID‐19 Prevention, Control and Treatment Fund (COVID‐19 Fund), which was also replicated in the provinces.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: Although the federal government has been the main administrator of the crisis, subnational governments, particularly local governments, have been in charge of the immediate health response. The provinces and municipalities of Nepal have acted mainly on four fronts: public health service delivery; transmission prevention, tracking and research; mitigating the impact of the pandemic on other local public services; and supporting social and economic relief measures.

At the national level, the federal government deployed measures such as national or differentiated lockdowns, guidelines for the application of quarantines, the implementation of laboratories in the seven provinces and the formation of Case Investigation and Contact Tracing Teams (CICTTs) at the local level to ensure the availability of trained human resources, following standard operating procedures, mobilizing community health volunteers, performing rapid epidemiological investigations, and ensuring necessary resources and protective measures to all care providers.

At the local level, municipalities have implemented measures such as the prohibition of meetings in public spaces, information dissemination systems in their territories, the provision of sanitisation measures in public buildings and the enforcement of federal measures in the management of critical beds and processes of quarantines in public and private hospitals. There have also been a number of exciting innovations by municipalities to harness their resources and improve crisis management at the local level. For example, rural municipalities such as Helambu and Phedikhola offered door-to-door medical services to the elderly population. On the other hand, the Chhatradev municipality managed to mobilise available resources from its budget to produce its own masks and sanitizers, which also encouraged income generation.

At the state level, in March 2020, the Government of Nepal announced a series of very diverse relief measures for families, individuals and businesses. One of the areas of help was the extension of deadlines for the payment of taxes, the payment of bills or the processing of licenses, as well as the relaxation of encumbrances and duties. A series of assistance programs was also implemented for both informal and formal workers. In this area, the federal government instructed local governments to collect the necessary information to target these aids and also ordered them to create their own funds to cover these aids. On the other hand, the national aid package implemented a series of discounts in food services from the government and in key service providers, such as internet (Nepal Telcom) and energy (Nepal Electricy Authority), as well as exemptions in the payment of education fees and housing rentals.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: Due to the impact of the pandemic, between 2019 and 2020 the Nepalese economy contracted for the first time in four decades. This impact was not felt particularly strongly in subnational finances. According to data from the IMF, the revenues of subnational governments grew by an average of 9% in 2020 compared to 2019, with an increase of 18% at the local level and a decrease of 7% at the provincial level. Among provinces, revenue was mainly affected by a drop in revenue from tariffs and fees (-71%) and grants and subsidies (-34%), as most of the transfers and economic aid during the crises were handled at the federal level. On the other hand, among the Villages and Municipalities, although grants also fell (-14%), the rest of the categories showed significant growth, such as a 294% increase in revenue from assets and a 126% increase in collection from tariffs and fees.

Subnational public expenditure, on the other hand, grew more than total national public spending. While general government expenditure marked a growth of 4%, in the provinces and local governments, these increases were of 34% and 17%, respectively. The increase in subnational spending is explained, in large part, by a 529% increase in the delivery of grants and subsidies by the provinces and a 95% increase in capital expenditure among Villages and Municipalities.

ECONOMIC AND SOCIAL STIMULUS PLANS: In July 2020, Nepal Rastra Bank announced an economic aid package and classified the business sectors among highly, semi and least-affected for better target aid delivery. The announced package included extension of loan repayment deadlines, refinance facilities, grace period extension for infrastructure projects and targeted lending in productive sectors at cheaper rates. In the field of extension of loans, the government established a fund of 444 million dollars (1.3% of GDP) aimed at the most affected businesses -such as those in the tourism area- for the recovery and payment of wages. Subnational governments have functioned as implementers or channelers of most of the measures and aid implemented at the federal level.

To finance an important part of all the measures adopted, the federal government established a COVID-19 Prevention, Control and Treatment Fund, which was replicated at the provincial and local level. This fund counted with donations from big businesses and individuals and was aimed to support the prevention of infection and the treatment of COVID-19 patients, provide relief to the poor and vulnerable, and cover the expenses of infrastructure and human resources directed at COVID-19 responses.