Although, there is no magic formula to design the number of tiers because it varies across countries, typically three tiers of government are practiced. For example, in Indonesia, local governments include rural districts and municipalities; the US has special districts and municipalities, and in Canada they have special districts as well. With regard to the number, China has nearly 50,000 sub-national governments, India has about 250,000, and the US has about 90,000 but with different inter-governmental arrangements. China follows a model in passing inter-governmental transfers and revenue sharing funds to the provinces. In the US, fiscal well-being of the third-tier governments is left mostly to the states. In India, federal government is more actively involved with third-tier local governments.
In federalism, the question that is often times asked is what size of the government is optimal? Economic theory tells us that there are efficiency gains if government size is smaller. Justifying the case for smaller size yielding efficiency gain principle may be justifiable only when the standard quality of decentralization makes an impact in government policy decisions. A large country Indonesia has large governments and a relatively smaller country Switzerland has about the same number of state-level governments. But Indonesia’s provinces have little power, while the canton in Switzerland is an important unit of sub-national government. The efficiency loss in Switzerland because of larger size of the governments is, therefore, difficult to prove.
Other equally important question that needs to be addressed is who to give expenditure assignment. Again, as expenditure assignment defines the division of power among the levels of government without political compromise, this should be assigned to the lowest possible level of government consistent with efficiency principles.
Whether we opt for the presidential form of governance or a system where prime minister is the de facto head, the governance mantra should be to respect the rule of law and minority rights and develop an element of shared identity.
Who owns the resources, and who is empowered to make rules about extraction and sale? What level of government has the power to tax natural resources, and to make the taxation rules? In general, several low-income countries reserve natural resources-taxing powers for the center, but in Australia and Canada, sub-national governments are empowered. Regarding the allocation of resources, the question is: Should regions with natural resources be allocated a share in the revenues collected from extraction, and should other regions also be allocated a share?
The existing practice in revenue sharing in five development regions and geographical divisions in Nepal is available. In land registration, the central region shares the highest (40.71 percent) and far-western region shares the lowest (5.28 percent). Besides land, the total revenue from mines, forests and hydropower is 43.32 percent in the central region and 5.32 percent in the far-western region. On the basis of geographical divisions, Hills top the list at 49.89 percent and Mountains constitute the lowest i e 7.32 percent. This scheme needs thorough restructuring based on the proposed governance structure and availability of region-specific resource endowment.
Nepal’s old policy of assimilation to recognize and respect multicultural diversity has miserably failed. The Dalits and indigenous nationalities had a minimal presence in Nepali state over centuries. The exclusion has made them weaker to command responsible and challenging tasks. Therefore, no significant role could be played at the decision-making levels. This is the reason why unlike other indigenous people around the world, the demand of Nepali Janajatis has been to get access to their ancestral lands and autonomy for self-governance. This concern needs to be reflected in state-restructuring plan.
With regard to the form of government, our recent review undertaken for the World Bank shows the advantages of presidential form of government because of the fixed nature of its term, which provides stability in the executive. Additionally, president’s activities are diverted toward broader national interest because he/she is elected by the country at large. And a distinct separation of power encourages limited government. The downside is that fixed terms of office is often times too legalistic and rigid. At times, too much of power vested on one individual may lead to unexpected and unrealistic results. It is also found in some instances, even in South Asia, that an ambitious president may become a dictator.
In a parliamentary government, the prime minister is one among equals. The prime minister and cabinet can be removed through a vote of no-confidence motion by the parliament. This is, in fact, a dual executive system that combines an elected president performing political tasks with the prime minister who heads a cabinet accountable to parliament. At times, when president’s party is opposed by the majority in the assembly, the competition between president and prime minister intensifies and it becomes detrimental. Such events occurred three times in the French fifth republic.
The success of any form of government depends on the quality and sustainability of governance structure. For the sustainability, it is necessary that over time, significant part of the populations should have a sense of identity with the entire country. Therefore, whether we opt for the presidential form of governance or a system where prime minister is the de facto head, the governance mantra should be to respect the rule of law and minority rights and develop an element of shared identity.
Efforts to make Nepal’s unitary system of governance compatible with the standard international practices are recommended without further delay. Except in leaders’ speeches, people have not realized any indications that there has been declining income inequality and uninterrupted access to essential services at an affordable rate. Data shows, people who are working but earn less than a dollar a day is more than one in five. Against this background, unemployment coupled with double-digit inflation has threatened the equity dimension of development goal. It is surprising, that the National Planning Commission (NPC) has not yet reacted on the recent three different poverty figures – 25.4 percent, 65 percent and 55 percent – brought out respectively by the NPC, Multi-dimensional Poverty Index (MPI) by Oxford Poverty and Human Development Initiative (OPHI), and Asian Development Bank.
NPC merely says that Nepal’s poverty is shown irrationally higher in MPI. They suspect MPI would undermine Nepal’s effort in health, education and standard of living. The allegations without examining the OPHI’s methodology in undertaking the poverty measurement with a comparable NPC’s design will be a pretty immature statement. As MPI is expected to be accommodated in the forthcoming global human development report, indecision to respond professionally to MPI’s results will have damaging implications in the allocation of resources in Nepal’s priority social sector projects.
Lastly, to sustain macroeconomic shocks from policy change, Nepal needs to design long-term revenue and expenditure policy and continue dialog with development partners including financial institutions. This may help strengthen expenditure management and revenue mobilization to be able to, at least, meet recurrent expenditures and principal repayment under the proposed federal structure.
bishwambher@yahoo.com
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