KATHMANDU, Feb 10: Nepal requires significant investment and improved efficiency in spending to promote greater human capital accumulation mainly at the local levels as the country is in transition to a federal state, the World Bank (WB) has said.

In its report ‘Federalism and Public Expenditure for Human Development in Nepal: An emerging agenda’, the WB has pinpointed that there is still a low level of public spending on health, which is the key factor for tapping human capital. According to report, the spending on health sector stands at just 1.4 percent of the country’s gross domestic product (GDP)

“Although Nepal has made significant progress in human capital development, key challenges remain in the health, education, and social protection sectors, which have been exacerbated by the COVID-19 crisis,” states the WB in its virtually launched report on Wednesday.

Spending on education stands at four percent of GDP, which is more than the South Asia average. However, the sector is yielding low returns due to low quality education standards and equity remains a major issue.

Lack of clarity in curriculum development, deployment and management of teachers are key issues underlying the education sector. The WB’s report has underscored that federal system should play important role to play to ensure equity, quality and economies of scale,

Spending on social protection has reached 1.4 percent of the GDP, which is a good average. Yet only one-third of the population is covered under the social protection scheme while greater focus is still needed on the poorest and most vulnerable. More focus is needed mostly on the working population.

The federal government has been providing a budget on health and education to local governments via conditional grants. According to the report, around 91 percent of health spending and 97 percent of education expenditure at local level fall under conditional grants. “However, conditional grants are not enough for decentralized function and are too prescriptive.”

There is a limited scope for equity impact of the grant allocation system while overall transfers favor local levels with small populations. Although there is high budget execution, a major chunk of the allocated funds are spent only at the end of each fiscal year, which has remained as the key challenge. As per the WB’s report, local governments utilized 90.7 percent of conditional grants on an average.

Late arrival of information in the planning process and existing gap in timeline and requirements are the cause for ineffective utilization of allocated budget for human development. Moreover, complex process followed by mismatch of human resources at local level is underlying problem.

Speaking at the program, Faris Hadad-Zervos, WB’s Country Director for Maldives, Nepal, and Sri Lanka said “Human capital is one of the pillars of our Country Partnership Framework, and the implementation of key reforms will be supported through our technical dialogue and financial investment in the health, education and social protection sectors, as well as through our various Development Policy Credits.”

Biswo Nath Poudel, Vice-Chairman of the National Planning Commission, said Nepal needs an effective management system for proper utilization of the budget targeted for the health sector. 

 
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