Speech in the Occasion of the Opening of the Fiscal Decentralization Workshop, Park Village Resort

Jan 7, 2004

Speech in the Occasion of the Opening of the Fiscal Decentralization Workshop, Park Village Resort,  
January 7-12, 2004
Organized by the Local Bodies Fiscal Commission with the Technical Support by UNCDF/
Decentralized Financing and Development Programme (DFDP) and Dasu Danida.

Chief Guest: Secretary of Ministry of Local Development (MLD), Mr. Kem Raj Nepal,
Chargé d’Affaires Mr. Gert Meinecke, Royal Danish Embassy,
Representatives from the donor community, the Local Bodies Fiscal Commission, MLD, National Planning
Commission (NPC), Ministry of Finance (MoF), Ministry of Health (MoH), Ministry of Eduction (MoE),
Ministry of Agriculture (MoA), Ministry of Forestry (MoFO), and the Local Government Associations
(Associations of District Development Committees in Nepal – ADDCN; National Association of Village
Development Committees – Navin; and Municipal Associations of Nepal - MuAN)

It is a great pleasure for me to speak here today on the occasion of the Fiscal Decentralization Workshop organized by the Local Bodies Fiscal Commission (LBFC) with technical support by UNCDF/ Decentralized Financing and Development Programme (DFDP) and Danida’s Decentralization Advisory
Support Unit (DASU).

I am sure that this training and interaction program will spur a lot of discussion and provide new steam to the decentralization process and reforms in Nepal.

As said by Jeffrey Sachs (Special Advisor to the UN Secretary General on the Millennium Development

‘Poor countries cannot afford to wait until they are wealthy before they invest in their people. This is the wrong way around. They need rural health clinics, schools, roads and safe drinking water and sanitation, so that economic growth can take root in the first place. Investments in meeting basic needs isn’t just desirable in its own right for ending human suffering, but it is also a key part of an overall strategy of economic growth and human development’

UNDP and UNCDF are contributing to the realization of the Millennium Development Goals, and to achieving the vision in Jeffrey Sach’s quotation in countries around the world, and we see democratic decentralization and good local governance as keys to achieving it. Therefore, UNDP and UNCDF are supporting the participatory planning process spelled out in the Local Self Governance Act (LSGA) through social mobilization in 60 districts (Participatory District Development Programme/ Local Governance Programme (PDDP/LGP) and by financing small-scale infrastructure in 20 districts (DFDP). These programmes complement each other and promote people’s participation in planning, accountability and efficiency of local governments providing local services.

Decentralization in Nepal – Status and Challenges

Decentralization is commonly seen as a means for
o Deepening local democracy by promoting local participation
o For improving the efficiency of services provided by local governments, and
o Reducing poverty and addressing the needs of the marginalised It is expected that such arrangements will lead to a closer match between services provided and preferences of service customers, and that this will increase the accountability of decision makers towards the people. However, decentralization is no panacea – it is not a miracle that can solve all problems in society, reduce poverty and promote economic growth. Decentralization in it-self is no guarantee for improved human development – it requires:

a) Political will to enact and implement decentralization
b) An enabling legal framework promoting the inclusion of the poor, and marginalized groups ,
c) Local elected representatives and reliable accountability mechanisms
d) Capacity of local governments to perform its responsibilities,
e) Adequate funds for local government,
f) Adequate powers of local government, and
g) Security

At first glance, decentralization looks promising in Nepal.

- Nepal has a relatively strong legal framework: Several institutions and official plans have pointed out the need and importance of decentralization in Nepal. The guiding principles of the Constitution have stressed decentralization as a fundamental element of democracy. The Local Self Government Act (LSGA) clearly points to the drive towards devolution of powers, responsibilities and resources to the local bodies as one of its fundamental principles, and the sectoral policy, principles and programs of the PRSP/10th Plan (2002-2007) also support the concept of decentralization as the guiding principle of development.

- Key institutions have also been established to carry the cause forward under the legislative provision made in the LSGA. There is a high-level Decentralization Implementation and Monitoring Committee (DIMC), which has prepared a Decentralization implementation plan (DIP) in order to operationalize the provisions of the LSGA, and in May 2002 the current Local Bodies Fiscal Commission was established to recommend fiscal decentralization reforms in the area of structure and size - ; roles and responsibilities and revenues of local governments; and the intergovernmental transfers. Compared with other developing countries, these initiatives are far reaching and promising.

However, if you scratch the surface you easily see that decentralization is not a top priority at the present political agenda (it is even not mentioned by the political parties in their demands), the sector devolution process is relatively slow; the conflict heavily hampers local development activities and the absence of local elected representatives has set back the promising local democratization process, in which people raised their demands and held the politicians accountable. Therefore, there is a great need for giving new steam to the decentralization reforms and debate in Nepal, and I am confident this training and interaction programme will be a step to achieve this.

Decentralization can still improve service delivery at lower levels, but the full realization of its merits requires local elected representatives. In this situation, it is more important than ever, that mechanisms are put in place to ensure that public servants and appointed Chairpersons are held accountable for their actions and development plans. In this regard, I welcome the new joint pilot initiative by MLD, the Local Bodies Fiscal Commission and UNCDF/DFDP to elaborate performance indicators for local governments, and I strongly support HMGN’s commitment to hold local elections as soon as the peace has been restored.

However, I would like to use the opportunity to stress the need for continuing the participatory planning process; to continue the efforts to promote transparency in the project selection based on coherent criteria and to develop sound District Development Plans based on participation, priorities and needs.

Lack of capacity of local government is often mentioned as an obstacle for decentralization. This is also a problem in Nepal where you see weak DDCs especially in the remote areas where the local civil servants are not always present, but it should not be an excuse for delaying decentralization reforms. Local government needs to be entrusted with resources and to be allowed to make mistakes in the beginning in order to develop the required capacity. Evidence from our neighbour Bangladesh has, for example, shown that local investments are more efficient if people participate in planning and implementation, and that such projects are better maintained than central government projects due to bigger ownership.

Some of the current decentralization problems in Nepal include:
- A relatively low level of sub-national spending – local government only spends approximetely 4% of the total public expenditures compared to app. 50% in India
- Unclear and overlapping functions and responsibilities assigned to local governments
- Low discretion in the use of resources by DDCs and Municipalities since most funds are either conditional grants or routed through sector ministries
- Under funded mandates under which responsibilities are passed on to local governments without the adequate resources needed

Therefore, I also encourage the present and forthcoming studies of the Local Bodies Fiscal Commission, which will look into the size and structure of local government, the roles and responsibilities and the transfers from the central government to the local governments, which hopefully will improve the decentralization process in Nepal.

The current study on the roles and responsibilities of local governments and the initiative to coordinate the revised sector devolution guidelines will be an important step to correct some of these shortcomings, and it shows that there is room and political will to address problems despite the difficult present political situation.

Last but not least, the peace process has to come back on track in order for the emerging decentralization in Nepal to provide benefits to the people in terms of more participation; better services and more accountable local governments. One has to remember, that decentralization is for the people and by the people, and that local citizens – poor and rich – need schools, roads, sanitation, and health facilities – regardless of who is in power and whether or not there is a conflict going on.

Let us all unite our efforts and support the decentralization reforms and work for a peaceful Nepal in which human development can flourish.

With these words, I would like to thank the Local Bodies Fiscal Commission for organizing this training and interaction program and MLD for your strong ownership and good collaboration in executing the UNDP and UNCDF supported local governance programmes, and for giving me this opportunity to say few words.