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The 2015 constitution provides 22 exclusive political and administrative rights to local governments (see list alongside). Similarly, there is a long list of concurrent powers the three tiers of government can implement in coordination.

That is why it is often said Singha Durbar (the central administrative body) has reached villages, which means people can now get all services at their doorsteps without, unlike in the past, the need to visit Kathmandu. But as local governments are set to complete their first five-year term, they are still grappling with grave legal, budgetary and human resources problems.

The constitution authorizes them to draw up laws, policies, plans, and annual budgets, just like the federal and provincial governments, but in the past five years they have struggled in these tasks.

Former government Secretary Gopi Nath Mainali says local governments are yet to fortify themselves to be able to fully exercise their constitutional rights.

“The constitution provided them the right to self-government, but local leaders and politicians are yet to fully grasp this idea. They are unclear about how they should operate,” says Mainali.

In these five years local governments paid little attention to building a robust system and continued to rely on the federal government for resources.

Subnational governments get federal money under four headings: fiscal equalization, conditional, special, and complementary grants. There is a clear demarcation on the spending of these allocations.

In the fiscal year 2021-22 alone, the federal government allocated Rs 362.63 billion to the provincial and local governments. According to the Ministry of Finance, around 18 percent of the federal government’s total budget was allocated to support local governments.

But over the years, Mainali says, local bodies did little to generate their own revenue and resources.  

“They [local governments] have failed to collect taxes, their key revenue source. They did not want to collect taxes out of fear of losing voters,” says Mainali. “Budgetary constraints at the local level can’t be resolved from the center. Local governments need to expand their economic activities.”

Hom Narayan Shrestha, chairman of the National Association of Rural Municipalities in Nepal (NARMIN), does not subscribe to Mainali’s views.

He says it is continued centralization of resources that has hampered local governments from the start.

“While the constitution decentralized the duties, the federal government centralized resources, paralyzing the functioning of local governments,” he says.

The association has been fighting for budgetary independence of local bodies by drawing the attention of political leaders on the huge gap between the local level’s rights and resources. 

To function independently, local governments need human resources from diverse fields, but the federal government has failed to appoint administrative officers in many places, according to Shrestha.

The adjustment of civil servants in the three-tier of government was tardy and often controversial. The process of forming the provincial Public Service Commission dragged on for a long time.

Similarly, the federal government did not offer training and orientation on formulation of laws and other programs. Although some non-governmental organizations did train elected officials in some places, the training was insufficient.

In many areas, the performance of local governments is unsatisfactory. For instance, a study by the Ministry of Federal Affairs and General Administration shows 88 percent of local governments don’t have separate departments for waste management. Likewise, many have been unable to create municipal police.

Shrestha says these issues could be resolved, provided the center provides sufficient funds and resources.  

“With enough funds we can hire experts to perform highly-technical tasks. We can ask the Public Service Commission to provide the human resources—but only if we get enough money,” he says.

Local governments have also been entrusted with the right to conduct their own census and collect records, but they are still relying on the data produced by the Central Bureau of Statistics (CBS).

Dissatisfied with the census conducted by the CBS, Khandadevi Rural Municipality in Ramechhap district recently deployed its own team to carry out the local census. Similarly, Chandra Nath Municipality in Jumla district is conducting its own census. But the majority of local units across the country say they lack resources to carry out their census duties.

The resource woes of local bodies have also hit sectors like health, education and environment.

Schedule 8 of the constitution mentions that basic and secondary education shall remain the sole jurisdiction of local governments and conditional grants from the federal government shall be spent on teachers’ salaries and other expenditures. But Shrestha says the center has been allocating less budget in education compared to what it used to when the country was a unitary state.

“The federal government has curtailed the spending rights of local units,” he says.

The constitution also allows local governments to develop and implement local curricula, so that children can be educated in their mother tongues. Again, there has been little progress in this area.

As per the law, local governments need to conduct Environmental Impact Assessment (EIA) before launching an infrastructure project, but more than half of them have no experts for the task. As a result, many are undertaking infrastructure projects without the EIA, which could have serious environmental consequences down the line.

Health is another area where sub-national bodies are failing to perform their duties. Although every local unit is required to have a 15-bed hospital, government data shows only 12 percent of them do so. Even then, these hospitals lack specialized doctors and technical staff, and patients are still compelled to visit cities for even basic treatment.

Many local units across the country are in the process of building hospital buildings, but they cannot run smoothly without enough trained health workers. 

Despite having to work with limited funds and resources, some local governments are optimistic things will turn around. They say the first five-year term was spent learning the ropes of self-governance and building a foundation for future local governments.

Fiscal transfer in 2021-21

Amounts in Nepali rupees (in 1,000s)

Source: Natural Resources and Fiscal Commission

Exclusive rights of local bodies

·      Municipal police

·      Cooperative institutions

·      Operation of F.M. stations

·      Local taxes

·      Management of the local services

·      Collection of local statistics and records

·      Local level development plans and projects  

·      Basic and secondary education 

·      Basic health and sanitation

·      Local market management, environment protection and biodiversity

·      Local roads, rural roads, agro-roads, irrigation

·      Rural Municipal Assembly, Municipal Assembly, District Assembly, local courts

·      Management of mediation and arbitration, local records management

·      Distribution of house and land ownership certificates

·      Agriculture and animal husbandry, agro-products management, animal health, cooperatives

·      Management of senior citizens, persons with disabilities, and the incapacitated

·      Collection of statistics of the unemployed

·      Management, operation, and control of agricultural extension

·      Water supply, small hydropower projects, alternative energy

·      Disaster management

·      Conservation of watersheds, wildlife, mines, and mineral

·      Protection and development of languages, cultures and fine arts

Source: Constitution of Nepal 2015

Three months ago, Sher Bahadur Deuba defeated Shekhar Koirala to be reelected party President at the 14th Nepali Congress General Convention. After the convention, Koirala emerged as the leader of the party’s rival faction. Koirala has since adopted the policy of supporting Deuba on an issue-by-issue basis. Kamal Dev Bhattarai talked to Koirala to solicit his views on electrical alliance and intra-party rivalry.

How do you evaluate Deuba’s performance as party president in the past three months?

It is too early to evaluate his performance this early into his re-election as party president. In this period, we have handled a few issues. He made some nominations in the party. Obviously, questions were raised on the nominated names and appointment criteria. I have been pushing to define criteria for such appointments.

On the MCC compact negotiation, the party president involved all of us under his leadership and it produced a good result. He was successful in bringing major parties on board to ratify the compact, which is a plus point. To resolve issues related to the party’s sister organizations, we are still doing homework. There is no alternative to dissolving sister organizations and starting afresh.

There are talks of an electoral alliance with communist parties. Do you see that happening?

In local elections, we should not forge an alliance with communist parties. Nepali Congress is capable of winning on its own. If we forge an alliance, we will appear weak in front of voters.

Further, there is a lot of animosity between the Congress and Maoist cadres at the grassroots level. The wounds of the 10-year Maoist insurgency are yet to heal. Congress cadres at the local level were the prime targets of the Maoist party during the insurgency.

Our ideology, our orientation, and our behavior do not match those of communist parties. In the previous elections, we supported some candidates of other parties, but we did not get anything in return.

I do not think supporters of communist parties would vote for our candidates, as there is a gap between our schooling and theirs. There are some fundamental differences. For instance, Congress is a mass-based party, while communists are cadre-based. We should take this reality into account. Communists always see Nepali Congress as an enemy.

As for the current ruling coalition, it should continue till the elections and beyond, as the chances of a single party securing a majority are slim. But an electoral alliance is not beneficial for us.

There are also talks of deferring local elections and holding federal polls first.

We have already announced the date for local elections and they must be held on time. The Supreme Court has also ruled that local elections were announced as per the constitution. But if we plan on early federal elections, the main opposition, CPN-UML, and other major parties should be on board. The decision should be based on consensus. 

What is the state of factionalism in Nepali Congress, which had reached new heights at the time of the general convention?

It is normal for relationships among rival factions to sour during general conventions. We have already left the animosity behind. This was evident when the Nepali Congress presented a united front on the MCC compact. Our party moves ahead as one based on agendas. We will also stand united during the elections.

But there is a worry that disputes at the center have percolated to the grassroots, harming the party’s electoral prospects.

There is some discord among rival factions at the local level. I have been counseling leaders at the grassroots level to bury old differences emanating from the convention and maintain unity. Winning and losing are part of democratic process. Now, we have to fight against other parties. It will certainly take time, but I am hopeful that most grassroots-level differences can be resolved in the next two to three months.

Since the parliamentary endorsement of the MCC compact, China has stepped up its engagements with Nepali politicians. Chinese Ambassador Hou Yanqi has started reaching out to politicians, and as of this writing had met CPN (Maoist Center) Chairman Pushpa Kamal Dahal and Speaker Agni Sapkota.

Her leg-work comes ahead of the Chinese Foreign Minister Wang Yi’s impending Nepal visit at March-end, in what will be the first high-level visit from China since the formation of the Deuba government in July 2021. The Chinese foreign minister’s visit is being seen meaningfully as it will come hot on the heels of the compact’s endorsement—something that China did not want (See story here).

Ruling Nepali Congress spokesperson and former foreign minister Prakash Sharan Mahat says Nepal’s message to Wang on the compact will be simple: it is a purely development project and it will not create any problem in Nepal’s relation with China.

Following the compact’s endorsement, China is expected to push its pending BRI projects in Nepal. Mahat says the government is also ready to implement the BRI projects that are beneficial for Nepal. “Under the BRI, we expect more grant and nominal interests on loans,” says Mahat.

In a Feb 7 press conference, Foreign Minister Narayan Khadka had said there were some pending issues with China. Perhaps he was referring to the tightening of border points and Nepali students enrolled in Chinese universities being stranded in their own country due to China’s strict Covid-19 protocols.

Foreign policy analyst Milan Tuladhar who also served as foreign policy advisor to former Prime Minister Jhala Nath Khanal says it is inappropriate to link Wang’s visit to the compact. “There are many pending bilateral issues like the long delay in cross-border railway, problems at border points and implementation of past agreements,” he says. Not everything, he adds, needs to be related to the MCC compact. 

China’s strong opposition to the MCC compact was evident both before and after its parliamentary endorsement. The northern neighbor publicly blamed the US for engaging in ‘coercive diplomacy’ in Nepal, claiming that the $500 million grant came with ‘political strings attached.’

Before the endorsement, leaders of the Chinese Communist Party (CPC) had held a series of video-conferences with their Nepali counterparts, asking them not to endorse the compact from parliament. Beijing’s uncharacteristic statements on US-Nepal bilateral relations raised many eyebrows at home in Nepal as well as abroad.

So, does this signal a shift in China’s Nepal policy? Some see this as a reflection of China’s shift from quiet diplomacy to vocal diplomacy, something President Xi Jinping, the country’s most powerful leader since Mao Zedong, has championed. Foreign policy watchers note how China has become more aggressive and vocal everywhere, including in South Asia, on issues related to America and India.   

Harsh V. Pant, Professor of International Relations at King's College London, says Chinese are now more explicit in expressing their preferences. “We see the famous Wolf Warrior diplomacy of China everywhere—if they do not like something, they openly express it, their diplomats are now more expressive, and they push back against anyone who is critical of them even in social media,” says Pant.

Take Bangladesh, where the Chinese have also become more vocal than before. In 2021, some Bangladeshi media outlets reported that the South Asian country was mulling joining the US-led QUAD. China’s Ambassador in Dhaka Li Jiming responded by saying such a move would entail “substantial damage” to bilateral relations.

Bangladeshi Foreign Minister AK Abdul objected to the statement, terming it unfortunate and aggressive, and reminding China that Bangladesh is capable of taking its own decisions.

Similarly, Chinese officials have become vocal in other South Asian countries such as the Maldives and Sri Lanka when it comes to denouncing the US and India.

According to Amit Ranjan, a research fellow at the Institute of South Asian Studies, an autonomous research body at the National University of Singapore, the Chinese feared that the endorsement of the MCC Nepal Compact would help increase American footprint in the Himalayas. Ranjan argues that Beijing was confident that it could prevent the compact’s parliamentary passage. “Only when it became clear that the parliament would endorse it did they start becoming more vocal,” he says.

Ranjan says China adopts different approaches in different countries and so it is hard to arrive at a sweeping judgment of its diplomacy. China is trying to regain its lost space in the Maldives, and it is trying to assert itself in Sri Lanka. In Nepal and Bangladesh, it is increasingly competing against India and the US.

Though China has been adopting aggressive and explicit postures everywhere, Nepal remains a test case due to its strong communist parties with robust links with the CPC. “In other South Asia countries, communist parties enjoy little actual influence. Not so in Nepal. China sees an opportunity to influence Nepal’s political system by using the country’s vast communist network,” Pant says.

Another emerging trend in Chinese diplomacy, according to him, is their greater involvement in the domestic politics of other countries.

Returning to the MCC compact, China’s strong opposition also suggests growing geopolitical competition with America and Nepal’s slow progress on China’s Belt and Road initiative (BRI), say experts. “For the first time, they actually see real competition to the BRI in Nepal,” Pant says.

Nepal signed up with the MCC and BRI in the same year (2017). But Nepal is yet to select specific projects under the initiative. Increasingly, America, Indian, and western-country representatives are fretting about growing Chinese investments in Nepal. In private meetings with Nepali politicians and bureaucrats, they like to give the example of Sri Lanka, cautioning Nepal on ‘debt trap.’

China sees this as a part of a wider pattern in South Asia, all aimed at encircling it. Writing in Global Times, Li Tao of the Institute of South Asian Studies, Sichuan University, argues that the US is trying to use the MCC compact to make Nepal an important part of Washington and New Delhi's anti-China coalition.

She says Nepal’s decision to endorse MCC will have political, diplomatic, and economic consequences. “Diplomatically, Nepal will be forced to change its “equidistance” policy with China and India. Nepal, moreover, will now have to get involved in the Indo-Pacific Strategy, and there is a risk of the country being used to contain China's development.” For Li, the American intention is clear enough: to obstruct the BRI in South Asia and to undermine the security and stability of China’s southwestern frontier.

On February 23, Chinese Foreign Ministry Spokesperson Hua Chunying termed the MCC compact ‘Pandora’s Box’. On March 7, a China Daily editorial warned of serious consequences should “any part of the compact be used against neighboring China”. It further advised Nepal to stay out of “the US' geopolitical games”.

Pramod Jaiswal, Research Director at Nepal Institute for International Cooperation and Engagement, a Kathmandu-based foreign policy think-tank, says the Chinese were not bothered about the MCC compact before American officials linked it to the IPS.

“The MCC compact itself is not a big issue for China as it only relates to roads and transmission lines,” Jaiswal adds. “What the Chinese fear is Nepal tilting more towards America and also ultimately joining the IPS, a fear that has made them more vocal.”

To counter growing American and Indian influence, China has adopted a new approach in South Asia. The trend is of engaging small South Asian countries collectively, side-by-side the old bilateral engagements.

Soon after becoming Chinese president, President Xi had in 2013 directed his Foreign Ministry to develop new political, economic, and security cooperation policies to tie the neighboring countries to China more closely.

In 2020 and 2021, China held collective meetings with South Asian countries, in what some see as Chinese efforts to create a sub-regional body under its leadership.

On 8 July 2021 the China-South Asian Countries Poverty Alleviation and Cooperative Development Center was launched in Chongqing City in the presence of resident ambassadors of Afghanistan, Pakistan, Nepal, Sri Lanka, and Bangladesh. China also held collective discussions with the same countries on Covid-19.

The Kathmandu-Tarai fast track was conceived decades ago. But work on it started only after the government handed over the project to Nepal Army (NA) in 2017. In a revised deadline, the army has pledged to complete the 72.5 km expressway by 2025. But that timeline will be tough to meet. Here is an explainer about the project history, challenges and current status.  

The start

The construction of Kathmandu-Tarai fast track, an alternative highway linking Kathmandu valley with (Bara district in) the Tarai, was envisaged during the Panchayat era. But the project spent a long time in incubation and planning stages. 

In 1992, two years after the restoration of democracy, the National Planning Commission in collaboration with the Danish Development Cooperation conducted a feasibility study for the fast track. Four years later, in 1996, the government invited an expression of interest from companies. Yet there was no progress for more than a decade. 

In the intervening period, Nepal was thrust into an armed conflict, followed by a popular uprising. The centuries-old monarchy was overthrown and the country became a federal republic.    

In 2008, the fast track plan was revived after the Asian Development Bank (ADB) prepared a feasibility report and preliminary design. The same year, the government proposed an alternative to Kathmandu’s Tribhuvan International Airport in Nijgadh, Bara, further boosting the expressway’s prospects.

The army was entrusted with opening the track in 2008. After this was completed in 2011, successive governments sought international investors to develop the project, but there was again little progress.   

Failed international bids

The process of inviting international bidders for the fast track development started after 2011, but the response was tepid. The project was largely seen as light in terms of returns. 

In the pre-qualification bid in 2014, the Infrastructure Leasing & Financial Services (IL&FS), the Larsen and Toubro (L&T) Infrastructure Development Project, and the Reliance Infrastructure expressed interest.  Two companies later pulled out raising the issue of the project’s economic viability. The then Nepali Congress-led government decided to give the job to the consortium led by IL&FS. The company was assured annual revenue of Rs 15 billion from the expressway. 

But the government decision to award the contract to the company was challenged in the Supreme Court. The petitioners argued that the project’s cost was very high. In response, the court on 9 Oct 2015 directed the Nepal government to halt all related works. 

The subsequent CPN-UML government led by KP Sharma Oli terminated all agreements and contracts signed with IL&FS.  

In the fiscal 2016-17, the government decided to develop the fast track with domestic resources by allocating Rs 10 billion for the construction of its Budhune-Hetauda stretch.  

The army’s choice

The government had planned to construct the Kathmandu-Tarai fast track under the build-own-operate-and-transfer (BOOT) modal, but international companies were uninterested. Meanwhile, the army was lobbying to secure the contract. 

The Nepali Congress-Maoist Center government at the time was wary about awarding the project to private companies and decided to entrust the project to the army in 2017. Then, South Korea’s Soosung Engineering Co. prepared the fast track’s detailed project report (DPR).

The government officially handed over the Kathmandu-Tarai Fast Track Road Project to the army on 11 Aug 2017. 

The current status

The army tracks the project’s progress in two ways: physical and financial. According to its latest data, overall physical progress stands at 16.10 percent and the financial progress at 14.51 percent. 

According to the army, 96 percent land-acquisition has been completed, except at Khokana in Lalitpur district. Similarly, 99.02 percent of tree feeling has been completed. 

By mid-July 2022, the NA aims for 21 percent overall progress.  

The key features

According to the army, the fast track is designed as per the Asian Highway standard, with a two-lane dual carriageway that will be 25-meter wide in the hills and 27-meter wide in the plains. 

The 72.5-km expressway starts at Khokana in Lalitpur and ends at Nijgadh in Bara where it meets the East-West Highway. It will traverse parts of Kathmandu Valley, Siwalik hill range, Doon valley, Mahabharat range and Tarai plains.  

The environmental concerns

The Ministry of Forest and Environment approved the project’s Environment Impact Assessment (EIA) in 2015. The army claims to have fully factored in environmental concerns while developing the expressway. Compensatory tree plantation (25 trees for every one felled) has been expedited as mandated in the EIA; 402,823 tree saplings have been planted as of July 2021.

The EIA report says that there is a high chance of landslides due to deforestation. Moreover, if soil and debris from construction activities are not properly managed, they could pollute rivers and affect land fertility.    

Environmentalist Prabhu Budathoki says environmental concerns are routinely neglected in big development projects. As such, there should be a close environmental follow-up on the Kathmandu-Tarai fast track.

Concerns of Khokana residents

Khokana in Lalitpur district is an ancient Newa town known for its culture and heritage. Khokana residents are against the expressway, whose construction, they fear, could lead to a loss of their heritage and ancestral lands.   

The army says timely project completion will be difficult without resolving their issues. 

Factors slowing it down

Land acquisition in Khokana is one of the key hindrances. The Covid-19 pandemic also slowed work. 

The army says interference by parliamentary committees has also hindered progress. 

Tunnel construction is said to be one of the most challenging and time-consuming parts of the project and the army is still in the process of planning the tunnels.  

To expedite work, the army has asked the government to allocate sufficient funds in the coming years.  

The army says it can complete the project by the January 2025 deadline, provided the government allocates sufficient funds and settles disputes related to land acquisition. (The initial project deadline was September 2021.)

Former government secretary Tulsi Prasad Sitaula blames the army’s lack of experience in large infrastructure projects for the delays.

Another reason is the absence of contractors capable of undertaking a large infrastructure like the fast track. As a result, adds Sitaula, the army had to bring in international companies, which is also taking time. 

The army won’t meet the January 2025 deadline if it fails to select international companies on time. In that case, says Sitaula, the project could be pushed back by at least another year.  

The cost 

Delays have massively increased project cost. In 2008, the ADB had estimated a total cost of Rs 70 billion. The Korean company that prepared the DPR in 2019 raised the cost estimate to Rs 112 billion. Today, the army estimates that the undertaking could cost Rs 175 billion. It has also issued a caveat that the project cost could further increase if there are more delays.

Potential economic benefits

Experts say the fast track will have multiple positive impacts on the economy. The distance between Kathmandu and Birgunj through the Tribhuvan Highway is 159.66 km. With the fast track, the Kathmandu-Terai route will be much shorter. In fact, it will be the shortest trade route between Kathmandu and India. The fast track could also one day become a transit route between China and India. 

Shorter time and distance will also reduce fuel consumption, saving millions of dollars of import every year. Transport fares for commodities will also be lower. 

Travel time between Kathmandu and Tarai will be cut to an hour. Additionally, the fast track will create jobs and increase economic activities along the entire route. 

In the past few weeks top Nepali politicians faced immense pressure from the US and China over its preparations for parliamentary ratification of the MCC compact. 

As political parties vacillated on endorsing the compact, it was the Americans who first warned Nepali leaders to either push the pact through the parliament or risk bilateral ties. Soon after, China too weighed in. In a series of video conferences, mainly with communist leaders, China urged caution over the compact. In breaking with its traditional quiet diplomacy, the northern neighbor became vocal this time, issuing a series of anti-MCC statements.

Both America and China violated diplomatic protocols by trying to force Nepali leaders to toe their respective lines. The Nepal government, meanwhile, did not issue any statement pinpointing the undiplomatic conducts of the US and China. 

Nepali leaders are often blamed for inviting intervention in the country’s internal affairs. The immaturity of Nepal’s top leaders in dealing with big powers, many fear, could cost the country dear. In one example, Kathmandu-based diplomats often complain that Nepali politicians say one thing in private and do the opposite in public. 

The MCC compact did get through the parliament but ahead of its endorsement, party leaders had appraised both the US and China about their plans to pass it with interpretative declarations.  

A top Nepali diplomat, who spoke with ApEx on the condition of anonymity, says Nepal asks for suggestions from China on American projects, and vice-versa. “They ask China whether to endorse an American compact. On the BRI, they ask the US. Why can’t our political leaders take their own principled stand?”

He suggests Nepali leadership practice strategic autonomy in dealing with big powers.    

Former Nepali Ambassador to China Tanka Karki also believes top politicians’ poor handling of foreign policy is inviting serious problems in the conduct of international relations.   

“Our leaders’ lack of consistency and maturity has eroded both their as well as the country’s credibility in the eyes of big powers,” says Karki. “Over the past few decades, our geopolitical importance for big powers has greatly increased. Our politicians have apparently failed to grasp this simple idea.”

Former Nepali Ambassador to the US Suresh Chalise cites a couple of examples to demonstrate the mishandling of sensitive issues by politicians. 

“Take Budhigandaki hydropower project, which has become a victim of frequent government changes. One government awards the project to a Chinese company but the deal is then terminated soon after another government comes into power,” says Chalise. 

In the next example, the former ambassador mentions the issue of the former KP Sharma Oli-led government reiterating that there are no border disputes with China. 

But then when Sher Bahadur Deuba came to power, he formed a committee to investigate the border dispute with China. “Unlike the Oli government, the Deuba government found that there were indeed border issues that needed to be resolved,” says Chalise.

He adds that the controversy over the MCC compact is the most flagrant example of our politicians’ inconsistency. 

“All the major parties were involved in the MCC compact process. But then some politicians started to protest against the compact. But in the end the same politicians came to its rescue when they realized they could otherwise fracture the ruling coalition,” says Chalise.  

There is a tendency among Nepali politicians to exploit foreign policy issues to advance political interests, which often jeopardizes diplomatic ties. For long, they have been adopting a regime-centric or even leader-centric foreign policy.  

In 2020, when Oli dissolved the House of Representatives, there was no response from India, the US, or any other country. At the time, the parties opposed to Oli’s move openly urged external powers to speak against the House dissolution. 

Experts say political parties are allowing foreign powers to dictate the country’s internal affairs. If our leaders do not mend their ways and fail to forge consensus on foreign policy, external interference could increase. Big powers already directly deal with politicians instead of relevant government agencies, they say.

Chalise says balancing ties with big powers like the US and China is becoming a big challenge for Nepal. 

“The effects of growing rivalry between the US and China is evident in Kathmandu as well,” he says.

Karki fears Nepal could be pushed into a very difficult situation if our politicians don’t mend their “errant ways”. 

Anil Sigdel, founder of Washington DC-based Nepal Matters for America, a think tank, says the MCC compact’s endorsement has sent a strong signal to the world that Nepal is both capable of and determined to maintain its strategic autonomy and decide in its best interests.

“At a time of global and regional geopolitical stress, Nepal’s decision assumes great significance. The country should continue to convince external partners that Nepal’s engagement with one does not come at the cost of another,” he says. 

To avoid the trap of growing big power rivalry, experts suggest Nepali leaders focus on economic diplomacy. 

Nilanthi Samaranayake, a geopolitical analyst with the Center for Naval Analyses, a Washington-based research organization that advises various arms of the American government, says Nepal should strive to chart its own path as a small state, separate from the competition between great powers. 

“Focus on economic security will help Nepal and other small states in the face of great power rivalry,” she says.

According to Upendra Gautam, general secretary at China Study Center, the current mess in foreign policy was not created overnight but is a result of a series of lapses. 

“Political parties are making foreign policy and international relations inseparable from internal power politics, eroding our credibility,” he says. 

He says because of our political parties, foreign powers are making inroads into our politics. “Parties are inviting foreign interference in our politics, in the process weakening themselves. If we become weak, outside powers will obviously try to meddle.”

Nepali politicians have paralyzed the key foreign policy mechanisms, as was also evident in the dispute surrounding the MCC compact. 

The Ministry of Foreign Affairs was nowhere in sight as the dispute unfolded and took a nasty turn. Foreign Minister Narayan Khadka is yet to appear in any official meeting over the compact. 

For the first time in Nepal’s political history, the 2015 constitution gave local governments the right to present their annual budgets, raise taxes and establish local treasuries. The constitution also envisioned federal grants—fiscal equalization, conditional, special, and matching grants—for these local governments.

This meant a large volume of funds has started trickling down to the coffers of local governments. Yet many of them are still unable to carry out their fiscal responsibilities. Some are struggling to present their budget on time while others are unable to manage their expenditures.

Federal affairs expert Khim Lal Devkota recommends stern action against the local bodies that fail to bring timely budget.

“We should closely monitor local governments’ budget-handling,” he says. “If they fail to spend, the federal government should cut off their grants and transfer the funds to well-performing local bodies.”

Only around half of the local governments currently meet their budget presentation deadlines. Some introduce their budget weeks past the deadline while dozens of others cannot do so for much longer. This delay directly affects local-level development and governance.

The Intergovernmental Fiscal Arrangement Act-2017 makes it mandatory for all municipal governments to present their annual budget by Asar 10 (June 24). The date was specified so that development works could begin in July. But this isn’t the case in many local bodies.

According to the Ministry of Federal Affairs and General Administration, 14 local governments are yet to introduce their budget for the current fiscal 2021-22.

Thirteen of these local governments are from Madhes province and one from Bagmati province. Similarly, in the previous fiscal, four local governments from Madhes and one from Sudurpaschim failed to present their budget.

The Office of Auditor General (OAG) says both incomes and expenditures of local governments lose legitimacy if they fail to bring their budget by the legal deadline.

The National Natural Resources and Fiscal Commission, a constitutional body handling fiscal issues of all three tiers of government, has made timely budgets a condition for allocating federal grants to local governments. It has also suggested that the federal government cut performance-based equalization funds to delay-prone local bodies.

“But the federal government is yet to implement the commission’s recommendation,” rues Krishna Bahadur Bohara, the commission spokesperson.

There are a host of reasons resulting in budget-presentation delays in local governments—disputes between the chiefs and deputies of local bodies being the most prominent of them. This problem is particularly acute when candidates from different parties occupy the chief and deputy positions.

In the fiscal year 2020-21 more disagreements were reported between local body chiefs and deputies in Madhes province compared to any other other province, as per a study of the Democracy Resource Center (DRC), a Kathmandu-based think-tank.

In the fiscal year, the study shows, nearly half of the local governments in Madhes failed to present their budgets by the June 24 deadline and nearly 26 percent had not presented their budgets even by mid-August. By contrast, over 95 percent of local governments in other provinces had presented their budgets by mid-August.

The study also suspects that for the fiscals 2019-20 and 2020-21, budget-planning and project-implementation may also have been affected by the Covid-19 pandemic.

There are many instances of budget-presentation being delayed due to disputes between local government chiefs and deputies, with each wanting to allocate funds in their electoral constituencies. A case in point is Chhinnamasta Rural Municipality in Saptari district of Madhes. Chhinnamasta is yet to present this year’s budget, after failing to bring the budget last fiscal as well.

Surya Narayan Mandal, chairperson of the rural municipality, refused to talk to ApEx. Usha Kumari Mandal, deputy chairperson, meanwhile, blamed the chairperson for the budget-delay.

Political disputes aside, many local governments are also struggling with staff-shortage. Though it has been five years since the local governments were elected, the Ministry of Federal Affairs and General Administration is yet to supply the required staff to local governments.

The DRC study says both the federal and provincial governments have failed to provide enough help to local bodies in order to enhance their capacity.

Local governments are failing not just on timely budgets. Even the local bodies that have approved their budgets on time are hamstrung by skewed fund-allocation and low capital-expenditure. This is so mainly because many local governments have been ignoring fiscal rules while planning and allocating budgets. 

According to Local Level Plan and Budget Formulation Guideline 2017, local bodies should prepare a thematic list of ward-level projects prioritized by ward committees and the projects deemed necessary at the local level. But, instead of following the guideline, local leaders are busy shoring up their electoral constituencies.

The latest OAG annual report says local governments on average spent only 65.68 percent of the total budget, indicating that they are preparing their budget without serious planning. Similarly, 43 local governments overshot their budget ceilings while 57 are yet to undertake their fiscal audit.

Mounting arrears is another problem that plagues local governments, which, according to the OAG report, accounted for 4.05 percent of arrears. The report has identified several flaws in procurement, grant and expenditure management, and fiscal monitoring and reporting process, among other concerns.

The OAG has also identified the culture of local governments spending more money on small development projects to appease a particular group of voters as a problem.

Experts stress the need for supporting mechanisms to address these anomalies in local governments.

Says Devkota, the federal affairs expert, soon after the local governments were elected, he and others had proposed a dedicated think-tank to provide ‘knowledge support’ to local governments.

“But there was no initiative to implement the proposal. Local governments have been performing marginally better in recent years, but there are still many budgetary issues that need to be addressed,” he says.

Elected local representatives cite lack of coordination among the federal, provincial, and local governments as the main reason for delays in budget and development projects.

Bhim Prasad Dhungana, mayor of Nilkantha Municipality in Dhading district, says the federal and provincial governments don’t take the issues of local governments seriously.

“Lack of coordination has led to problems like budget duplication. There have been several instances of federal, provincial and local governments allocating budget for the same project,” he says.

In 2017, when Nepal joined China’s Belt and Road Initiative (BRI), India had expressed its reservations through various channels. 

Nepal assuaged India’s concern by telling its leaders that projects under the BRI would be limited to connectivity and hydropower and would not affect India’s security. 

Now it is China that is expressing reservations over the $500 million American grant under the Millennium Challenge Corporation (MCC) compact, putting Nepali leaders in a spot. India, meanwhile, has maintained a studied silence on the controversy. 

A senior Indian official has said India does not have any say on MCC matters as it is a bilateral issue between Nepal and the US.  

But a senior ruling party leader in Nepal told ApEx that Indian leaders have intimated to their Nepali counterparts that Nepal should ‘independently’ decide.

One project under the compact is a cross-border electricity transmission line between Nepal and India, a part of which is to be built on Indian soil. 

According to the senior ruling party leader, India is silent on the MCC controversy also because the country has a massive investment in Nepal’s hydropower, which can be exported to India via the new transmission line.   

New Delhi-based political analysts see the political and public divisions in Nepal over the compact as a sign of growing Chinese influence. The MCC itself is not a concern for India, they say, as it is not going to impact Nepal-India bilateral relations.

“As it [MCC compact] has become highly controversial in Nepal, India does not want to comment on it. Franky, India is not bothered about whether or not the compact is endorsed,” says Nihar R. Nayak, a Nepal-India relations expert. “Regarding the American role in the region, there is a good understanding between India and the US.” 

Perhaps India reckons any kind of comments on the compact, a highly charged topic in Nepal, could backfire. “India has adopted a silent approach while dealing with Nepal in recent years, as the public sentiment in Nepal can quickly turn on an outsider’s remark on domestic issues,” says Chandra Dev Bhatta, a foreign policy expert.

“Yet India being taciturn does not mean it does not have any say on issues like the MCC compact. India will have to face the consequences if the geopolitical games in the region get out of hand.” India, Bhatta adds, would also not want to completely lose its influence on Nepal.  

While India is silent, countries allied with the US, such as the UK, Japan, Korea and Australia have asked Nepal’s leadership to endorse the compact. Ambassadors from these countries have been meeting Nepali leaders to convey their ‘implied message’ on the compact.  

Suresh Chalise, a former Nepali ambassador to the US, says the constituents of AUKUS and QUAD obviously want to push the MCC compact forward.  

“These countries want to promote clean energy in this region to tackle climate change and the transmission line [under the MCC] serves this purpose,” says Chalise. So it is only natural for the ambassadors of these countries to be actively pushing the compact.  

While the US has pressed Nepal’s political parties to get the compact endorsed by February 28, China has denounced what it has called “coercive” American diplomacy. 

Wang Wenbin, Chinese foreign ministry spokesperson, on February 18 said China opposes coercive diplomacy and actions that pursue selfish agendas at the expense of Nepal's sovereignty and interests. 

“China is glad to see the international community conducting development cooperation with Nepal to contribute to its economic growth and livelihood improvement,” he said. However, such cooperation should be based on full respect for the will of the Nepali people and “come with no political strings attached”. 

Media reports also suggest that the Chinese side has been urging the Nepali leaders not to ratify the MCC compact.

Over the past few years, Chinese officials had been mum on the compact; but of late, Chinese government media, including the vocal Global Times, have been publishing stories portraying the compact in a bad light.  Now, Chinese officials are publicly opposing MCC compact. 

In their conversations with Nepali leaders, US officials have conveyed that the delay in ratification owing to ‘external pressures’ would be unacceptable. The compact’s rejection, they have hinted, could also hamper US-Nepal bilateral ties. 

Senior Maoist leaders including Pushpa Kamal Dahal have been vocal about American pressure on them to back the compact. Some party leaders even claim the US officials threatened economic sanctions were the compact to be rejected.  

The US officials have objected to such claims of Maoist leaders. They have, however, said that some leaders could be held accountable on human rights violations and corruption cases, but that there will be no sanctions. 

Prakash Sharan Mahat, spokesperson of Nepali Congress, disagrees that the US is putting pressure on Nepali politicians for the compact’s ratification.

“As far as I know, the US is just telling Nepali leaders to take a prompt decision. There is no pressure,” he says. 

The US embassy on February 19 said in a statement that whether Nepali leaders ratify the compact is “a decision for Nepal to make, as a sovereign democratic nation, and Nepal’s decision alone”.

The compact was tabled in parliament on February 20 amid protests by the CPN (Maoist Center) and CPN (Unified Socialist), both parts of the ruling Nepali Congress-led coalition. 

Prime Minister Sher Bahadur Deuba has expedited efforts to put the MCC compact to the vote in the parliament meeting scheduled for February 24. 

The Unified Socialist has decided to vote against the compact. Meanwhile, the Maoist Center is yet to publicly state its voting intent.  

With his coalition partners up in arms against the compact, Prime Minister Deuba has reached out to the main opposition CPN-UML for support. 

The February 28 deadline issued by the US for the ratification of the MCC Nepal compact is just days away. The Americans are waiting with bated breath—as is the whole of Nepal for that matter.