Nepal faces local governance and fiscal challenges

Nepal is facing administrative and fiscal challenges regarding its federal structure. The Election Commission reported that ten local-level representative posts have become vacant after elected officials from parties such as the CPN (Maoist Centre) and CPN (Unified Socialist) switched political affiliations. These vacancies span Madhesh, Koshi, Bagmati, and Sudurpaschim provinces.

Financially, the federal government transferred Rs 71.12 billion to provincial and local governments through revenue sharing during the 2025/26 fiscal year. A report from the National Natural Resources and Fiscal Commission noted that while the federal government retains 70 percent of collected VAT and excise duties, most provinces failed to meet their vehicle tax collection targets, with the exception of Karnali province.

Additionally, disputes over local boundaries are resurfacing. In Pokhara Metropolitan City, residents of the former Lekhnath Municipality are demanding separation, alleging that the 2017 merger has led to uneven development and a loss of access to grants and revenue. Similar administrative difficulties are reported in Nawalpur, where residents face significant detours to reach their provincial administration due to current boundary delineations.