The urgent need for progressive fiscal reforms in Nepal

On the occasion of International Public Service Day, marked on 23 June, the key question for Nepal is whether we are guaranteeing every citizen’s right to access quality public services, or whether our fiscal policies are aggravating inequality, increasing future risks, and imposing additional financing pressure on citizens. Public services are not just development programmes, but rights guaranteed by the Constitution, particularly in the areas of education, health, social protection and other essential services.

Nepal has made significant progress in the last few decades in ensuring access to and availability of services in the social sector; however, the quality of the services and the level of appropriate investment is still inadequate. Considering that the international standards call for allocation of about 15-20 percent of the national budget to the education sector, the current allocation in Nepal is only about 10-11 percent. Similarly, the amount of investment in education represents only about 3.67 percent of GDP, well short of the target needed to meet the SDG goal. This situation has directly impacted three key pillars: quality, access and equity in the public education system in Nepal. 

The structural issues posed are not just related to the lack of resources, as they are also strongly related to the priorities in terms of fiscal decision-making. Debt servicing has become a major part of the budget and revenue of the country. A significant portion of the current national budget and revenue is increasingly being allocated to debt service. In certain cases, debt service has been up to four times that of education expenditure. This has further reduced fiscal space and investment in the social sector.

The issue of public debt is still being discussed in technical terms and technical indicators such as the debt-to-GDP ratio and deficit control. But the basic question on debt is: “On whose behalf is debt being and for what future?” Debt can only be justified if it helps to enhance long-term productive economic capacity, human capital and social protection systems. However, debt that is used for short-run expenditure management or the result of policy failures leads to intergenerational injustice and an economic burden.

Often, the government reduces the funding of health, education and social protection programmes to balance the budget, which ultimately affects the cost of these services to households. This particularly affects women, who are often compelled to shoulder unpaid care work, including caring for the sick, caring for elderly family members, childcare, and domestic duties. This type of care debt may not be recorded in government budgets as it continues to exacerbate gender inequalities.

In Nepal, millions of young people depend on foreign employment in India, the Gulf countries, and other destinations in search of work. The gap between the education system and the labour market remains larger in the absence of jobs created within the country. When productive employment skills are not created within the country, the gap between the education system and the labour market further continues to widen. Debt is a burden on future generations, but so is not enough investment in skills, innovation and jobs today.

Likewise, the risks of debt-based development projects can get higher in the long term if there is excessive exploitation of forests, water sources and land. As is, as a result of Climate Change, the geographical vulnerability of a nation like Nepal is already high in terms of both disasters and the impact of climate change. In such an environment, decisions on development and infrastructure should be linked to environmental impact and sustainability.

International practice confirms that measures taken to cut public spending, for the sake of fiscal discipline, or austerity, have a negative impact on public service systems. The recommendations of institutions like the International Monetary Fund may at times put greater emphasis on ways of curbing recruitment in the public sector wage bills, on controlling service facilities or on lowering the level of social expenditure, and on raising indirect taxes for revenue generation. These measures can generate temporary fiscal equilibrium but in the long run have a high risk of exacerbating inequality and poverty.

What is clearly urgent for Nepal is to rebuild fiscal policy in a human rights perspective. “Public services are not expenses; it is the accountability of the state to ensure the rights of citizens.” An absence of sufficient and fair investments in public services means that equality, social justice and sustainable development will remain just to be limited only to words.

Advocates of economic and social justice, along with national, regional, and international stakeholders, need to take several key actions to address Nepal’s development challenges. First, there is an urgent need to increase public investment in education, health, and social protection in line with international commitments and standards. Rather than reducing budgets, Nepal should prioritise expanding public spending while ensuring that marginalised communities receive adequate and quality services.

Transparency and intergenerational justice should also be placed at the centre of debt management. Any financial commitments must be assessed based on their long-term social, economic, and environmental impacts. A transparent decision-making process that involves both the state and civil society is essential.

At the same time, Nepal should adopt a just and progressive tax system. This includes increasing the tax-to-GDP ratio and ensuring that wealthy individuals and profit-making sectors contribute their fair share. Tax policies should be inclusive and equitable, avoiding excessive reliance on indirect taxes that disproportionately burden people living in poverty.

Gender equality and the care economy should be prioritised in budget planning. Both formal and informal labour, particularly women’s unpaid care work, must be recognised and valued. Greater public investment in services that reduce care responsibilities can strengthen the economy while advancing social justice and gender equality.

Nepal should also advocate for debt justice at regional and global levels by promoting a fair international financial architecture, reforms in debt-flow mechanisms, equitable debt conditions, and debt relief for developing countries through international solidarity.

Finally, excessive privatisation of public services must be addressed. When public education and health systems are underfunded, private providers often fill the gap, increasing inequality and limiting access to essential services, particularly for rural populations. Strengthening the role of the state in delivering public services is therefore crucial to ensuring equitable access for all citizens.

Conclusion

The International Public Service Day message is simple: “Citizens’ rights are dependent on the quality and strength of the public service delivery system of the state. 

Nepal needs to invest enough in public services and undertake bold and equitable fiscal policy reforms to create a sustainable, just and inclusive future.”

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