EXECUTIVE SUMMARY

Nepal's transition from a unitary state to a federal democratic republic under the 2015 Constitution represents a profound reordering of state power. The aim was to bring governance closer to citizens, rebalance authority between the centre and the periphery, and institutionalise inclusion as a pillar of national unity. A decade later, federalism is embedded across the country's seven provinces and 753 local governments, marking one of the most comprehensive devolution exercises in South Asia. The State of Federalism Report 2025 provides the first empirical baseline (See Annex 1 for the full baseline) for assessing this transformation, capturing the structures, performance, and perceptions that define the new system.

• Federalism is operational in all tiers, with elected governments functioning nationwide.
• The constitutional principles of self-rule, shared rule, and cooperation have been institutionalised through laws, policies, and digital governance systems.
• Citizen satisfaction exceeds 50 percent at the local level, and Nepal leads the region in political inclusion, with women holding 41 percent of local seats.
• Nepal's federalism has therefore Thoved beyond its formative stage. The coming decade must convert these institutional structures into stronger systems of performance, coherence, and accountability-ensuring that federalism delivers tangible, equitable results for citizens.

The findings of the 2025 Survey of the Nepali People broadly reinforce this overall picture of a functioning federal system. Citizens clearly recognise and interact with all three tiers of government, confirming that federalism is operational and visible nationwide. Trust remains strongest at the local level, where municipalities and ward offices are perceived as the most responsive and accessible state institutions, supporting the principle of self-rule in practice. While confidence in federal and provincial tiers is lower, citizens overwhelmingly associate improvements in roads, drinking water, health services, and electricity with local governance, aligning with the intent of devolved service delivery. The survey also highlights declining experiences of linguistic and caste-based exclusion, further validating Nepal's commitment to inclusion as a constitutional pillar. Although national optimism has fallen sharply, the public continues to reward local-level government performance, demonstrating that the foundations of federalism are not only established in law but are being experienced by citizens in meaningful, day-to-day ways (Kathmandu University 2025).

STATE OF FEDERALISM

The 2025 baseline confirms that Nepal's federal system is structurally solid but unevenly functional. Political institutions are mature and representative, fiscal systems are transparent yet still centralised, and administrative devolution remains incomplete. The federal structure is legally entrenched and democratically legitimate, but its coordination mechanisms and resource systems continue to evolve.

• Political Federalism: Elected institutions are functioning at all three levels; inclusion is strong; however, inter-governmental councils meet irregularly and legal gaps remain in education and civil service acts.
• Fiscal Federalism: Fiscal transfers are rule-based and digitised, but provinces and municipalities depend on federal grants for over 90 percent of their budgets.
• Administrative Federalism: Provincial and local structures are fully established; digital systems are in use, yet staffing and technical capacity are critically weak, with only 38 percent of sanctioned provincial posts filled.

In sum, Nepal’s federalism has taken deep institutional root but remains a work in progress. The country has built the architecture of a federal state; the next task is to refine its mechanics—clarifying roles, aligning fiscal and administrative authority, and ensuring that each tier of government can perform effectively within its constitutional domain.

Click here to access the report (Type: PDF, Size: 44 MB)