ADB to strengthen PFM and devolved service delivery in Nepal

KATHMANDU: The Asian Development Bank (ADB) has approved a $100 million policy-based loan to advance public financial management reforms in Nepal for improved public expenditure and debt management at the national level and enhanced resource planning, financial management, and devolved service delivery at the subnational level.

“The program will catalyze reforms which will strengthen fiscal sustainability, improve governance, and empower local governments,” said ADB Country Director for Nepal Arnaud Cauchois. “By enabling local governments to plan and raise revenues more effectively, it will reduce dependency on central transfers, advance Nepal’s federal governance framework, and build long-term resilience.”

The initiative aligns with the Government of Nepal’s Five-Year Plan and builds on ADB’s previous policy-based concessional support to reinforce Nepal’s fiscal governance and advance decentralization reforms. The program will strengthen fiscal sustainability and fiscal federalism by increasing fiscal space through expenditure rationalization, revenue generation, fiscal risk reduction, innovative financing, and improved management and governance of public enterprises.

Key reforms at the national level include operationalizing Nepal’s first fiscal risk and strategy report; assessing contingent liabilities of state-owned enterprises; institutionalizing annual borrowing plans in line with medium-term debt strategy; implementing management and governance policy, and loan and share investment policy for public enterprises; upgrading the Public Enterprises Management Information System for real-time monitoring and oversight; and operationalizing the Public Financial Management (PFM) reform strategy and integrated PFM System. These reforms will contribute to improved expenditure planning and management and reduced fiscal risks.

To bridge Nepal’s development financing gap, the program will help establish an Alternative Development Financing Fund to mobilize domestic and international capital—including bonds, equity investments, and remittance pools—for resilient infrastructure development.

At the subnational and local levels, reforms include digitizing taxpayer registration system for provincial governments, operationalizing digitized local revenue administration system, operationalizing public asset management system, formulating market-based property valuation criteria, and mapping natural resources with revenue-generating potential.

Additionally, the development of local project banks and medium-term expenditure frameworks that are gender- and climate-responsive, will support coordinated planning and strategic public investment decisions. These reforms will contribute to increased revenue and improved resource planning and management at the subnational and local levels.

ADB is a leading multilateral development bank supporting inclusive, resilient, and sustainable growth across Asia and the Pacific. Working with its members and partners to solve complex challenges together, ADB harnesses innovative financial tools and strategic partnerships to transform lives, build quality infrastructure, and safeguard our planet. Founded in 1966, ADB is owned by 69 members—50 from the region.