A look into social security of the government of Nepal

This article was originally published in www.nepallivetoday.com on December 7, 2023 by Aarashi Ghimire. Ms. Ghimire ​​is a research intern at Samriddhi Foundation, an economic policy think tank based in Kathmandu. The views expressed in this article are the author’s own and do not represent the views of the organization. Author can be reached at [email protected]

From a strictly South Asian perspective, Nepal is the third country to initiate some form of social security scheme. In 1994, Nepal introduced an old age allowance, which provided a modest monthly cash transfer of Rs 100 to individuals aged 75 and older. Since then, the programs have been widened and in subsequent constitutions post the 1990s; social protection is a fundamental right albeit subject to progressive realization. Currently, 87 programs classified as social protection are being run by 13 ministries. These programs include but are not limited to old-age benefits, disability benefits, schemes for endangered communities, schemes for widows and schemes for people from specific regions in Nepal. Since its initiation, the coverage and the amount spent has steadily increased. This should not be surprising since it is a promise made by all major political parties in their election manifestos. There are at least two problems that become apparent.

First is the pressing concern about the financial sustainability of these initiatives in the long run. While social protection allocation has increased steadily over the years i.e. 26.71% in the fiscal year 2020/21, 19.52% in the fiscal year 2021/22, and 34.1% in the fiscal year 2022/23, the economic growth rate has remained stagnant. However, revenue generation has not increased in the same proportion. The budget has been continuously downsized in the past four years. Faults in Nepal’s planning and strategizing become apparent when the actual revenue collected does not match the revenue projections. In the first six months of the fiscal year 2022-23, the government of Nepal collected only Rs 483.76 billion in revenue, this was a 16 percent drop in comparison to the same time in the previous year. Indeed, there are other factors at play i.e. the Russia-Ukraine war, the effects of measures taken during Covid-19, and the low confidence that the business sector has today. Addressing the declining rate of revenue mobilization becomes crucial insofar as it directly affects the ability of the state to deliver on its promises whether it be populist or otherwise. One need not look further than the fiasco that was the Covid-19 insurance program.

The issue of financial viability is further compounded by the fact that other schemes relating to social protection are yet to be announced. These schemes have been already promised through the Social Security Act of 2018 and if Nepal’s insistence on achieving sustainable development goals by 2030 is to be true the question of sustainability becomes a serious one. Further increases in both the social security schemes and the number of beneficiaries is likely to increase the size of social protection allocation. If the fundamental question of sustainability remains unaddressed, Nepal’s only option is to turn to foreign aid as a means to service these expenses. After all, rolling back on social security schemes will have repercussions in terms of electoral support, a repercussion no political party would like to suffer.

The issue of management of social security schemes is equally important. The involvement of multiple ministries within the larger gamut of social protection has often led to duality in both benefits and beneficiaries. These issues have been highlighted in the past too. To the government’s credit, some efforts have been taken to eliminate duality such as bank deposits and digitization of records of social protection beneficiaries. Yet these efforts do not address the need for an integrated approach to social protection. The integrated approach here doesn’t mean an integrated social protection provider, it rather means the need to identify the objectives of various programs in Nepal and ensure that no two programs have the same objectives.

Despite being a country that spends on average more than its South Asian counterparts in social protection, Nepal is yet to achieve a modest coverage rate. Currently, social security coverage remains at 17% of the total population. In the days to come, the call for increased coverage and inclusion of the informal sector into the social protection system is likely to grow. Indeed, Nepal’s performance in terms of coverage is not satisfactory. Some form of protection regime will be required, however, this protection regime needs to have the element of choice and competition to survive in the presence of a low revenue mobilization rate.

Considering the stance of the government of Nepal in monopolizing all forms of social protection i.e. the mandatory nature of contribution-based social security scheme in the presence of private bank alternatives, the introduction of competition and choice is unlikely to happen so long as adequate finances come from either internal revenue or external loans and grants. Fundamental questions of sustainability and governance thus need to be addressed if we are to aspire to achieve the fundamental right of social security without compromising our financial health.