Sajhedari–Support to Federalism: Year 2 Annual Performance Report, October 2020 – September 2021

The introduction of federalism has the potential to enable a wider sharing of power, giving more people a greater voice and political and economic stake in the country's future. This shift away from a highly centralized model of power inherited from the country's absolutist past could provide mechanisms for the peaceful resolution of conflicts and address political and developmental marginalization. The country has chosen federalism as a way of managing tensions that led to conflict, with a heightened risk of repression or violent conflict if power remains in the hands of a small ruling elite. Devolving political power may help accelerate development outside Kathmandu and provide opportunities for a new generation of reform-minded political leaders and entrepreneurs to emerge. However, federalism is contested, and there are risks around weak systems and limited capacity leading to the failure of service delivery and the spread of corruption. The roll out of federalism is progressing, albeit unevenly, with elections taking place in all three spheres of government as planned. The foundational laws were put in place, and the intergovernmental fiscal system was established, giving considerable discretionary funding to local governments. However, challenges remain, including the need to ensure that federalism is successful by giving voice, power, and authority to all of Nepal's diverse population. Sajhedari's overarching approach is to provide support to the federal, provincial, and local governments in responding to the key challenges facing the federal transition. The project has entered the third year of its base period, with the aim of implementing the Option period. Key interventions include policy and legislation informed by evidence, policy processes that are more open, participatory, and inclusive, and municipal and provincial governments that are more responsive, inclusive, accountable, transparent, and effective in decision-making. Progress under Objective 1 has been made, with policy and legislation informed by evidence, and policy processes that are more open, participatory, and inclusive. Sub-Result 1.1 has seen the development of a policy framework that incorporates evidence-based recommendations, while Sub-Result 1.2 has led to the establishment of a participatory policy-making process that involves civil society organizations and other stakeholders. Progress under Objective 2 has also been made, with municipal and provincial governments becoming more responsive, inclusive, accountable, transparent, and effective in decision-making. Sub-Result 2.1 has seen the establishment of a citizen engagement mechanism that enables citizens to participate in decision-making processes, while Sub-Result 2.2 has led to the development of a public financial management system that is transparent and accountable. The project has also made progress in enhancing citizen and civil society engagement in local decision-making, with the establishment of a citizen engagement mechanism that enables citizens to participate in decision-making processes. Improved civil society capacity for monitoring and oversight has also been achieved, with civil society organizations developing the capacity to monitor and evaluate government programs and services. Gender equality and social inclusion have been prioritized throughout the project, with a focus on promoting the participation of women and marginalized groups in decision-making processes. The project has also made progress in monitoring, evaluation, and learning, with the establishment of a performance indicator tracking table that enables the monitoring of progress against project objectives. Despite progress, challenges remain, including the need to address the underlying causes of conflict and ensure that federalism is successful by giving voice, power, and authority to all of Nepal's diverse population. The project will continue to work towards addressing these challenges and ensuring that the federal transition is successful.