Image: UNICEF Nepal/NShrestha
NEPAL SPENDS a bigger share of its economy on social protection than most of its neighbours. The pension system reaches a bigger share of the elderly than India’s. Its constitution enshrines the right to housing, food, health care, education, employment and old-age protection. A towering legal regime has emerged around those aspirations: dozens of laws, regulations and directives aim to support citizens from cradle to grave. Yet the system that has grown out of these ambitions remains fragmented and laden with contradiction.
Nearly every ministry now operates a social scheme of some kind. Altogether 76 schemes fall under what the government calls its National Integrated Framework on Social Protection. But integration exists largely in official rhetoric. Agencies duplicate functions and compete for budgetary space. As Nepal has transitioned to federalism, local and provincial officials have been tasked with delivering more of the state’s welfare promise. Few possess the capacity, authority or clarity of role to do so.
The Social Security Fund (SSF), set up in 2011, was overhauled by a 2017 law, with contributions starting in 2019, to bring order to the fragmented welfare system. Funded through mandatory contributions—11% from employees and 20% from employers—it represented a shift from pure assistance to contributory social insurance. It provides cover for health care, maternity, old age, disability and dependent family support. The design mimics formal systems in more developed economies. But the economy that underpins it does not.
Most Nepali workers earn their living informally. They are farmers, street vendors, domestic workers or day labourers, without contracts or payslips. Few have access to inspection or recourse. Around 250,000 domestic workers fall entirely outside the remit of the SSF. Migrants in Gulf households or East Asian factories are subject to a different regime or none at all. For these groups the promise of universal social protection remains aspirational.
Even among the formally employed, uptake of the SSF has been sluggish. Trade unions have opposed the extension of benefits to non-contributors, citing fairness and fiscal risk. Employers complain about cost burdens and administrative headaches. A reform of the outdated Bonus Act, which governs profit-sharing, has been mooted to improve alignment but no progress has materialised.
Where the SSF fails to reach, other programmes step in, albeit patchily. Public spending on social protection hit 3.5% of GDP in 2019, up from 1.9% in 2010. Of this, more than half went to pensions, which now absorb 56% of all social protection outlays. Some 84% of the elderly receive a pension, a bigger share than in India, though not quite universal. The eligibility age has been steadily lowered from 75 to 70 while widows receive support from age 60. Demographics will make this generosity harder to sustain.
Health coverage has expanded, at least on paper. The national insurance programme grew from 1% of the population in 2016 to 11% in 2019, with one-third of beneficiaries subsidised. But dropout rates are high. A 2018 study found 38% of enrolees abandoned the scheme, citing medicine shortages, poor treatment quality and hostile behaviour by medical staff. Out-of-pocket spending still accounts for more than half of all health expenditure.
Maternity benefits too are nominally generous: 98 days of paid leave are mandated with the SSF covering 38 of them. Fathers receive 15 days. In reality only 9.8% of mothers received any such benefit in 2020. Informality, stigma, lack of awareness and fear of job loss keep most women excluded. Many domestic workers report being dismissed as soon as they show signs of pregnancy.
Unemployment support barely exists. The only guaranteed relief comes in the form of severance pay—one month per year of employment—but only in firms with ten or more workers. Covid-19 provoked a flurry of temporary measures: subsidised food and utilities, tax delays, public works paying 50% of the minimum wage. But the response reached only 2% of the population surveyed. No permanent unemployment insurance system has emerged.
The country’s welfare state thus straddles two models. One is formal and contributory, drawing on employer-employee contracts and payroll deductions. The other is informal and patchy, reliant on ad hoc assistance and political visibility. Both suffer from gaps. Formal schemes exclude those outside salaried employment. Informal transfers are fiscally burdensome; poorly targeted; and politically driven.
Institutional inertia is also formidable. Ministries protect their turf. Local governments grope for resources and guidance. Trade unions, wary of dilution, resist reform. Meanwhile the fiscal pressure of an ageing population, soaring healthcare costs and pension liabilities grows in the background. Built on political will and public pressure, the system’s ability to bear more is in doubt. ■
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