Social security system in Nepal: Protection at what cost?

The government cannot decide to provide social security allowances out of an impulse. Social security allowances are primarily funded through taxes. It is the government's responsibility to be accountable to the taxpayers.

Senior citizens receiving social security allowance in Finak of Gorkha Municipality-4. (File photo/RSS)

Prakash Maharjan

  • Read Time 4 min.

Social Security is a protection measure provided to individuals and households guaranteeing access to healthcare and income security. Social security protection as defined by the International Labor Organization (ILO) convention is a basic human right and broadly defined as a system of contribution-based health, pension and unemployment protection, along with tax-financed social benefits. The Universal Declaration of Human Rights (UDHR) identifies social security as a universal right in Article 22 and every member of the society is entitled to receive it through national and international cooperation for an individual’s dignity and free development of their personality. Nepal being a signatory to different treaties and conventions of human rights and humanitarian laws, also initiated social security protection measures by constitutionalizing many different rights.

Type of social protectionNo. of programs
Social Assistance39
Social Security Allowance5
Rescue and Relief4
Relief and Rehabilitation1
Vaccination and Disease Control3
Health Services8
Free Health Check Up6
Social Insurance/Grant19
Safe Motherhood Program3
Child Welfare2
Housing Land2
Social Welfare3
Interest, Insurance and Relief Grants9
Social Security Fund 
Employee Provident Fund 
Health Insurance 
Crops and Livestock Insurance 
Contribution-based Social Security11
Labour Market and Employment6
Legal Aid1

Social security in Nepal

Social security systems in Nepal commenced with gratuity amounts paid to wounded soldiers who returned from the British Army after the establishment of the Military Money Fund. Later, the government started providing pensions to those completing 25 years of civil service. After the introduction of the Labor Code in 1993, social security programs also began to include the private sector and started providing maternity leave later on with the introduction of the Civil Servant Act in 1992. Only in 1994, during the government of Man Mohan Adhikari the old age allowance pension was introduced that promised a universal flat monthly allowance of Rs 100 to all elderly above 75 years and in 1996-97 two additional social security programs were added that provided pensions of Rs 100 per month for the helpless widows above the age of 60 and for the disabled individuals. 

At present, Nepal provides seventy-six different social security protection schemes under 10 different ministries. What started as a gratuity fund for the military personnel has now become one of the biggest expenditures for the Nepali government. As per the World Bank report, in the period 2012-2016, Nepal spent 1.7 percent of its Gross Domestic Product on social protection which is higher than the South Asian average of one percent and the global average of 1.6 percent.

The government should identify the beneficiaries who do not require social security protection and identify ways for providing economic opportunities to those willing to make their own living.

Nepal currently operates two different types of social security—contribution-based and non-contributory. In a contribution-based social security scheme the beneficiary him/herself contributes an amount with the aspiration of being protected in the future while in a non- contribution-based scheme, the beneficiary is protected by the state with funding from the taxes. In Nepal, non-contribution-based social security has been burdening the state coffers as the budget for such programs has always increased since its inception and the budget allocation under this heading always gets used almost completely or even more at times. In the fiscal year 2021/22 alone, the government allocated NRs 100 billion for social security allowances which is significantly higher than the allocation in the previous budget. Recently, our Prime Minister also declared that if his party is to win the upcoming elections, his government will reduce the age limit of receiving old age allowance pension from 70 to 65 years. But doing so will add additional NRs 27 billion expenses for the state.

Source: MOF Budget Speech

The principle behind providing social security by the state is to protect the vulnerable population.  Having said that, the government cannot decide to provide such allowances out of an impulse. Social security allowances in Nepal are primarily funded through taxes, so it is the government’s responsibility to be accountable to the taxpayers. This means that the government should make efficient use of the taxpayers’ money. In Nepal, the government operates various social security programs that have similar goals but are operated by different ministries. For example, social security allowances that include, single women allowances, divorced women allowances, allowances for children, etc are provided through the Ministry of Home Affairs but the programs operated by other ministries such as the Ministry of Women, Children and Social Welfare also target the same group of people and aim to protect and empower them. Similarly, scholarships programs for students are provided by the Ministry of Home Affairs and the Ministry of Education, Science and Technology.

Here, the problem lies in the operating modality of the government. Since the programs are targeted towards the same group, having multiple implementing agencies will only lead to fragmented benefits. Also, there will be a handful of people that will receive double benefits while others receive none and this is already evident from the 58th Annual Report of the Office of the Auditor General. Having similar programs operating from different ministries will only add to the government’s expenses as the government has to employ human resources to operate, manage and organize them which will ultimately shift the burden to the taxpayers. Similarly, it will also affect the government’s credibility in terms of service delivery, as a large amount of government’s expenditure can be seen going towards funding a program that is popular while other services being provided by the government are plagued by different issues.

What should be done?

Now, first of all, what our government can do instead is identify the beneficiaries that do not require such protection and identify ways for providing economic opportunities to those willing to make their own living. Such beneficiaries can then be included in contribution-based social security schemes so that they can protect themselves. Secondly, the government can integrate similar social security programs into one and provide social protection through a single entity. In Nepal, the Ministry of Labor, Employment and Social Security can act as the institution responsible for implementation while other ministries can coordinate and take ownership of their programs. For this, the information system implemented by different ministries has to be integrated as well so that the records maintained can be shared among the ministries which will eventually help in stopping people from receiving double benefits. This will eventually help to reduce the burden on the government and the taxpayers as well and make the process of providing social security efficient and effective. 

Prakash Maharjan works as a researcher 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.  [email protected]