The modern education system in Nepal isone of the youngest in the world and operates within apolitical democracy that was established only in 1991. Whileparts of the system have been well designed and areimplemented effectively, others remain in an embryonic stageand are only partly effective. This report identifies anumber of key constraints which currently are hindering thedevelopment of the system and suggests priorities andstrategies for organizing and managing the required changes.Six aspects of the current status are highlighted: Levels ofliteracy and educational attainment remain low. While accessto all levels of the education system has increasedconsiderably, participation remains unequal across incomeand social groups and the benefits of public subsidies areinequitably distributed. The quality of education is low.High repetition and dropout rates throughout the system arewasting valuable resources. The system does not serve thelabor market well. This report recommends the government to:ensure within the coming decade that all children enroll inand complete a five year primary education while developingthe structures and processes for expanding a strengthenedbasic cycle of schooling for eight years, and expandinglevels of adult literacy; develop an integrated cycle ofsecondary education; improve the quality of universityeducation and tertiary education; develop an comprehensiveteacher management system; and decentralize the system.