KATHMANDU, FEBRUARY 13
Local governments have opposed the federal government's decision to reduce the disbursement of fiscal equalisation grants announced for the local governments in the current fiscal budget. National Association of Rural Municipalities in Nepal (NARMIN) and Municipal Association of Nepal (MuAN) have drawn serious attention to the letter issued by the Office of the Controller General of Accounts on February 10, concerning the reduction of financial equalisation grants to be transferred to local governments from the current fiscal budget.
Executive Director of NARMIN Rajendra Pyakurel said that the associations of local governments opposed the federal government's decision to reduce disbursement of fiscal equalization grant because the government which was supposed to gradually increase the equalization grants, was reducing it.
Pyakurel said that from the amount allocated for the third installment of the equalization grant to local governments, only 13.24 per cent was being disbursed, whereas 25 per cent was expected to be released. "Local governments got equalization grants in the first and second installments as per the expected rate – 25 per cent each installment- but from third installment, the government reduced the percentage to 13.24 per cent," Pyakurel said adding that the federal government reduced the equalization grant for provinces as well. The current fiscal budget allocates Rs 88 billion equalization grants for the local governments and 60 billion for provinces.
The reduction of fiscal equalisation grants raises questions about the effective implementation of fiscal federalism.
The two associations of the local governments have, through their joint press release, also reminded the federal government about the work the local governments do or have to do as per Schedule 8 of the constitution, and fiscal equalisation grant they need for their work.
A reduction in this grant will significantly affect the local government's ability to deliver services and undertake development activities NARMIN and MuAN state in their release. Pyakurel said that if financial federalism had to work properly, fiscal equalisation grants which were unconditional grants, should be increased and other grants which were basically conditional, should be reduced. Representative body of Local governments have said that the government's decision to slash equalisation grants reflected a lack of urgency and commitment on the part of the federal government in implementing federalism.
Pyakurel said that the federal government had tried to reduce equalisation grants last year as well, but it finally released the pledged amount in the month of July after the associations of local governments mounted pressure on the government.
Federalism expert and former member of the National Assembly, Khim Lal Devkota said that the government's decision to reduce equalization grants for local governments was against the principle of federalism. "More than 50 per cent governed jobs and service delivery is done by the lower tiers of the government especially local governments but our revenue remains highly centralized," he added.
Devkota said the constitution envisions decentrilisation of revenue through the enactment of laws and the federalism principle also says that as you increase the volume of budget, you should also increase the ratio of equalisation grants but here the government is doing just opposite of these principles. "When the workload is shouldered by local governments, it is obvious that local governments should get more money, Devkota added.
A senior bureaucrat at the Ministry of Finance said that the Finance Ministry decided to reduce disbursement of equalization grant mainly because the revenue collection was not as per the government's expectation. "Until now we are able to collect only 84 per cent of the expected revenue and this was the main reason behind the government's decision to reduce euqlisation grant," the source added. He said the local governments should not always think that they would get whatever pledged in the budget. Distribution of grants depend on the collection of revenue and when there is reduction in the revenue, it certainly affects equalisation grants, the source added. He said if the government succeeded to collect the targeted revenue by the end of this fiscal, local governments could easily get the pledged amount.
