Fiscal Commission Urges Center Not to Cut Financial Equalization Grants to Provinces and Local Levels

Kathmandu. The National Natural Resources and Fiscal Commission has drawn the attention of the federal government not to cut the financial equalization grants allocated to the provinces and local levels. The Commission made this decision in its meeting held on Falgun 11.

Due to the government's failure to meet revenue collection targets in the first six months of the current fiscal year, a decision was made to cut the grant under the financial equalization heading meant for provinces and local levels. The Office of the Financial Comptroller General, through a circular issued to all Treasury and Accounting Control Offices on Magh 27, directed the cutting of the amount corresponding to the third installment of the financial equalization grant.

Furthermore, the Commission clarified that the authority to determine the quantum of the financial equalization grant is vested in it according to the Constitution.

“The Commission understands that, exercising the authority vested in the constitutional provision, it has determined and recommended the quantum of financial equalization grant to be transferred from the Federal Consolidated Fund to the provincial and local governments for the fiscal year 2082/83, and the Nepal Government must compulsorily implement the recommendation made by the Commission subject to that constitutional provision,” the decision stated.

“Therefore, the attention of the Government of Nepal is drawn through the Ministry of Finance to transfer the amount as per the recommendation made by the Commission and the budget passed by the Federal Parliament for the fiscal year 2082/83,” the decision mentioned.

According to Article 60 (3) of the Constitution of Nepal, the responsibility for recommending the quantum of financial transfer to be received by provinces and local levels lies with the National Natural Resources and Fiscal Commission. Article 251 (1) (b) also grants the Commission the authority to recommend the financial equalization grant to be provided from the Federal Consolidated Fund to provincial and local governments.

Based on these constitutional provisions, the Commission concluded that the grant must be provided exactly as recommended by it. The government, however, stated that the grant had to be cut because the targeted revenue collection was not achieved.

“Revenue collection up to the end of Poush was only 81.75 percent compared to the target, and the Ministry of Finance has written stating that the financial equalization grant should be transferred to the provincial and local levels in that same proportion,” the circular from the Office of the Financial Comptroller General mentioned.

Accordingly, it was directed to transfer the grant such that the third quarterly installment, out of 25 percent, does not exceed 20.43 percent, meaning it should not exceed 70.43 percent of the total approved annual budget.

According to the Ministry of Finance, the 95-point guideline issued for the implementation of the current fiscal year's budget mentions that the first and second installments will be determined based on initial estimates, while the third and fourth installments will be determined based on the revenue collection status.

According to the Finance Ministry, the target for income this year was set at Rs 15 Kharba 33 Arba 44 Crore 69 Lakh, but only Rs 5 Kharba 88 Arba 51 Crore 42 Lakh, or 38.38 percent, was collected up to the end of Poush.

The grant was also cut in the last fiscal year. At that time, provincial and local levels expressed dissatisfaction, stating that the budget for already contracted and ongoing projects and programs was cut.

Following the protests, the Office of the Financial Comptroller General amended the decision regarding the third installment and released some funds. With cuts also in the fourth installment, the provinces and local levels ultimately received only 91.76 percent of their total approved annual budget.