Nepal's Sub-national Governments Show Weak Spending Capacity, Economic Report Reveals

Kathmandu. The current economic status report of Nepal published by the Ministry of Finance on Monday shows that the spending capacity of the provinces and local levels is very weak.

According to the government's white paper, although provinces and local levels account for about one-third of the country's total consolidated expenditure, the allocated budget has not been fully utilized.

Share and Statistics of Expenditure

According to the white paper, in the total consolidated expenditure for the fiscal year 2081/82, the federal government's share is 65.6 percent, while the provinces' share is 9.8 percent and local levels' share is 24.6 percent. 

Compared to the previous fiscal year 2080/81, there has been a slight decrease in the expenditure share of provinces and local levels. Last year, the provinces' expenditure share was 9.9 percent and that of local levels was 25.8 percent.

The ministry's report states that the share of capital (development) expenditure within the total consolidated expenditure is only 28.0 percent.

Dependence on Revenue Collection

According to the statistics, the contribution of provinces and local levels to revenue collection is still low. While the federal government's share in total revenue is 92.1 percent, the combined contribution of provinces and local levels is only 7.9 percent. 

In the fiscal year 2080/81, this share was 8.0 percent. This indicates that local and provincial levels are still heavily dependent on financial transfers and grants from the federal government.

Weak Spending Capacity: The Main Challenge

The white paper identifies weak spending capacity as the biggest problem for provinces and local levels. Since the implementation of fiscal federalism, the federal government has been transferring an average of 22.6 percent of the total budget to lower levels through financial transfers and about 11 percent through revenue sharing. 

However, the budget utilization status is disappointing. According to the data for the fiscal year 2081/82, provincial levels have only been able to spend 71.3 percent of their allocated budget. Local levels have only been able to utilize 76.4 percent of their allocated budget.