Federal Government Cuts Financial Equalization Grants to Local Levels

Kathmandu. The federal government has cut the financial equalization grants provided to local levels. The Office of the Controller General of Accounts, through a circular on Jestha 5, directed all Treasury and Accounting Controller Offices to cut the final installment of the financial equalization grant for the current fiscal year. Following this decision, the National Federation of Rural Municipalities Nepal and the Nepal Municipal Association have jointly expressed strong objection. The two umbrella organizations of local levels have warned of protests.

The representative organizations of local governments have called this move by the government contrary to the spirit of fiscal federalism and an interference in the constitutional rights of local levels.

The government has reduced the amount to be disbursed in the third and fourth installments from 25% each, totaling 50% of the total approved grant of 88.97 billion rupees for the current fiscal year, to 20.43%. Local governments will not receive approximately 7.60 billion rupees, which is 8.55% of the total budget.

In protest, the Federation and the Association have argued that financial equalization grants are not only a constitutional right of local governments but also a mandatory condition for the implementation of federalism.

'Such an important and sensitive decision should have been consulted and coordinated with the National Coordination Council or the Intergovernmental Fiscal Council, which includes representatives from federal, provincial, and local governments. It is not just to cut the budget unilaterally,' they said in protest of the government's move. They have demanded the immediate release of the full amount of equalization grants without any conditions.