Federal Government Increases Intergovernmental Fiscal Transfer to Provinces

Biratnagar. In Nepal's federal governance system, provincial governments are still financially dependent on grants from the center. However, the federal government has slightly increased the size of intergovernmental fiscal transfers to the provinces for the upcoming fiscal year (2083/084).

The federal government's Finance Minister Dr. Swarnim Wagle has presented a budget of 21 kharba 24 arba 34 crore for the upcoming fiscal year. For the current fiscal year, the federal government had presented a budget of 19 kharba 64 arba.

With the increase in the budget for the upcoming fiscal year, the federal government has also slightly increased the grants provided to provincial governments.

While a total grant of 97 arba 56 crore 4 lakh rupees was allocated for all seven provinces in the current fiscal year, this amount has increased to 1 kharba 9 arba 65 crore 35 lakh for the upcoming fiscal year. The overall grant amount has increased by 12.5 arba.

Accordingly, Koshi Province is set to receive a grant of 16 arba 47 crore 10 lakh rupees for the upcoming fiscal year. In the current fiscal year (2082/083), Koshi Province had received 14 arba 50 crore 33 lakh rupees.

However, the grants for some provinces like Madhesh Province and Sudurpashchim Province have increased significantly. Madhesh Province, which received 12 arba 73 crore 64 lakh rupees in the current year, is expected to receive a grant of 17 arba 59 crore 87 lakh in the upcoming year. Similarly, Sudurpashchim Province's grant has increased from 14 arba 20 crore 72 lakh to 16 arba 1 crore 47 lakh.

Looking at the nature of the grants, for the upcoming year, 61 arba 50 crore 32 lakh rupees have been allocated for equalization grants, 39 arba 72 crore 74 lakh for conditional grants, 3 arba 82 crore 11 lakh for special grants, and 4 arba 60 crore 18 lakh rupees for complementary grants. This indicates that there has not been a significant increase in the portion of equalization grants that allow provinces to spend according to their priorities.

Amidst fluctuations in the size of grants, the spending capacity of provincial governments has been disappointing. The expenditure details of Koshi Province, included in the eighth report of the Auditor General, confirm this. The gap between the grants that the Koshi Provincial Government is supposed to receive from the federal government as per the Intergovernmental Fiscal Management Act, 2074, and its actual expenditure is quite large.

Koshi Province had estimated a budget of 14 arba 54 crore 26 lakh rupees for the fiscal year 2081/082, but only received 13 arba 40 crore 84 lakh rupees. This is only 92.20 percent of the total estimate.

Out of the grants received, the provincial government was only able to spend 11 arba 31 crore 12 lakh rupees. According to the report, out of the 5 arba 20 crore 21 lakh rupees disbursed for conditional, special, and complementary grants, 3 arba 83 crore 53 lakh rupees, or 73.73 percent, were spent, excluding foreign grants. Although 91.10 percent of the financial equalization grant was spent, the failure to spend conditional and special grants linked to development construction on time indicates a weak project implementation aspect of the province.

The unspent grant amount must be returned to the Federal Contingency Fund as per the rules. Koshi Province alone has returned 1 arba 36 crore 68 lakh rupees to the federal government in the last year. On one hand, provincial governments are demanding more budget and authority from the center, while on the other hand, they are demonstrating inefficiency in the management and utilization of available resources.