Fill Resource Gap

Bini Dahal

Recently, around 150 representatives from local units arrived in Kathmandu to draw a serious attention of the Ministry of Finance towards a slash in the fiscal equalisation grant for the local governments. In its budget for the current fiscal year 2023/24, the federal government has significantly reduced the aforementioned grant. This step may have been taken considering the existing crunch of funds. However, as most local levels are not self-sufficient in financial resources, they are forced to rely on this grant for their functioning. 

With the promulgation of the Constitution of Nepal, 2015, Nepal’s governance system transitioned from unitary system to federalism. Under federalism, as highlighted in the constitution, the sub-national levels are entitled to receive various types of grants under the fiscal transfer provision. Among these, the fiscal equalisation grant is the largest category provided by the federal government to the local levels. The grant allocation is made on the recommendation of the National Natural Resource and Fiscal Commission (NNRFC), a constitutional body. 

Criteria such as expenditure needs, status and capacity of revenue collection, services to be delivered, socio-economic and other forms of discrimination and human development index in provinces and local levels are taken into consideration when making the recommendation. The federal government had to transfer 25 per cent of the grant to the locals in the third instalment. But, only seven per cent has been released for the current fiscal year. 

The representatives of the local units have shown their disappointment through the protest. They have given a seven-day ultimatum to the Ministry of Finance, demanding a review in its decision. Their main concern is that the absence of the grant has significantly affected the functioning of the local bodies. As the current fiscal year is coming to an end after a couple of weeks, they have been unable to mobilise the grant to carry out development and other activities.

There is no denying that cutting down funds can pose a major barrier to the local levels in their functioning. The country has embraced federalism to ensure a balanced and inclusive development. Its main concept revolves around dividing the nation into two or more tiers, whose rights and responsibilities are clearly defined by the constitution. And for the grassroots-level people, the local governments are the closest point of contact. So, they obviously have a big role to play when it comes to addressing the needs and aspirations of the people, while ensuring citizen welfare. The federal system of governance is considered to be an expensive one and in the current economic situation of the country, grant allocation has come across a major challenge for the federal government. 

For long-term, it is essential that the government concentrated its efforts on improving the nation’s economy. Efforts will have to be made to decrease the resource gap present. And for the time being, the government must come to an agreement with the agitating local levels to put effort into managing necessary resources just so that their functioning doesn't get obstructed. The government must make sure that its every effort is aligned with the true spirit of federalism and the idea of constitutionalism. Doing so can prevent disagreement and disapproval from the side of the local levels towards the centre. The relationship between the centre and the local units must remain harmonious to deliver better services to the people.