Financial Equalization Grants Cut Again for Provinces and Local Levels This Year

The federal government has decided to reduce the financial equalization grants by 8.55 percent in the fiscal year 2082/83. The Ministry of Finance has instructed the Office of the Auditor General to transfer no more than 91.45 percent of the total appropriated grant for the current fiscal year. The National Natural Resources and Fiscal Commission has advised the government not to cut the grants and to ensure an increase in grants in line with the budget size.

Kathmandu, 6 Jestha – The federal government will cut the financial equalization grants by 8.55 percent again for the fiscal year 2082/83. On 4 Jestha, the Ministry of Finance wrote to the Office of the Auditor General, directing that the financial equalization grants for the current fiscal year be transferred up to a maximum of 91.45 percent of the total appropriations. Following this, the office has instructed the Treasury and Accounting Offices accordingly.

According to the office, when transferring the fourth tranche to provinces and local levels, the Ministry of Finance decided that the installment should not exceed 21.02 percent of the tranche itself nor 91.45 percent of total appropriations. The Ministry based this reduction on revenue collected up to the month of Chaitra, noting that only 84.11 percent of the targeted revenue was achieved. Accordingly, they argued that the financial equalization grants must be reduced in the same proportion.

However, local governments, provincial governments, and the Natural Resources and Fiscal Commission have been insisting that grants should be disbursed according to the amounts passed by Parliament without reductions. They argue that mid-year cuts in appropriated grants adversely impact budget implementation processes at local and provincial levels. For this fiscal year, the government had appropriated a total of NPR 14.962 billion as financial equalization grants: NPR 6.066 billion for seven provinces and NPR 8.896 billion for local levels.

The National Natural Resources and Fiscal Commission has recommended the government not to reduce appropriated financial equalization grants for the next fiscal year 2083/84. The commission stated, “It is essential to ensure that the financial equalization grants, transferred to provincial and local governments from the federal consolidated fund as approved by the Federal Parliament, are not reduced at any point during the fiscal year. Moreover, arrangements should be made to increase the total amount (ceiling) of such grants proportionally with the growth in budget size in recent years.”