Shortfall in Federal Grant Transfers Hits Budget Execution: NNRFC

The federal government’s failure to fully transfer grants allocated through the annual budget to provincial and local levels has disrupted overall budget implementation, according to the National Natural Resources and Fiscal Commission (NNRFC).

The commission’s seventh annual report, submitted to President Ramchandra Paudel on October 16, says that not only were grants not allocated as per its recommendations, but funds earmarked for lower levels were only partially released. This, it warns, has hampered effective budget execution at the subnational levels.

For fiscal year 2024/25, the commission had recommended transfers of Rs 60 billion to provincial governments and Rs 88 billion to local governments. Although the amounts were formally allocated, only 91.76 percent of the provincial and 91.74 percent of the local grants were actually disbursed.

“The failure to transfer fiscal equalisation grants as per the recommendation and budget allocation has affected budget implementation at the provincial and local levels,” the report states.

The report also notes that some provinces failed to fully transfer fiscal equalisation grants they had earmarked for local governments. In the same fiscal year, Lumbini Province transferred 99.75 percent and Karnali Province 98.91 percent of the allocated amounts. Both provinces had budgeted Rs 950 million each, but could not provide objective reasons for the shortfall.

The commission further said it was unable to analyse the implementation of conditional grants because neither the federal nor provincial governments provided necessary data.

“The commission could not assess whether conditional grants were transferred according to recommendations, as the required data were unavailable,” it said.

The report also found that several local governments breached legal procedures when borrowing from the Town Development Fund.

In 2024/25, 16 local governments borrowed a total of Rs 371.9 million. Some borrowed without including internal borrowing estimates in their annual budgets, while others exceeded the borrowing ceiling recommended by the commission.

(With inputs from RSS)