Fiscal Commission Objects to Government's Move to Cut Grants to Provincial, Local Levels

The National Natural Resources and Fiscal Commission has formally drawn the federal government's attention to its decision to reduce fiscal equalization grants allocated to provincial and local governments.

The government had earlier moved to slash the grants, citing that revenue collection in the first six months of the current fiscal year fell short of targets. Following the government’s decision, the Financial Comptroller General Office issued a circular on February 10 directing all District Treasury Comptroller Offices to reduce the third installment of the grants.

A meeting of the Commission held on February 23 clarified that the constitutional authority to determine fiscal equalization grants rests solely with the Commission.

The Commission stated that the amount of fiscal equalization grants to be transferred to provinces and local levels from the Federal Consolidated Fund is recommended by the Commission, and the Government of Nepal is constitutionally obliged to implement those recommendations. It has urged the government to ensure compliance.

According to Article 60 (3) of the Constitution, the amount of fiscal transfer to be received by provincial and local levels shall be based on the recommendations of the National Natural Resources and Fiscal Commission. Additionally, Article 251 (1) empowers the Commission to “determine the basis and modalities for the distribution of revenue from the Federal Consolidated Fund among the federal, provincial, and local level governments in accordance with the Constitution and law.”

In defense of its position, the government has stated that revenue collection by mid-January of the current fiscal year reached only 81.75 percent of the target, necessitating a reduction in the third installment of equalization grants. It has reduced the grants by 20.43 percent of the allocated 25 percent installment, ensuring the cut does not exceed 20.42 percent of the total approved annual budget.

This is not the first time such reductions have triggered contention. Last fiscal year, the distribution of equalization grants was also curtailed, prompting dissatisfaction among recipient governments. Following protests at that time, the Financial Comptroller General Office revised its decision regarding the third installment and released some funds. However, cuts were later applied to the fourth installment as well, resulting in provinces and local levels receiving only 91.76 percent of the total approved annual budget for the year. -- RSS