Budget implementation hit as federal govt withholds grant transfers to provinces, local levels

KATHMANDU: The implementation of Nepal’s national budget has been disrupted after the federal government halted part of the grant-based funds allocated to provincial and local levels midway through the fiscal year.

According to the seventh annual report of the National Natural Resources and Fiscal Commission, presented to President Ram Chandra Paudel on October 16, the federal government failed to fully release the grants that had been pledged to lower levels of government. The report warns that this shortfall has created serious challenges in executing development and administrative programs across the country.

During fiscal year 2024/25, the Commission had recommended the federal government provide Rs 60 billion to provincial governments and Rs 88 billion to local governments. Although the allocations were made, only 91.76 percent of the amount designated for provinces and 91.74 percent for local governments were actually transferred.

The report states that the incomplete transfer of fiscal equalization grants has directly affected budget implementation at both the provincial and local levels. Furthermore, even some provincial governments failed to fully transfer funds to local bodies. Lumbini Province transferred 99.75 percent of its allocated grants, while Karnali Province made only 98.91 percent of the transfer, despite both allocating Rs 950 million under fiscal equalization.

The Commission also noted that both the federal and provincial governments failed to provide complete data on conditional grants.

In addition, the report revealed that several local levels violated legal provisions while taking loans from the Town Development Fund. During the fiscal year, 16 local levels borrowed a total of Rs 371.09 million, some without including internal borrowing estimates in their annual budgets, and others exceeding the borrowing ceiling recommended by the Commission.

The Commission has cautioned that such irregularities and funding delays undermine fiscal discipline and weaken the effectiveness of federalism in practice.