Finance Ministry officials have urged the political leadership to forge consensus to create a transitional budget for the next fiscal year as two crucial laws required to manage public finance in a federal structure are not likely to be finalized before the budget presentation date.

With less than a month remaining for the government’s annual financial plan to be presented in Parliament, two laws required to bring the budget in a federal structure—National Natural Resources and Fiscal Commission Act and Intergovernmental Fiscal Transfer Act—are not likely to be ready in time.

The country has formally embraced a new local restructure from the third week of March in line with the new federal setup. Different bodies at the local, district, zonal and regional levels were dissolved and replaced by 744 new local units.

These local units, as per the constitution promulgated in September 2015, can frame the annual budget on their own. In other words, the local units now have the authority to prepare their own estimates of income and expenditure and execute different tasks, including development works, without consulting the central government.

But to enable the local units to exercise this power, the government must come up with the aforesaid laws. The National Natural Resources and Fiscal Commission Act must be passed to set up a National Natural Resources and Fiscal Commission.

The commission is necessary to manage public finance in a federal structure as it will distribute revenues between the federal, state and local governments, set parameters for distribution of grants to state and local governments and propose debt ceilings for federal, state and local governments.

Likewise, the Intergovernmental Fiscal Transfer Act, which will ensure fair and equitable distribution of resources, needs to be passed.

The Finance Ministry has prepared drafts of both bills and sent them to the Law Ministry for its approval. After the Law Ministry okays them, they will be sent back to the Finance Ministry to be forwarded to the Cabinet and then to Parliament for final endorsement.

The process is likely to take more than a couple of months even if the concerned ministries work on a war footing. Under such circumstances, these laws are not likely to be readied even if the budget presentation date is pushed back by a couple of months because of the government’s recent decision to hold local elections in two phases.  

In the absence of crucial laws mandated by the constitution to prepare a budget for the upcoming fiscal year, the only amicable solution is to bring a transitional budget by forging consensus among the major political parties, according to a source at the Finance Ministry.

“We have made a similar suggestion during talks with the finance minister,” said the source. 

Former finance minister Ram Sharan Mahat also said an amicable solution to the current problem is issuing a transitional budget.

“Creating laws is a time consuming process, and it should not be done in a rush,” said Mahat.

“In the absence of a legal framework required to implement a federal system, a transitional system will work.” A federal system can’t be implemented overnight, but it can be done gradually on a phase-wise basis, Mahat added.