Only two weeks are left for next fiscal year’s budget to be presented in Parliament, but the Ministry of Finance is still undecided over the allocation of financial resources for local bodies. 

Finance Ministry officials seem to be at a loss over the issue largely because of an absence of two crucial laws—the National Natural Resources and Fiscal Commission Act and the Intergovernmental Fiscal Transfer Act. These laws help the government to distribute revenue among the three levels of government—federal, provincial and local—in an equitable manner and to ensure fiscal discipline. 

Nepal formally embraced the federal set-up in March. With this, the government has also moved to devolve the responsibility of budget formulation from central to provincial and local levels as per constitutional provisions. 

However, since the boundaries of different states are yet to be finalised, the central government is formulating the budget on behalf of the provinces. As the government has carved out 744 new local bodies, it is compelled to transfer the responsibility of budget formulation to the local level. Further, the first phase of local elections is now over and elected representatives will also want to incorporate people’s aspirations in the new budget. 

Had the two laws been promulgated, the government would not have faced a problem in allocating resources to local bodies. But the drafts of the two bills are yet to reach the Cabinet. After that, they will be tabled in Parliament, where lengthy discussions will take place before they are signed into law. It would not be feasible to wait for these bills to pass.

Against this backdrop, the finance minister should immediately hold discussions with leaders of major political parties and reach a consensus on allocation of financial resources for local bodies. It appears that officials in the Ministry of Finance are also waiting for decisions to be made at the political level so as to prevent the budget allocation process from being controversial. The finance minister should take the lead and end the confusion.

If this dilly-dallying continues, the central government may decide to give continuity to the existing practice and formulate policies and programmes on behalf of local bodies. This will go not only against the spirit of the constitution, but also against the principle of a federal system of governance which aims to devolve power to the grassroots. 

The main objective of democracy is to empower people. As such, local bodies must be given an opportunity to frame budgetary programmes on their own. This will ultimately help the country achieve inclusive and sustained economic growth.