The Ministry of Finance is forming Public Expenditure Review Commission to enhance financial resource generating capacity and reduce expenditure of the central and newly-formed subnational governments. 

The ministry will soon table a proposal at the Cabinet to establish the commission, which is crucial for institutionalising fiscal federalism in the country, according to Finance Secretary Shankar Prasad Adhikari.

The government is forming the Public Expenditure Review Commission for the third time to scout new ways through which resources could be generated for central and subnational governments. The commission will also chart out plans to reduce expenditure in central, provincial and local governments, demarcate economic and fiscal responsibilities among three tiers of government, and assign programmes for central and subnational governments to avoid the problem of duplication.

The first commission formed around 17 years ago under Binay Dhoj Chand had reduced the number of projects from around 700 to 450 mainly through mergers and introduced the concept of service contract in government bodies. “We hope the commission will recommend measures so that the cost of institutionalising fiscal federalism does not become unaffordable to us,” said Adhikari.

An initial study conducted by the Finance Ministry shows that the government needs a whopping Rs820 billion to build various physical infrastructure, mainly offices, and enhance capacity of human resources at provincial and local levels. This estimate also includes expenses required to launch voluntary retirement scheme for government officials.

On top of these expenses, the central government will also have to provide billions of rupees each year in the form of fiscal equalisation, conditional, matching and special grants to subnational governments. Also, the new government to be formed after the upcoming elections may introduce new social programmes as per the spirit of the constitution to establish a welfare state for which the government may have to bear huge costs.