In theory, local bodies in Nepal possess the required political, administrative, and financial powers to lead, facilitate, and manage local development affairs effectively, as defined in the Local Self Governance Act. In practice, there are multiple barriers—lack of clarity on provisions, limited local resources, and deficient absorptive capacity—that prevent local bodies from exercising the functions assigned to them. In particular, the absence of elected political representatives in local bodies since 2002 has prevented them from functioning to their full potential.

According to Article 139 of the 2007 Interim Constitution, periodic elections to local bodies shall be held in order to promote the participation of the people. Otherwise, interim local bodies should be formed until there’s an election. But local elections have yet to take place and neither do we have interim local bodies. This has had adverse effects on local service delivery provisions, projects recommended for grassroots, and utilisation of local resources, all causing these institutions to be heavily dependent on central grants and relatively more accountable to the central government.

Measuring progress

To address these issues, the Government of Nepal introduced a Performance-Based Grants system for local bodies. This system evaluates the annual performance of local bodies based on planning and budgeting, financial management, fiscal resource mobilisation, communication and transparency, budget releases and programme execution, monitoring and evaluation, etc. The evaluation is done by the Local Bodies Fiscal Commission, which further recommends the government to increase or decrease additional grants.

The performance of local bodies is measured through two tools, called Minimum Conditions and Performance Measures. Minimum Conditions take the basic functions of local bodies into account, which serve as threshold criteria, ie, if a local body fails to meet any of the conditions, it will not be eligible for grants. Performance indicators cover additional functions that determine how much more or less grants a local body will receive if it meets all minimum conditions.

There are seven Minimum Condition indicators for Village Development Committees (VDCs), 10 for municipalities, and nine for District Development Committees (DDCs). For instance, the annual programme and budget of the current fiscal year are to be approved by the VDC council, and the VDC must undertake annual progress review and complete the final financial audit for all income and expenditure.

Similarly, there are 13 Performance Measure indicators for VDCs, 40 for municipalities, and 46 for DDCs; a total score of 100 is provided according to their importance and nature. Based on the financial detail analysis published by the Local Bodies Fiscal Commission, Krishna Gyanwali wrote in Kantipur on August 10 that VDCs have not been able to mobilise their internal resources these days.

Internal revenue

To address this problem, the Fiscal Commission has included an internal resource mobilisation-related performance indicator, ie, if a VDC succeeds in increasing its internal revenue by 10 percent or more, it will receive a 10 score for this. Other performance indicators for VDCs are: budget must be allocated to the targeted groups; birth, death, marriage, migration, etc related vital registration documents must be maintained; and citizen charters should be displayed on VDC premises.

Some additional indicators have been prioritised for municipalities. They are related to sanitation and waste management, environment management, vehicle parking management, promotion of public health, disaster risk management, along with a tree plantation indicator to preserve greenery.

Likewise, the  unconditional capital grant for local bodies has been linked to minimum conditions and a performance measurements system, and is distributed with an objective to improve service delivery. The advantage of this system is that grants are distributed transparently, based on population, poverty, and area. If a local body fails in any one of the indicators under Minimum Conditions, 100 percent additional grant will be deducted. Further-more, 20 percent additional grant will be deducted if a local body fails to receive 40 points out of 100. Currently, the system is in practice at DDCs and municipalities. This will be applicable to VDCs from the forthcoming fiscal year.

This fiscal year, eight DDCs, namely Solukhumbu, Okhaldhunga, Saptari, Siraha, Dhanusha, Bara, Mugu, and Humla lost Rs 6 to 22.5 million as they failed to comply with the Minimum Conditions. Among municipalities, only Dashrath Chand municipality failed to comply with Minimum Conditions and lost its additional grant.

From the last fiscal year, the VDCs grant has increased from Rs 3 to Rs 4.6 million. In the current fiscal year, 781 VDCs not complying Minimum Condition indicators lost a big chunk of their grant. Those receiving Rs 4.6 million received only 1.5 million. From the forthcoming fiscal year, the performance indicators will also be linked to grant allocation.

The good and bad

The main weakness of this system is that local bodies are penalised due to the negligence of its staff. The system, however, has not been linked to the performance of staff. Furthermore, there are too many performance indicators; the assessment system is cumbersome; and local bodies receive a big chunk of budget from outside the system. Additionally, most indicators are related to process and compliance and do not analyse or evaluate their impacts. The government should correct these anomalies. And in the absence of elected representatives, local bodies’ staff must be answerable to the people in case they lose grants.

Despite its faults, this system has encouraged stakeholders to improve local self governance and as a result, people have become more aware and have started pressuring local bodies to deliver better services and improve overall governance with more accountability, consciousness, and efficiency. Furthermore, this practice can also be replicated in other sectoral ministries looking into education, health, drinking water, and roads, including all service providing agencies. This will help local bodies become more effective and bring them that much closer to the people. In the long run, this system can also be applied to provincial governments for efficient and effective service delivery.

Devkota holds a PhD in fiscal decentralisation and is a former member of the Local Bodies Fiscal Commission