Time to deliver

  • Incoming govt should formulate laws to implement fiscal federalism with urgency

Dec 5, 2017-

Nepal will finally make the transition from a unitary to federal system of government after completion of second phase of provincial assembly and federal parliamentary elections on Thursday. This move will usher in a new era in the country, which has been centrally ruled for decades.

The transition is expected to help the government to fully implement the constitution promulgated in September 2015, which envisages creation of powerful subnational governments through devolution of authorities, from the centre to states and local bodies.

Many are eagerly waiting for this transition to take place because they believe it will bring some stability in politics, which has been marred by frequent government changes since the mid-1990s. This stability, many believe, will set the stage for the incoming government to focus on economic agendas and attain economic prosperity.

Yet, what is disappointing is the delay in implementing fiscal federalism. Fiscal federalism is an integral part of the federal government set-up, which allows lower tiers of government to enjoy what many call ‘economic self-rule’. Under this ‘self-rule’, subnational governments can design their own budget, make financial decisions on their own and adopt the necessary strategies to pursue development activities, create jobs and deliver public goods and services. But the government is struggling to fully implement fiscal federalism due to a lack of laws and guidelines. The upcoming government must speed this up.

So far, three sets of laws have been introduced to operationalise fiscal federalism. They are the Local Government Operation Act, which defines functions of various components of local bodies; the Intergovernmental Fiscal Management Act, which spells out ways to provide grants to subnational governments and distribute the proceeds generated from the use of natural resources among the three tiers of government; and the National Natural Resource and Fiscal Commission Act, which has enabled formation of a National Natural Resource and Fiscal Commission that will devise a formula for distribution of revenues and royalties among the three tiers of government in an equitable manner, besides fixing domestic debt ceilings.

What is now needed is the Federal Financial Procedure Act, which will pave the way for the central government to manage consolidated funds; frame, approve and spend the budget; maintain accounts and fiscal discipline; ascertain auditing standards and settle arrears. States and local bodies will also need this law. So, the central government should immediately prepare templates of the Act so that subnational governments do not face problems in formulating the annual budget, keeping records of expenses and maintaining fiscal discipline. Also, the government should frame model tax guidelines for states and local bodies so that they can get a fair idea of the processes involved in the collection of various taxes and fees.

In this process, the government, however, should not overlook the need to train human resource for smooth implementation of laws and guidelines that are framed. It is time for the government to gear up to make these deliveries so that Nepal’s shift to federal a set-up is not marred by any hiccups that could weaken democracy.

Published: 05-12-2017 07:35

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