Call for ministry directive on fiscal equalisation grant

- Post Report, Kathmandu

Apr 6, 2018-

The National Natural Resources and Fiscal Commission (NNRFC) urged the Ministry of Finance to instruct local and provincial governments to use fiscal equalisation grant to deliver public goods and services of high priority.

The NNRFC made the request after local bodies started diverting financial resources allocated for one purpose to perform some other task, rendering crucial projects and programmes without funds.

Fiscal equalisation is transferring fiscal resources either to offset difference in revenue raising capacity or public service cost.

NNRFC Spokesperson Ram Prasad Ghimire said, “We have come across many cases of haphazard utilisation of fiscal equalisation grant. For example, the use of funds allocated to education to purchase bulldozers. “If this continues, local bodies and provinces will face shortage of funds to deliver essential public services, creating dissatisfaction among people.”

The NNRFC recommends that the finance ministry should instruct local bodies and provinces to allocate adequate funds to cater services related to healthcare, education, agriculture and livestock before formulating other spending plans.

Local units should give priority to projects and programmes that were previously being implemented by the central government and now transferred to local and provincial governments, according to the NNRFC.

They should allocate adequate funds for social security programmes and for administrative work at local and provincial levels.

“Fiscal equalisation grant should be used for development work and uplift the living standards of socially and economically backward groups,” Ghimire said.

With the shift from unitary to federal system of government, the central government has started disbursing grants to local bodies and provinces to enable them to work in an autonomous manner and cater to various public goods and services. 

As per the constitution, the central government has to disburse fiscal equalisation, conditional, matching and special grants to local bodies and provinces every year.

Based on this arrangement, the government disbursed Rs148.6 billion in fiscal equalisation grant and Rs76.4 billion in conditional grant to local bodies in the current fiscal year. The central government has also allocated fiscal equalisation grant of Rs7.1 billion for provinces in the current fiscal year.

Local bodies received two of the four grants stipulated in the constitution in the current fiscal year, as many local bodies did not have elected representatives when the annual budget was set. The provinces received only one type of grant as state boundaries were not finalised when the annual budget was set.

The central government has to disburse all four types of grants to subnational bodies from the next fiscal year.

On NNRFC’s recommendation, the central government will provide fiscal equalisation and conditional grants to subnational governments. The Finance Ministry will provide matching and special grants. The NNRFC has prepared a formula to disburse fiscal equalisation grants among local bodies.

“It is based on indicators such as population, area, socio-economic development, available infrastructure, cost of service delivery and own-source revenue mobilisation capacity. We have forwarded the formula to the Finance Ministry,” said Ghimire and added, “Conditional grant will be provided on the basis of budgetary programmes.”

Published: 06-04-2018 09:42

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