The implementation of the overall budget has been disrupted due to mid-year cuts in grant-based funds allocated to provincial and local governments by the federal government.
According to the seventh annual report of the National Natural Resources and Fiscal Commission, submitted to President Ram Chandra Paudel on October 16, the grants intended for provincial and local levels were transferred only partially. This trend, the report notes, has created significant challenges for effective budget execution.
For the fiscal year 2081/82 BS (2024–25 AD), the Commission had recommended that the federal government allocate Rs 60 billion to provincial governments and Rs 88 billion to local governments. Although the allocations were made, only 91.76 percent of the provincial grants and 91.74 percent of the local grants were ultimately transferred. As a result, provincial and local governments did not receive the full grant amounts announced by the federal government.
The report emphasizes that the federal government’s failure to transfer fiscal equalization grants as recommended has negatively affected budget implementation at both provincial and local levels.
It also notes that some provincial governments themselves failed to fully transfer fiscal equalization grants meant for local levels. Lumbini Province transferred 99.75 percent of its allocated amount, while Karnali transferred 98.91 percent. Both provinces had allocated Rs 950 million for equalization purposes.
Furthermore, the report points out that the federal government and the provinces have not provided required data on conditional grants to the Commission.
The Commission also found that several local levels failed to comply with legal requirements while taking loans from the Town Development Fund. During FY 2081/82 BS, 16 local levels borrowed a total of Rs 371.09 million—some without including internal borrowing estimates in their annual budgets, and others borrowing amounts beyond the ceilings recommended by the Commission.
