The federal government has approved about Rs 300 billion for the budgets of the provincial and local governments for the next fiscal year 2024/25.
A Council of Ministers meeting held on Thursday decided to allocate Rs 77.50 billion for the seven provinces and an equal amount for the 753 local governments as per the established revenue distribution pattern for the upcoming fiscal year. Additionally, the meeting approved a total of Rs 60 billion for the seven provinces and Rs 88 billion for the local governments as the fiscal equalization grant (FEG) .
This decision was made in accordance with the recommendations put forth by the National Natural Resources and Fiscal Commission (NNRFC). Budget allocations for the provincial and local governments are determined based on the revenues and grants received from the federal government, as mandated by constitutional provisions. The distribution of the FEG from the Federal Reserve Fund to the provinces and local governments is based on their respective expenditure requirements and revenue capacities.
The FEG allocations are categorized into three groups: minimum grants, formula-based grants, and performance-based grants. Out of the total Rs 60 billion FEG allocated for the provinces, Rs 15 billion is designated as minimum equalization grant, Rs 42.60 billion as formula-based equalization grant, and Rs 2.40 billion based on performance criteria.
Under the NNRFC’s recommendations, Koshi Province will receive Rs 8.94 billion, Madhesh Province Rs 7.80 billion, Bagmati Province Rs 8.24 billion, and Gandaki Province Rs 7.64 billion as part of the FEG. Similarly, Lumbini Province is set to receive Rs 8.28 billion, Karnali Province Rs 10.37 billion, and Sudurpaschim Province Rs 8.72 billion.
Similarly, Rs 88 billion has been allocated under the FEG for the local governments for the next fiscal year. Similarly, Rs 26.69 billion rupees as minimum equalization grant, Rs 57.80 billion as equalization grant based on formula and grant of Rs 3.52 billion based on performance will be provided.
The share of the minimum FEG received by the provincial and local governments is 25 percent and 30.32 percent of the total FEG, respectively.
Similarly, in the case of the local governments, population has been made the main basis while recommending the minimum grant. While recommending minimum grants, local governments with a population lower than 10,000 will receive an increment of up to Rs 27.510 million. Similarly, if the population is more than 10,000 but less than 200,000, the grant amount will increase by Rs 2.5 million per every additional 10,000 population.
According to the NNRFC, while determining the financial equalization grant based on the formula, the human development index of the respective provinces and local units, economic-social inequality, the condition of infrastructure, the condition of revenue and the need for expenditure and the ability to raise revenue were evaluated.
