When local governments miss legally mandated budget deadlines, it affects several sectors: services stall, salaries get stuck, and development work freezes. They also begin to lose public trust. This year, 108 local bodies failed to endorse their budgets by the July 15 deadline, more than six weeks after they were required to present them by June 24. Of the 753 local governments across the country, only 645 met the obligation—meaning around 14 percent defaulted, with nearly half of them not even conducting their assembly meetings. It is a recurring problem. But its scale and persistence now raise fundamental questions about the functioning of the lowest tier of our federal system. The delay has been most acute in Madhesh Province, where 53 of 136 local governments missed the deadline. Koshi follows with 16, Lumbini and Bagmati with 12 each, Karnali with 9 and Gandaki and Sudurpashchim with 4 each. This consistent failure not only violates the Intergovernmental Fiscal Arrangement Act 2017, but also prevents local units from accessing federal grants and implementing resources efficiently. Without approved budgets, these institutions cannot pay salaries, generate income, or carry out their proposed activities. It also increases the risk of financial mismanagement. According to the Auditor General’s Report for fiscal year 2023/24, local bodies had arrears totalling Rs 25.32 billion, out of total national arrears of Rs 733.19 billion. Of the 5,759 institutions flagged over arrears, 761 were related to local bodies.
Most of these delays are the result of political disagreements within local councils. When elected representatives cannot agree on who controls what, financial planning takes a backseat. In some cases, local executives attempt to push budgets without consensus—or avoid meetings altogether. Opposition parties may boycott sessions to disrupt proceedings. The problem worsens when provincial or federal actors remain silent or delay necessary interventions. Even with a legal framework in place, the lack of enforcement has created a pattern of impunity. But this is not how federalism is meant to function. One of its core purposes is to bring the government closer to the people—making it more responsive and efficient. Budget planning delays raise serious concerns about whether local representatives are fulfilling their responsibilities. When local bodies fail to meet such basic requirements, it sends the wrong signal. People begin to feel that the system exists only for those who hold power—not for those they represent.
For many citizens, these missed deadlines symbolise weak governance rather than effective decentralisation. Solving this problem requires more than short-term visits or fact-finding missions. There must be a clear provision that if a local body fails to pass a budget on time, the Chief Administrative Officer (CAO) can step in with a temporary budget for essential services. This must be followed by a mandatory review and disciplinary action if political actors are found to have intentionally stalled the process. Federal and provincial governments must stop treating these lapses as routine and address them with the seriousness they deserve. If the lowest units of government repeatedly fail to carry out their basic duties, it will lead to a gradual erosion of public trust in federalism. To safeguard the very principle of federalism, local governments must clean up their act.