KATHMANDU, Feb 15: The government has curtailed grant allocations for sub-national governments, citing revenue collection that fell short of targets in the first six months of the current Fiscal Year (FY).
In letters sent last week to the Treasury and Auditor Offices, the Financial Comptroller General Office (FCGO) instructed them to reduce the third instalment of fiscal equalisation grants allocated to provincial and local governments. Under the revised arrangement, sub-national governments will now receive only 20.43 percent of the originally allocated third instalment.
The Ministry of Finance (MoF) has enforced a 95-point guideline for budget implementation in the current FY. According to the guideline, the third instalment of fiscal equalisation grants is to be released based on revenue collection in the first half of the FY, while the fourth instalment will depend on the ratio between the revenue target and actual collection by mid-April.
Govt allocates Rs 417 billion to provinces and local levels for...
In the previous FY, provincial and local governments received only 91.76 percent of their total approved annual budget by the fourth instalment. A year earlier, the government had cut 50 percent of the third instalment of equalisation grants.
For several years now, the government has consistently fallen short of its revenue collection targets, largely attributed to the ongoing economic slowdown. Between mid-July 2025 and mid-January 2026, the government collected revenue amounting to Rs 581.41 billion. Although this was 2.5 percent higher than revenue collected during the same period last year, it fell short of the half-year target of Rs 711.21 billion by Rs 129.80 billion.
Revenue collection in the first six months represents just 39 percent of the annual target. The government aims to mobilise Rs 1.533 trillion in revenue in FY 2025/26.
Through the annual budget, the government has allocated Rs 417 billion to provincial and local governments under four types of financial transfers—equalisation, conditional, special, and supplementary grants. Of this amount, Rs 97.56 billion is earmarked for provincial governments, while Rs 320.26 billion has been allocated to local levels.
Based on the recommendations of the National Natural Resources and Fiscal Commission, the MoF has announced fiscal equalisation grants of Rs 60.66 billion for provinces and Rs 88.97 billion for local governments for FY 2025/26.
