KATHMANDU, Jan 24: The government revised how complementary and special grants are given to local and provincial governments. Authorities previously used an equal distribution of grants, but now they categorize areas by revenue, prosperity, and infrastructure to determine grant allocation.
The revision focuses on providing higher grants to resource-strapped local units and provinces.
Dr Shiva Raj Adhikari, Vice-Chairperson of the National Planning Commission, announced that the federal government will allocate more complementary grants to comparatively resource-poor municipalities. “This system ensures equitable access to resources and strengthens financial federalism across the country,” Adhikari stated. “We will now distribute grants fairly by categorizing local levels.”
He explained that the government introduced capacity-based financial federalism standards to accommodate the different capabilities of municipalities and provinces.
Local units, provinces may miss matching and special grants aga...
In the current fiscal year 2024/25, the federal government allocated Rs 26.10 billion for complementary and special grants to provincial and local governments. The Ministry of Finance disbursed Rs 6.20 billion as complementary grants to provincial governments and Rs 7 billion to local governments.
Similarly, the government allocated Rs 4.40 billion under special grants to provinces and Rs 8.50 billion to local governments. These grants support infrastructure development project implementation at the provincial and local levels.
The government will distribute complementary and special grants to provinces and local levels based on the deprivation index of socio-economic development. Provinces and municipalities have so far borne a minimum of 50 percent of the cost, while the federal government has covered up to 50 percent through complementary grants. Similarly, the government has prioritized providing special grants to lower levels to implement special programs.
The federal government has classified local levels into ‘A’ to ‘G’ categories based on resources, assets, and capacity. It will allocate up to 80 percent of the grant to local levels in category ‘A’, compared to the minimum 50 percent it previously provided. Municipalities in category ‘G’ will receive only 20 percent of the grant. This means that municipalities with strong revenue sources and infrastructure development will fall under category ‘G’ and receive only 20 percent of the grant. Municipalities receiving 80 percent of the grant will only need to invest 20 percent, while those receiving 20 percent will have to invest 80 percent.
The government provides four types of grants from the federal fund to provinces and municipalities: financial equalization, conditional, complementary, and special grants. According to the classification, 19 capable municipalities, including Kathmandu Metropolitan City, fall under category 'G'. These municipalities will receive only 20 percent of the complementary grant from the federal government.
The federal government will cover 20 percent of the costs for five metropolitan cities, including Kathmandu, four sub-metropolitan cities, including Dharan, and 10 municipalities, while the municipalities will bear 80 percent of the costs. For complementary grants, municipalities in the category 'A' will receive a maximum of 80 percent of the costs, category 'B' will receive 70 percent, category 'C' will receive 60 percent, category 'D' will receive 50 percent, category 'E' will receive 40 percent, category 'F' will receive 30 percent, and municipalities in category 'G' will receive 20 percent. A total of 157 local levels will experience a reduction in the grants for programs under complementary grants.
The federal government will bear 30 percent of the costs for programs at 39 local levels and 40 percent for another 118 local levels. However, the grant remains unchanged for 147 local levels.
The National Planning Commission has stated that the federal government will cover 80 percent of the costs for programs operated by 155 local levels under complementary grants, 70 percent for 150 local levels, and 60 percent for 63 local levels. Regarding complementary grants for provinces, Karnali Province will receive 70 percent, Sudurpashchim will receive 65 percent, Madhesh Province will receive 60 percent, Lumbini and Gandaki will receive 50 percent, and Bagmati Province will receive 40 percent.
The government amended the special grant procedures and determined the ranking of provinces and local levels based on the deprivation index of socio-economic development. According to the new list, municipalities such as Shey Phoksundo, Tajakot, Adanchuli, and Kaike have received the highest priority for special grants. Similarly, the government placed Kathmandu Metropolitan City at the lowest priority.
The federal government will now provide complementary grants for projects ranging from Rs 10 to Rs 70 million for municipalities and rural municipalities, and from Rs 30 million to Rs 150 million for sub-metropolitan and metropolitan cities, according to the amended complementary grant procedures. Similarly, the government has arranged complementary grants for provinces for projects ranging from Rs 100 million to Rs 300 million. The National Planning Commission adjusted the project cost estimates to ensure their accuracy.
