Finance ministry cuts conditional grants allocated for sub-national governments

Published On: April 3, 2023 08:00 AM NPT By: Republica | @RepublicaNepal

Govt faces shortfall of Rs 181 billion to manage financial liabilities, adopts austerity measures

KATHMANDU, April 3: The Ministry of Finance (MoF) has cut down the amount of conditional grants that were being given to the provincial and local governments at a time when the federal government itself is struggling to manage its expenses amid the low revenue collection.

Last week, Finance Secretary Toyam Raya asked the authorities concerned to freeze Rs 240.89 billion allocated for the sub-national governments. Of the amount, Rs 57.17 billion was meant for seven provinces, while the remaining Rs 183.72 billion was allocated for local levels in the current fiscal year. Last year, the budget allocated under the heading for the local levels alone was Rs 173.49 billion.

Conditional grants are designated for a specific purpose identified by the government under its National Policy and Programs, while the allocated funds cannot be used for another project. The government transfers funds at local levels for projects run through mobilization of foreign assistance through this mechanism.

The MoF had been disbursing the conditional grant amount in four installments—mid August, mid October, mid January and mid April—every year. This fiscal year, the MoF has been left to release Rs 60 million out of the last installment under the heading.

As of now, the provinces and local levels have been getting a notable amount of funds under conditional headings. With the new rule into force, the sub-national governments will be able to receive the conditional grants on a needs-basis and work progress of the conditional programs they run.

Last month, the National Natural Resources and Fiscal Commission also recommended the government to reduce the portion of conditional grants from the annual budget. The commission has suggested the necessary funds through the fiscal equalization grant rather than conditional grant.

Citing to check the growing budget imbalance, the government has adopted austerity measures. The government this year spent Rs 836 billion, while the total receipt was only 655 billion. This shows a deficit of Rs 181 billion in the state coffers, pushing the government to rely more on the domestic borrowing to meet the financial liabilities.