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ApEx Series | Budgetary woes of local governments

Kamal Dev Bhattarai

Kamal Dev Bhattarai

ApEx Series | Budgetary woes of local governments

Funds are trickling down to local bodies. Yet many of them are still unable to carry out their fiscal duties. Some are struggling to present their budget on time while others cannot manage their expenses

For the first time in Nepal’s political history, the 2015 constitution gave local governments the right to present their annual budgets, raise taxes and establish local treasuries. The constitution also envisioned federal grants—fiscal equalization, conditional, special, and matching grants—for these local governments.

This meant a large volume of funds has started trickling down to the coffers of local governments. Yet many of them are still unable to carry out their fiscal responsibilities. Some are struggling to present their budget on time while others are unable to manage their expenditures.

Federal affairs expert Khim Lal Devkota recommends stern action against the local bodies that fail to bring timely budget.

“We should closely monitor local governments’ budget-handling,” he says. “If they fail to spend, the federal government should cut off their grants and transfer the funds to well-performing local bodies.”

Only around half of the local governments currently meet their budget presentation deadlines. Some introduce their budget weeks past the deadline while dozens of others cannot do so for much longer. This delay directly affects local-level development and governance.

The Intergovernmental Fiscal Arrangement Act-2017 makes it mandatory for all municipal governments to present their annual budget by Asar 10 (June 24). The date was specified so that development works could begin in July. But this isn’t the case in many local bodies.

According to the Ministry of Federal Affairs and General Administration, 14 local governments are yet to introduce their budget for the current fiscal 2021-22.

Thirteen of these local governments are from Madhes province and one from Bagmati province. Similarly, in the previous fiscal, four local governments from Madhes and one from Sudurpaschim failed to present their budget.

The Office of Auditor General (OAG) says both incomes and expenditures of local governments lose legitimacy if they fail to bring their budget by the legal deadline.

The National Natural Resources and Fiscal Commission, a constitutional body handling fiscal issues of all three tiers of government, has made timely budgets a condition for allocating federal grants to local governments. It has also suggested that the federal government cut performance-based equalization funds to delay-prone local bodies.

“But the federal government is yet to implement the commission’s recommendation,” rues Krishna Bahadur Bohara, the commission spokesperson.

There are a host of reasons resulting in budget-presentation delays in local governments—disputes between the chiefs and deputies of local bodies being the most prominent of them. This problem is particularly acute when candidates from different parties occupy the chief and deputy positions.

In the fiscal year 2020-21 more disagreements were reported between local body chiefs and deputies in Madhes province compared to any other other province, as per a study of the Democracy Resource Center (DRC), a Kathmandu-based think-tank.

In the fiscal year, the study shows, nearly half of the local governments in Madhes failed to present their budgets by the June 24 deadline and nearly 26 percent had not presented their budgets even by mid-August. By contrast, over 95 percent of local governments in other provinces had presented their budgets by mid-August.

The study also suspects that for the fiscals 2019-20 and 2020-21, budget-planning and project-implementation may also have been affected by the Covid-19 pandemic.

There are many instances of budget-presentation being delayed due to disputes between local government chiefs and deputies, with each wanting to allocate funds in their electoral constituencies. A case in point is Chhinnamasta Rural Municipality in Saptari district of Madhes. Chhinnamasta is yet to present this year’s budget, after failing to bring the budget last fiscal as well.

Surya Narayan Mandal, chairperson of the rural municipality, refused to talk to ApEx. Usha Kumari Mandal, deputy chairperson, meanwhile, blamed the chairperson for the budget-delay.

Political disputes aside, many local governments are also struggling with staff-shortage. Though it has been five years since the local governments were elected, the Ministry of Federal Affairs and General Administration is yet to supply the required staff to local governments.

The DRC study says both the federal and provincial governments have failed to provide enough help to local bodies in order to enhance their capacity.

Local governments are failing not just on timely budgets. Even the local bodies that have approved their budgets on time are hamstrung by skewed fund-allocation and low capital-expenditure. This is so mainly because many local governments have been ignoring fiscal rules while planning and allocating budgets. 

According to Local Level Plan and Budget Formulation Guideline 2017, local bodies should prepare a thematic list of ward-level projects prioritized by ward committees and the projects deemed necessary at the local level. But, instead of following the guideline, local leaders are busy shoring up their electoral constituencies.

The latest OAG annual report says local governments on average spent only 65.68 percent of the total budget, indicating that they are preparing their budget without serious planning. Similarly, 43 local governments overshot their budget ceilings while 57 are yet to undertake their fiscal audit.

Mounting arrears is another problem that plagues local governments, which, according to the OAG report, accounted for 4.05 percent of arrears. The report has identified several flaws in procurement, grant and expenditure management, and fiscal monitoring and reporting process, among other concerns.

The OAG has also identified the culture of local governments spending more money on small development projects to appease a particular group of voters as a problem.

Experts stress the need for supporting mechanisms to address these anomalies in local governments.

Says Devkota, the federal affairs expert, soon after the local governments were elected, he and others had proposed a dedicated think-tank to provide ‘knowledge support’ to local governments.

“But there was no initiative to implement the proposal. Local governments have been performing marginally better in recent years, but there are still many budgetary issues that need to be addressed,” he says.

Elected local representatives cite lack of coordination among the federal, provincial, and local governments as the main reason for delays in budget and development projects.

Bhim Prasad Dhungana, mayor of Nilkantha Municipality in Dhading district, says the federal and provincial governments don’t take the issues of local governments seriously.

“Lack of coordination has led to problems like budget duplication. There have been several instances of federal, provincial and local governments allocating budget for the same project,” he says.