June 25: The local bodies are under stress after the federal government unexpectedly cut grants it had been providing to them.

The tension between the local level and the federal government increased after the Ministry of Finance tried to cut 50 percent of the last installment of the fiscal equalization grant for the current fiscal year (FY 2022/23).

The Municipal Association of Nepal and the National Federation of Rural Municipalities in Nepal have accused the government of working against federalism by cutting the grants. They have tried to stop the government's attempt to cut the grant by knocking the door of the constitutional body.

After both the organizations submitted a memorandum to the National Natural Resources and Finance Commission regarding the reduction of the fiscal equalization grant, the commission wrote to the Ministry of Finance asking them not to reduce the grant amount.

A letter written recently by the Finance Commission, which is a constitutional body, states, “Using the powers vested by the constitution and the law, the National Natural Resources and Finance Commission has recommended the transfer of funds from the Federal Reserves to the provinces and local levels and has drawn the attention of the government and the Council of Ministers to make arrangements to transfer the funds as per the budget passed by the Federal Parliament for the fiscal year 2022/23.”

Only a few days ago, the National Federation of Rural Municipalities in Nepal and the Municipal Association of Nepal had met the Chairman of the commission, Balananda Paudel, and submitted a memorandum requesting him to take initiative.

Regarding the reduction of the fiscal equalization grant, the Executive Director of the Municipal Association of Nepal, Kalanidhi Devkota, said that fiscal federalism may fail if the government cuts the grants.

Devkota says that if the decision is not taken back, development work and payments at the local level will be stopped.

 The National Federation of Rural Municipalities in Nepal and the Municipal Association of Nepal have been stating that  cutting half of the fiscal equalization grant in the last installment is unconstitutional.

“As per the decision, the government has withheld the release of around Rs 12 billion which is required for half of the final installment amount. The amount is not difficult for the federal government to manage if it takes efficient measures to handle its expenditures and budget,” said Devkota.

Bhim Dhungana, President of the National Association of Rural Municipalities in Nepal, stated that cutting the equalization grant by half in the last installment was unconstitutional and stressed that the decision of the federal government should be corrected.

According to him, the direct impact of the government's decision has been seen in the development of the local units.

“Therefore, the unconstitutional decision of the federal government must be corrected. For that, we held a discussion with Finance Minister Dr Prakash Sharan Mahat. The dialogue with him was positive," Dhungana said.