As per the Local Government Operation Act, local units have until June 25 to present their budget for the forthcoming fiscal year which begins on July 15. But many local units have been tardy in submitting their annual financial plans. Questions have been raised why action should not be taken against them. The performance-based grant system provides much information on what action should be taken against those who do not submit the budget on time. Errant local government can be punished through the fiscal transfer channel. This system has been in place for some time and it worked well. Earlier, it was called Minimum Conditions and Performance Measurements, and was an integral part of the local governance reform process. The performance of local units was measured through two tools called Minimum Conditions and Performance Measurements. If a local unit failed to meet any of the conditions, it would not be eligible for additional grants.

Performance measurement indicators covered additional functions that determined how much more or less grants a local unit received if it met all minimum conditions. This system evaluated the annual performance of the local unit based on planning and budgeting, financial management, fiscal resource mobilisation, communication and transparency, budget releases and programme execution, monitoring and evaluation and so forth. The evaluation was done by the then Local Bodies Fiscal Commission. The additional grant system was fully aligned with this tool. Out of the total unconditional capital grant allocated to local bodies, 70 percent was linked to this tool.

Condition indicators

There were 10 minimum condition indicators for municipalities and seven for village development committees. In order to get an additional grant, the local body had to pass all indicators. As for performance indicators, there were 40 indicators for municipalities and 13 for villages development committees. They were evaluated on the basis of a total of 100 marks. If they did not get the minimum 40 marks, an additional 20 percent of the grant would be deducted.

Despite the scarcity of manpower and resources and lack of elected representatives, most of the local governments followed this tool. The implementation of this system had improved the planning, budget implementation, resource mobilisation, monitoring and evaluation, transparency and other areas at the local level. The local units were particular about following the procedures of the Local Self-Governance Act and the regulations under it in line with the belief that they should be responsible and accountable to the people. This tool was working smoothly, but it was discontinued after the country adopted federalism.

Along with the structure of the National Natural Resources and Fiscal Commission, the erstwhile Local Bodies Fiscal Commission was abolished. However, due to the delay in the formation of the National Natural Resources and Fiscal Commission, the existing mass scale performance measurement tool in the former local level could not be continued. It has been a nearly half a decade since the secretariat of the commission was formed. Further, it has been more than two years since the commission was formed. In such a situation, it is recommended to the commission to start a full-fledged fiscal transfer system based on performance measurement at the local level.

As for the symbolic indication, the commission has started to link a nominal figure (2.5 percent of the total formula based fiscal equalisation grant at the local level) from the fiscal year 2019-20. In the current fiscal year 2020-21, the commission recommended a similar tool and amount for both local and provincial levels. However, the recommendation was not implemented. The commission seems to be ready to follow this tool, but it has seen the need to create an appropriate legal and political environment. Even in the previous system, the government had given high priority to it in its policies, programmes and budget speeches. In addition, the cabinet had also authorised it. Further, there was a strict provision in the local government-related laws and regulations. This tool will not be successful without the full support and commitment of the government.

Service delivery

It cannot be questioned that the government will not give its full support to establish an effective service delivery provision at the local level. Rather than the commission taking the lead in this, the government machinery should be actively involved in assisting the commission. For this, the role of the Ministry of Finance and the Ministry of Federal Affairs and General Admiration is necessary and effective. Fiscal transfers have also been made at the local level from the provinces. The provinces also need to make such measurements in coordination with the National Natural Resources and Fiscal Commission. There is no question that the assessment done in about 4,000 bodies at the local level in the past cannot be done now.

As the country has been transformed from a unitary governance system to a federal one, the people have sought faster and faster service flow than before. As per the principle of subsidiarity, local levels are the closest government for the people. People expect better, more effective, quality and accountable services than before, but they are not satisfied with the performance of the local units. Local-level representatives should understand the people's voices and address them properly. In order to make the local level truly accountable to the people, the nation, the constitution and the law, there should be no delay in re-implementing the system of rewarding and punishing local levels by following the performance measurement indicators. If performance measurement at the local level is conducted as a campaign, the work done at the local level and the service flow will improve several-fold.