Budget delays at the local level: Reasons and repercussionsKanchanrup in Saptari has money in its treasury but no authorisation to spend even for dengue control.
The trend of many local governments not presenting the annual budget within the deadline continues in the current fiscal year too, with more than 30 local governments failing to do so till date.
The Intergovernmental Fiscal Arrangement Act-2017 required local governments to present their budgets for the fiscal year 2021-22 by Asar 10 (June 25) to their village or municipal assemblies.
“As many as 31 local governments have yet to present their budgets for the fiscal year 2023-24,” said Kamal Prasad Bhattarai, spokesperson for the Ministry of Federal Affairs and General Administration. “The law sets the deadline for presenting the annual budget and for its endorsement by the village or municipal assembly. Not doing so means not honouring the law.”
He said the budget presented after the deadline should be considered illegitimate. “It is a matter the oversight agency should look into and question on what legal basis such local governments spent their budget,” he added.
However, federal and provincial governments have continued to funnel budgets to the local governments that have been violating the law since 2017.
For example, Tiruhat Rural Municipality in Saptari failed to present its budget for the fiscal year 2021-22, but it got a fiscal transfer of Rs260 million from the federal government and Rs24 million from the provincial governments, according to the 60th report of the Office of Auditor General. It collected revenue amounting to Rs471.99 million in that fiscal year and spent Rs456.73 million, according to the audit body’s report.
Why delay the budget?
Kanchanrup Municipality, Saptari has yet to present its annual budget for the fiscal year 2023-24.
Both its mayor and deputy mayor are from the Nepali Congress. “My party does not have a majority in the municipal executive. The CPN-UML does, but they are not cooperating with me in the budget,” said Lalan Prasad Gupta, the mayor.
He claimed the UML representatives had not allowed him to select development projects, stating that the projects should be chosen by the wards. “There is also a dispute over the budget ceiling, which was fixed based on the performance of each ward in the past fiscal year,” he said.
According to Gupta, his municipality has called a meeting of the municipal assembly on September 13. “I hope to be able to present a budget in the next assembly,” he said.
Elected local representatives and observers cite political differences as the chief reason behind the delay in budget presentation and its endorsement at the local level.
Ashok Kumar Jaisawal, an executive committee member of the National Association of Rural Municipalities in Nepal, said the local governments where the mayor or chairperson does not have a majority struggle to bring timely budgets.
“Some elected representatives keep political interest above people’s interest. They want the village chief to fail as a part of political vendetta and don’t cooperate on the budget,” he said. “People suffer because, without a budget, the local government's service delivery and development works are badly affected.”
There is no legal alternative to the mayor or the chairperson once they are elected. There is no constitutional provision for removing mayors, unlike the prime minister and chief ministers, who can be ousted by the majority of legislative bodies.
Purna Chandra Bhattarai, a former government secretary with expertise in local governance, said the country’s laws do not envision a situation where the budget is not presented at the local level. “Even with political differences, you cannot remove the local government chief through majority votes. But this also hinders budget presentation,” he said.
“The absence of a fully empowered chief administrative officer and capable human resource as well as the lack of measures for reward and punishment over budgetary management are other hindrances,” Bhattarai added.
Why does Madhes have the worst record?
According to the Ministry of Federal Affairs and General Administration, most local governments that have failed to present a timely budget are from the Madhes Province.
Even now, a quarter of local governments in the province have not presented their budget, according to the ministry’s website. The ratio is 2.9 percent in Koshi Province, 2.5 percent in Bagmati, 2.3 percent in Sudur Paschim, 1.3 percent in Karnali, 1.2 percent in Gandaki and 0.9 percent in Lumbini.
This is not the first time that the local governments of Madhes have done badly in timely budget presentation. In fact, it has been a trend of the past seven years, the ministry’s record shows.
The lack of knowledge and capacity among elected representatives and the local government staff also add to the problem, according to stakeholders.
“In Madhes, there are elected representatives who cannot even write an application,” said Jaisawal. “There are ward chairpersons in my own rural municipality who cannot even introduce themselves. How can you expect them to run the administration?”
Madhesh Province has been ranked the lowest in human development. According to the Nepal Human Development Report 2020 released by the National Planning Commission and the United Nations Development Programme, the province scored the lowest (0.51), followed by Karnali (0.538) in the human development index. The report says Madhes scores the lowest on education, followed by income criteria.
Stakeholders say the lack of awareness among the Madhesi communities of the state affairs is a crucial reason behind the consistent delay in budget presentation.
“For a long time, the Madhesi community lacked access to the state and their representatives and they don’t know the grammar of state affairs,” Tula Narayan Shah, an advocate for Madhes rights, told the Post in September 2020.
What are the impacts?
Due to the delay in budget presentation, Kanchanrup Municipality, Saptari is struggling to arrange funds for essential services.
“The municipality has seen an increasing number of dengue cases but we don’t have money even to procure medicines,” said Gupta, the mayor. “We have money in the treasury but have no authority to spend it.”
Delays in paying local government staff and in the preparation and execution of development projects are other impacts of late budgets.
Even in the past, local governments faced such problems. Some local governments failed to provide staff salaries even during the Dashain festival. Development activities are often pushed back. For example, Tirupati Rural Municipality presented its budget late in the fiscal 2021-22. As a result, half of the capital spending occurred in the year's final month.
According to the report of the Office of Auditor General, the rural municipality’s capital budget spending in the fiscal 2021-22 was Rs143.60 million. Of the total, as much as Rs73.58 million was spent during Asar (mid-June to mid-July) of 2022.
“When you spend most of your capital budget in the last months, work quality suffers, and chances of irregularities grow,” said Bhattarai, the former government secretary.
What is the solution?
The constitution does not envision ruling and opposition parties at the local level. The law also has not suggested the consequences for local governments that fail to bring a timely budget.
“The Local Government Operation Act-2017 envisions a system whereby all the political parties cooperate to run the local government,” said Bhattarai. “As such cooperation has seldom been seen in the past seven years, it is necessary to have punitive measures such as curtailment in budgetary resources in the next fiscal year,” said Bhattarai.
He suggested that such a provision could be made by amending the Local Government Operation Act-2017. Obviously, the National Natural Resources and Fiscal Commission has a leeway for curtailing the budget of such local governments.
Yamuna Pradhan, joint-secretary at the commission, said they give lower scores, during performance evaluation or while recommending resource allocation, to the local governments that fail to present a budget than to those that come up with timely fiscal estimates. The grants that local governments get in the future depend on the score.
“We do so only after confirming the delay in budget presentation based on the details provided,” she said. “We also give them 15 days to register any complaints against our recommendation.”
However, stakeholders call for visible punishment to discourage delayed budget presentation.
On the delay in the budget due to the lack of knowledge and expertise, stakeholders said the federal government should take the initiative to improve the capacity of local officials.
Since 2019, the federal government has implemented the Provincial and Local Governance Support Programme (PLGSP) with the objectives of policy support, institution building and capacity enhancement at the provincial and local levels.
The $130 million programme aims to modernise local governments with strong administrative systems and accountable public financial management. It also aims to ensure that the elected representatives and civil servants are empowered and trained to deliver quality services.
“The consistent delay in budget presentation by many local governments has raised questions over the effectiveness of this programme too,” said Bhattarai, the former government secretary.