The trend of spreading the budget in piecemeal plans will be stopped, and the project bank will be made effective.

The government is going to stop the tendency of duplication in projects and spreading budget in small fragmented plans. For this, the government is preparing to manage budget allocation according to the set 'threshold' (minimum limit) of development projects. 

The meeting of the Inter-Governmental Finance Council and thematic committee held at the Ministry of Finance on Thursday has decided on various 16 points of reforms including this to make public finances systematic. According to which, the government will make it mandatory for all three levels to implement the concept of 'Project Bank' for allocation efficiency and effectiveness of capital expenditure, and the meeting has decided that the three levels of the government will be integrated and managed by the National Planning Commission.

In the meeting, Finance Minister Swarnim Wagle emphasized the need for cooperation and coordination between all three levels of governments for the successful implementation of federalism. He said that the federal government has positively accepted the legitimate demands of the provincial finance ministers regarding financial devolution and autonomy.

Minister Wagle expressed concern over the increasing trend of ‘grant-oriented’ dependence on federal grants due to weak revenue capacity at the lower levels and expressed his commitment to end financial deviations and make this council result-oriented.

These are the important 16-point decisions taken by the meeting to strengthen fiscal federalism:

1. Reviewing the implementation status of the decisions of the 11th meeting of the Inter-Governmental Finance Council, all three levels of government will work in accordance with the spirit of federalism, focusing on service delivery and good governance so that citizens can directly experience it.

2. The Ministry of Finance will take forward the process of preparing a draft of amendments to the Intergovernmental Financial Management Act, 2074 and the ‘Law on Budget Discipline’ related laws.

3. Improve the financial transfer and grant system and increase the fiscal equalization grant in proportion to the increase in the federal budget. Adopt a policy of gradually reducing conditional grants from the federal and provincial governments.

4. Implement a new formula to increase the local level's share in electricity, mountaineering, forest and mining royalties based on the recommendations of the National Natural Resources and Finance Commission.

5. Coordinate between the three levels of government to control revenue leakage. To prioritize internal resource mobilization, each level should prepare and implement a 'Revenue Collection and Leakage Control Reform Action Plan' within the current fiscal year.

6. Manage budget allocation according to the set 'threshold' (minimum limit) of development projects to end duplication and the tendency to spread budget across small, fragmented plans. All three levels should implement the concept of 'Project Bank' for allocation efficiency and effectiveness of capital expenditure. The National Planning Commission should manage the integration of the three-level project banks.

7. Do not impose any type of tax, duty or fee on the transportation of goods produced in one local level through another local level, contrary to the spirit of the Constitution of Nepal and the prevailing laws. If any local level is imposing such ‘fees’, write to all local levels through the Ministry of Federal Affairs and General Administration to immediately remove such fees.

8. All three levels of government should strictly implement the austerity policy to reduce the financial liability of the state’s current expenditure. Review the organizational structure, organizational restructuring, and staffing to enhance administrative efficiency.

9. To manage the post-retirement payments of permanent employees of the provincial government and local levels, the remaining local levels and provincial governments should make arrangements to implement it mandatorily from 2083.04.01. For this, the provincial governments should be issued a circular by the Office of the Prime Minister and Council of Ministers and the local levels by the Ministry of Federal Affairs and General Administration.

10. End the trend of keeping the budget in ‘loan’, identify old sick projects and cancel or resolve them, and distribute annual programs and projects according to activities while formulating the budget by the federal, provincial, and local levels.

11. To ensure transparency in economic transactions, develop and implement a ‘Real Time Integrated Financial Information System’ by integrating systems such as LMBIS.  

12. Governments at all three levels will emphasize on reducing red tape and prepare a classified description of red tape and expedite its clearance with a time-bound action plan.

13. While formulating laws, coordinate in accordance with national policy as per Article 232 (2) of the Constitution of Nepal. Request the Office of the Prime Minister and Council of Ministers for necessary action regarding laws that conflict with the sole jurisdiction of the Union and federal laws in Schedule-5 of the Constitution and are not even identical.

14. For tourism promotion and inter-regional cooperation, make easy arrangements for the smooth movement of tourist vehicles from neighboring countries across Nepal without charging additional taxes from the provinces after paying temporary import duty at customs points.

15. Request the Office of the Prime Minister and Council of Ministers for necessary coordination in addressing the existing legal complexities and procedural delays in the land acquisition process to effectively implement the annual budget and programs of the provincial and local levels and to expedite the construction of administrative buildings and other government physical structures.

16. Request the Office of the Prime Minister and Council of Ministers, the Ministry of Federal Affairs and General Administration, and the Ministry of Forest and Environment to remove the legal, policy, and procedural obstacles in the sustainable and systematic use and mobilization of forest products and riverine products and to facilitate the collection, sale, and distribution of forest products and riverine products in order to increase the internal revenue of the three levels of government, the federal, provincial, and local levels.