2024-05-26-世界银行-尼泊尔财政联邦制更新_2024年5月（英）_88页_9mb

Nepal Fiscal Federalism Update (May 2024) Summary

Core Content

The Nepal Fiscal Federalism Update (NFFU) 2024 provides an analysis of fiscal federalism progress in Nepal, focusing on provincial and local governments. It outlines economic performance, fiscal management, legal and institutional developments, and recommendations for improving fiscal frameworks.

Main Economic Performance

• Growth Slowdown: In FY23, all provinces experienced slower economic growth than in FY22, with Bagmati recording the lowest growth rate (1.4%) and Gandaki the highest (3.3%). The decline was driven by reduced wholesale and retail trade, manufacturing, and construction activities.
• Services Sector Impact: Bagmati, with the largest services sector, contributed more than one-third of national economic growth, highlighting its importance.
• Federal Revenue Decline: Federal revenue fell from 23.1% of GDP in FY22 to 19.2% in FY23, leading to a decrease in fiscal transfers to sub-national governments by 1.3 percentage points of GDP.
• Sub-National Revenue and Grants: Provincial and local government revenue and grants declined to a record low in FY23, with provincial revenue at 3.5% of GDP and local at 8% of GDP.
• Deficit Emergence: For the first time since FY19, both provincial and local governments recorded deficits in FY23, with provincial deficits at 0.3% of GDP and local at 0.4% of GDP.
• Underspending: Provincial governments underspent 34% of their budgets, while local governments underspent 24.4%. Program expenses, public construction, and contingencies were the main reasons for underspending.
• Vertical Fiscal Gap: The vertical fiscal gap remained higher for local governments than provincial governments, with Sudurpashchim and urban municipalities experiencing the largest deficits.

Legal, Policy, and Institutional Frameworks

• Progress on Reforms: Legal and institutional reforms under fiscal federalism have progressed moderately. The Fiscal Federalism Coordination Division (FFCD) at the Ministry of Finance (MoF) has been designated to coordinate fiscal federalism and public financial management (PFM) strategies.
• Civil Service Acts: By December 2023, all seven provinces had enacted their Provincial Civil Service Acts (PSCA), facilitating the recruitment of sub-national civil servants.
• Conditional Grants (CGs): The share of CGs in provincial revenue decreased from 19.6% in FY22 to 17.3% in FY23, indicating a slight increase in fiscal autonomy.
• Revenue Assignment: There is a need for clearer legal frameworks to define revenue and expenditure responsibilities among the three levels of government. The Construction Materials Management and Regulation Bill aims to clarify these roles.
• Inter-Governmental Fiscal Transfers (IGFTs): The IGFT system requires upgrades to improve clarity, flexibility, and timeliness of transfers. Local governments still rely heavily on CGs (46.5% of total revenue in FY23), with FEGs playing a smaller role.
• Legal Frameworks: The review of the Unbundling Report is ongoing to clarify responsibilities, and the legal framework for fiscal federalism needs further amendments.

Public Financial Management (PFM) Progress

• Budget Preparation: Most local governments complied with legal requirements for annual budgets and spending delegation. However, progress in preparing periodic development plans and MTEFs was limited.
• Accounting Standards: Local governments largely complied with national accounting standards, but budget transparency remained low. Only a small percentage of local governments provided comprehensive budget data.
• Procurement Plans: The number of local governments preparing and fully implementing procurement plans increased from 29.1% in FY22 to 44.1% in FY23. Still, nearly half of local governments did not prepare any procurement-related plan.
• Internal Control Systems: Internal control systems are improving, but coverage remains limited. Only a small portion of local governments fully implemented these systems.
• Audit Irregularities: There was a decrease in audit irregularities, but compliance with publishing annual budget execution reports declined, with rates ranging from 17% in metropolitan cities to 22% in rural municipalities.
• Public Hearings: Public hearings improved, indicating better community engagement and transparency.

Key Recommendations

Conclusion

The report highlights the challenges and progress in Nepal's fiscal federalism implementation, emphasizing the need for continued reforms in legal frameworks, fiscal transfers, and public financial management. It calls for urgent action to improve budget credibility, enhance fiscal autonomy, and ensure effective resource allocation and governance at the sub-national level.