New Formula Adopted to Increase Local Governments’ Share in Royalty from Natural Resources

The Intergovernmental Fiscal Council and its thematic committee have decided to implement a new formula to increase the share of local governments in royalties derived from natural resources. Additionally, the Ministry of Finance will proceed with drafting amendments to laws related to fiscal federalism and budget discipline.

The meeting also resolved to raise the financial equalization grant in proportion to the increase in the federal budget, gradually reduce conditional grants, and coordinate among all three tiers of government to control revenue leakage. This decision was made at a meeting held on April 15 in Kathmandu. The plan to boost local government shares in royalties from natural resources was publicly announced during the meeting.

The Intergovernmental Fiscal Council and thematic committee, in a meeting held on Thursday, decided to implement a new formula aimed specifically at this objective. The decision highlighted, “Based on the recommendations from the National Natural Resources and Finance Commission, a new formula will be implemented to increase the local government share in royalties from the electricity, mountaineering, forest, and mining sectors.”

The meeting also agreed to improve financial transfers and grant systems by increasing financial equalization grants in line with federal budget growth. It decided to adopt a gradual reduction policy for conditional grants provided by the federal and provincial governments. Furthermore, coordinating among federal, provincial, and local governments to control revenue leakage was included in the decision. Prioritizing internal resource mobilization, each tier of government will prepare and implement a “Revised Revenue Collection and Leakage Control Action Plan” within its fiscal year. The meeting was chaired by Finance Minister Dr. Swarnim Wagle. Present at the meeting were financial and planning ministers from all seven provinces, ex-officio and expert members of the council, the Vice-Chair of the National Planning Commission, the Acting Chair of the National Natural Resources and Finance Commission, the Finance Secretary, secretaries of various ministries, the Deputy Governor of Nepal Rastra Bank, and other senior officials.