Government Releases Rs 16.99 Billion Fiscal Equalization Grant to Local Governments

The government has decided to provide local governments with a fiscal equalization grant worth Rs 16.99 billion for the fiscal year 2023/24. This decision, made in a Cabinet meeting on Monday, reverses an earlier stance not to release the remaining grant amounts due to a revenue shortfall.

Initially, the government had announced a total fiscal equalization grant of Rs 87.35 billion for 753 local governments in the current fiscal year. However, only Rs 64.24 billion had been disbursed before the latest decision. With the additional Rs 16.99 billion now approved, the total disbursement will reach Rs 81.23 billion, which is still Rs 6.12 billion short of the initially declared amount.

Despite the release of funds to local governments, provincial governments will not receive their allocated grants this year. The federal government had earlier announced a similar grant worth Rs 57.67 billion for the seven provinces. The Ministry of Finance attributed the halt in disbursements to a significant shortfall in revenue collection, estimating that revenue would be 30 percent less than the target. As of last month, the federal reserve fund was negative by Rs 208 billion, with additional financial liabilities of around Rs 250 billion expected by mid-July.

The decision to withhold grant amounts had sparked protests and frequent debates in the House of Representatives. The constitution mandates that fiscal equalization grants be distributed based on expenditure needs and revenue capacity, highlighting the importance of these funds for sub-national governments.