Kathmandu, May 6: The federal government has slashed the Financial Equalization Grant allocated to provincial and local levels due to poor revenue collection in the third quarter of the current fiscal year.

According to the Ministry of Finance, only 82.72% of the projected revenue had been collected by mid-April 2081/82, leading to a proportional cut in the grant for the fourth installment. As per a directive issued on May 30, only 20.28% of the fourth quarter’s budget allocation under the Financial Equalization Grant will be disbursed.

The Controller General’s Office followed up with a circular to all Treasury and Accounts Controller’s Offices across the country, formalizing the reduced subsidy. This means state and local governments will receive only 91.76% of the total approved annual budget for the fiscal year.

Earlier in January, the third installment had also been reduced, with only 13.24% of the planned 25% grant released initially. After widespread protests from local governments, it was revised to 21.08%, still below the original commitment.

Vice President of the Nepal Municipalities Association, Krishna Prasad Sapkota, warned that the continued cuts will severely impact local governments. “Most local levels have weak internal resources. Cutting subsidies after promising them in the budget affects payments to ongoing projects,” he said, adding that municipalities are currently in discussion to address the funding gap.

Sapkota expressed concern over the repeated cuts and urged the federal government to reconsider the reductions, especially given the mounting pressure on local bodies to deliver development and public services.