In a letter sent to the local governments on Friday, the Ministry of Federal Affairs and General Administration asked the local governments to cut their spending in the areas of fuel spending for officer bearers, allowances, procurement of machinery, repair, and maintenance of vehicles, miscellaneous and office materials, notice publication and newspaper subscriptions, staff training, skill development, and awareness training and for organizing various workshops and seminars, monitoring and expenses activities, consultancy, furniture, and structural improvement of built building, among others.
The ministry has asked them to cut spending on these headings by 20 percent and adjust accordingly in the Line Ministry Budget Information System(LMBIS), an integrated financial management information system, through which budgets and programs are submitted to the federal government and get approval. According to the letter, if the procurement has already been ordered, the deduction in spending will not be applied. The local governments have been told to suspend new procurements even for the programs that have been included in the budget and programs of the local governments. If the procurement process has not begun to implement any project, the federal government has told the local government to take the approval of the federal government’s finance ministry. As per the letter, the local governments have been told not to create new job vacancies, or new liabilities to make payments within this fiscal year and not to provide any financial assistance except in exceptional cases. Not only the local governments but provincial governments have also been sent similar letters. The federal government said it has been essential to cut expenses under certain headings and suspend implementation of certain projects because of reduced revenue collection. According to the Financial Comptroller General Office, the government’s revenue collection as of February 4, stood at Rs 485 billion, a sharp drop from Rs 581 billion during the same period last fiscal year. "Besides reduced revenue, the previous government’s decision to increase compulsory liabilities by increasing the salary of public officials and lowering the eligibility age to get an elderly allowance to 68 years from 70 years also contributed to the resource crunch," said a finance ministry official. The federal government’s treasury is currently negative by Rs 90 billion. Citing these factors, the federal government called for a reduction of expenses by local and provincial governments too. As both provincial and local governments are heavily reliant on fiscal transfer and revenue sharing from the central government, they are bound to reduce these costs. The central government had promised a fiscal transfer of Rs 129.46 billion for seven provincial governments and Rs 300.37 billion for 554 local governments when the budget for the current fiscal year was presented in May 2022. Sub-national governments receive fiscal transfers in four headings—equalization grants, conditional grants, complementary grants, and special grants. The provinces and local governments are supposed to get an additional Rs 163 billion through a revenue-sharing mechanism as well. “In fact, resources available for the provincial and local governments have already shrunk due to reduced revenue collection,” said an official at FCGO. Various revenues that fall under the concurrent jurisdictions of federal and sub-national governments, should be shared among the different layers of the government. For example, the value-added tax is shared under the formula that the central government receives 70 percent of total VAT collection while provincial and local governments receive 15 percent each, according to the Intergovernmental Fiscal Arrangement Act-2017. Also, the provinces and local units each get 25 percent of the royalties from natural resources such as mountaineering, forestry, electricity generation, mining, and so forth. An official of the Finance Ministry said harsh measures were required to be taken because the central government’s treasury turned negative resources could not be generated as targeted. “We have been making fiscal transfers to the provincial and local governments as per the schedule. So, a lot of resources have been parked in the treasury of sub-national governments. But the central government does not have resources to spend at the moment,” the official said.
