The federal government has allocated approximately Rs 417bn in grants to provincial and local governments for the fiscal year 2025/26. Among the provinces, Karnali Province, which makes the least 4.19 percent contribution to the national GDP, has received the highest grant—Rs 16.04bn. 

This prioritization reflects the government’s continued focus on reducing regional disparities and promoting inclusive growth in underdeveloped areas.

With Karnali projected to grow at 4.74 percent in the current fiscal year, this substantial grant allocation aims to support that momentum. The province will get Rs 10.56bn in equalization grants, Rs 4.44bn in conditional grants, Rs 494.6m in special grants and Rs 539.7m in complementary grants in 2025/26. These funds are intended to improve infrastructure, expand public services and drive socio-economic development in the province, which has long faced challenges due to its remote location and limited economic base.

The equalization grants, which address fiscal imbalances between provinces, constitute the largest share—highlighting the government’s commitment to equitable resource distribution.

Koshi Province will receive Rs 14.5bn, including Rs 8.98bn in equalization and Rs 4.57bn in conditional grants, from the federal government in 2025/26. Likewise,  Bagmati Province, which includes the federal capital Kathmandu, will get Rs 13.81bn, while Madhesh Province is allocated Rs 12.73bn, Gandaki Province Rs 12.23bn, Lumbini Province Rs 14.01bn and Sudurpashchim Province Rs 14.2bn.

According to the Ministry of Finance’s intergovernmental fiscal transfer details, provinces will receive a total of Rs 97.56bn, including Rs 60.66bn in equalization grants—comprising Rs 15.16bn in minimum grants, Rs 43.06bn in formula-based grants, and Rs 2.42bn in performance-based grants. Conditional grants are Rs 241.8bn, with Rs 30.35bn allocated to provinces and Rs 211.45bn to local governments. An additional Rs 13.34bn in complementary grants will support targeted development efforts.

Locally, municipalities and rural municipalities will collectively receive Rs 320.26bn. Among metropolitan cities, Pokhara leads with Rs 3.64bn, followed by Kathmandu with Rs 2.34bn, which includes Rs 709.3m in equalization grants and Rs 1.63bn in conditional grants, but no special or complementary grants. Lalitpur will receive Rs 1.2bn, while Bharatpur, Birgunj, and Biratnagar are allocated Rs 2.36bn, Rs 1.37bn, and Rs 1.17bn, respectively.