Paper Title
Intergovernmental Fiscal Transfer in Nepal: Lessons Drawn from the International Practices

Nepal has transformed its governance system from the unitary to a federal democratic republic after the promulgation of The Constitution of Nepal on September 20, 2015. On the basis of constitutional provision, the modality for the intergovernmental fiscal transfer (IGFT) system (i.e. from federal level to provincial and local level) yet to be further clarified. However, the first federal budget 2017-18 has allocated the fiscal equalization grant and special grant to the local level and newly formed Intergovernmental Fiscal Management Act 2017 has provisioned the revenue sharing modality and natural resources revenue sharing modality among the different tiers of government. The objective of this article is to review the intergovernmental fiscal transfer (IGFT) system in Nepal and to suggest the appropriate IGFT model and need variables based on the international practices and national need. This study has adopted the descriptive and analytical method based on the qualitative data. Regarding the issue, the study suggests that- the equalization grants should be transferred on formula basis. In the initial phase of the new governance system, fiscal transfer formula should be research based, very simple and clear. The variables used in formula should be relevant, non-disputable and selected on the basis of national context and availability of the data. Relevant database of the newly established provincial and local governments should be developed accordingly and the fiscal transfer formula should be amended periodically which will serve more the constitutional spirit of fiscal equalisation. Moreover, specific and clear guidelines should be formulated to implement the matching and special grants as well. Keywords - Intergovernmental fiscal transfer, revenue sharing, vertical fiscal imbalances, horizontal fiscal imbalances, federal government, state government, local government,