Enact legal and administrative reforms for local government in Nepal

Enact legal and administrative reforms for local government in Nepal.

Regarding local governance, several Acts and Regulations have been formulated and implemented in Nepal over the past six decades. The focus of these attempts was to provide a legal basis for the decentralization of power from central authority to district, village and municipality levels. They were however not designed to fully adhere to central idea of local governance that is meant to encourage and establish people’s access, ownership, and participation in governing system.

The Local Self-Governance Act (LSGA) 1999 is the existing legal instrument crafted for designing local governance. It aims to enhance autonomy and greater roles to the local government bodies. Unfortunately, three years after the LSGA was passed, the entire elected leadership of local bodies were dissolved as their tenure expired. Since then Nepal has not been able to hold fresh local elections so far. As a transitional measure, civil servants are provided with the charge of exercising full administrative authority in the local bodies.

The LSGA is regarded as a landmark for the devolution of power and authority to the local governing bodies and has marked important departure from earlier legal provisions. Having said this, the LSGA have some inadequacies and ambiguities on sharing power and authority between different governing units.
The Local Self-Governance Act 1999 constitutes a consolidation of the three Acts relating to VDCs, DDCs and municipalities and takes the form of a comprehensive code. The basic features includes the definition of principles and policies of decentralization, provision of a Decentralization Implementation and Monitoring Committee (DIMC) and a Working Committee, Capacity building of LBs is made as a government and sectoral ministries' task, authority to open their own sectoral units, and the recognition of the local body associations.

Similarly, provision of grants, participatory bottom-up planning processes with annual and periodic planning, resource map, provision for revenue sharing between the local bodies and central governments and among local bodies in specified areas, and ,local resource mobilization, accountability and transparency mechanism, Compulsory representation of women (20%) in LBs and also space for representation of deprived and disadvantaged groups through nomination.

In the Local Self-Governance Act, 1999, Ward Committees have been given a variety of functions and duties which relate to the removal or waste and sewage, maintaining canals, drains and dams; assistance in managing health centers, schools; and project supervision. The functions and duties of VDCs are much wider. VDCs have been envisaged to carry out agricultural development; arrange for bazaars, veterinary services and animal disease control; provide drinking water; build and maintain rural roads and bridges; establish primary schools; supervise and manage schools within the area; provide adult education; irrigation; soil erosion programmes and river control; electricity generation; community buildings; land-utilization plans; operate and maintain heath posts; forestation and environmental protection; preservation of tourist sites and religious places; record keeping of population, houses, land and livestock; birth and death registration; works to control natural calamities; control immoral activities; and promote income generation.

In terms of social protection, VDCs have the responsibility for, i.a. helpless, orphan and disabled children; the upliftment of women within the village; and the protection of girls and women. The VDCs and Municipalities are also the primary institution responsible for development activities. They should formulate annual development plans, collect objective data and prepare a resource map of the area, undertake feasibility studies, select, monitor and evaluate projects, and coordinate with NGOs. The legal responsibilities of Municipalities include those of VDCs, and extend beyond that commensurate to urban needs and generally higher resource levels. The current regulatory framework for local governance is complex and often contradictory with other legislation.

The Government itself conceded that no remarkable achievement could be made in the decentralization and self governance sector in recent years due to the conflict and the absence of elected representatives at local level. Despite the attention garnered by the decentralization process, the devolution of power and authority to the local bodies has yet to occur. There has been no serious attempt to implement meaningful fiscal decentralization; LSGA-1999 has given the responsibility of protecting and utilizing the fallow land to the local bodies, but it has not transferred the ownership. There is a tax overlap horizontally, especially with regard to natural resources such as sand, stone and gravel, and vertically, between the central government and local bodies, in the case of the vehicle tax. This has led to conflict between the local governments as well as central government and local bodies. Thus, the determination of the sharing the proportion of tax is critical. Local bodies have little flexibility in fixing tax rate. The rate of land tax is so nominal, but the VDC does not have the authority to increase the tax rate. It is mere transfer of power, without organizational capacity and authority. Internal sources of revenue and expenditure capacity of the local bodies may differ from VDC to VDC and between one DDC and another, which leads to horizontal fiscal imbalance. In this context, to deal individually regarding the local bodies is a difficult task.

Local governments lack the legal power to coordinate and supervise any local level programme. There are no clear-cut models for fullfledged participation by the beneficiaries or institutional provisions to ensure the representation of the socially excluded in local governance.

In 2002, the terms of office of the local bodies elected in 1998 expired, and no further election has been held since on that level. After an interim period, the local bodies thus became defunct. Since 2002, almost 7 years have passed without a democratic body at the local level. A 2004 Royal Ordinance (No.18 of 2004) still enables the central government to “carry out functions, duties and powers of members of the local bodies as may be necessary.” Due to the absence of elected Village Councils and VDC Chairmen, VDC secretaries have been serving as acting VDC Chairmen. Equally, Executive Officers (EOs) in Municipalities and Local Development Officers (LDOs) on District level have been standing in for the Mayors and DDC Chairmen. This improvised solution has prevented governance at local and district level from coming to a complete standstill. But it has affected the quality and availability of services at local level as well as accountability and responsiveness of government institutions to a significant degree.

Moreover, many VDC Secretaries suffer from meager resources and access problems. The conflict impacted significantly upon the presence and performance of local government due to massive displacement of state officials and the destruction of infrastructure.As a substitute to locally elected bodies, political parties decided, in September 2006, to form interim local bodies at the district, municipality and village level in order to allow the release of development funds in line with the relevant regulations. The arrangement was also included in the Interim Constitution of 2007. However, due to a lack of consensus, the bodies were not formed and local ad hoc arrangements replicating the seven party formulas prevailed. A more permanent solution has been announced by the current coalition Government but has yet to take shape as of January 2009. But The Commission for the Investigation of Abuse of Authority (CIAA) has instructed the Ministry of Local Development to immediately dissolve the All-Party Mechanisms (APM) formed at the local level. The APM was formed to coordinate the activities of the District Development Committees (DDCs), municipalities and Village Development Committees (VDCs) across the country. The anti-corruption agency took the decision after it came to the conclusion that the APM was formed violating the law and the constitution. It has also reported that the mechanisms were involved in rampant corruption and embezzlement of the development budget allocated to the local bodies and Ministry of Federal Affairs and Local Development dissolve all party mechanism running local bodies across the country in 2012. Now local development officer has been authorized to head the district development council while the chief executive officer of municipalities will head the district development board. Similarly, secretaries of village development committees will act as chairman of village development committees.

Local governments have to shoulder the increasing responsibility for the provision of public goods and services and the management of public money. In order to fulfill this responsibility effectively and properly, local government bodies must maintain fiscal discipline - that is, the ability to spend tax-paid money and local resources effectively and in accordance with national or local macroeconomic objectives and targets. Perverse fiscal behaviour of the local governments can adversely affect national fiscal and monetary conditions as well. All institutions that govern decisions affecting local fiscal balances must be incentive compatible if local governments are to maintain fiscal discipline and have the fiscal capacity to develop their localities. As to whether an incentive is effective is often dependent on whether the financial affairs of local governments are subject to scrutiny and whether those who undertake the risks are made to pay the price. The scenario of fiscal discipline among the local bodies in Nepal has not been up to the mark. Though a hefty amount goes to the local bodies in the name of local development every year, the effectiveness of the grants is still a far-fetched reality. The effectiveness and transparency of the development grants the local bodies receive annually have failed to be ascertained in the absence of elected people’s representatives.

Mismanagement, corruption and misallocation of resources are a common practice among the local bodies. Since the dissolution of the local bodies in 2002, they are functioning without elected people’s leadership and are involved in corruption and misappropriation at a degree never seen before. Corruption and unaccountability in the local bodies were not at such a widespread level when they were governed by elected people’s representatives.
Taking advantage of the vacuum, the local bodies transferred around Rs. 3 billion of the unspent development funds to their non-freezable bank accounts last year. They have even flouted the Ministry of Local Development’s directives banning such fund transfers. Legally, local bodies have to return the unspent budget to the central bank accounts by the end of each fiscal year.

In a revelation by the National Vigilance Centre (NVC), the local bodies were found to have transferred around Rs. 15 billion to their non-freezable bank accounts in the last five years. This is a stark violation of the legislation and government guidelines, which evidences how a weak political system encourages the local bodies to ignore the regulations. Legally, the local bodies must return unspent budgets to the central accounts at the end of the fiscal year to ensure transparency in activities conducted throughout the year. But this disclosure only attests to the reality that there is growing financial indiscipline and irregularity at the local level. This scenario about the unspent resources at the local level sheds light on how dysfunctional the local bodies have become in the absence of elected representatives over the last eight years. The vacuum has led to misuse and misallocation of development resources due to lack of democratic governance and leadership in these local bodies. These local government units functioned properly with much transparency and accountability when they were manned by elected representatives after democracy was restored in 1990. But things started going astray with the dissolution of the local bodies in 2002.

At a time when the absence of the local government has slowed down the development process, the political mechanism at the local level and local body staff have stuffed up the development budget. One case in Bara illustrates this trend where the political parties in close connivance with the local body officials embezzled over Rs. 60 million of the development budget last fiscal year. The absence of elected representatives has encouraged unprecedented corruption and irregularities in the local bodies. It was found that around Rs. 60 million was distributed among the political parties for 400 small programmes. Yet, not even 10 per cent of the work was completed. Local bodies are the lowest units of the government’s service delivery mechanism. When they themselves are not in order, people can’t expect smooth delivery of public services and effective execution of development works at the grassroots.

The government is inflating the volume of grants every year, but the local bodies’ capacity to manage the resources is not satisfactory, and billions of rupees being allocated are not spent accountably and transparently.

Despite great promises of local empowerment and autonomy, the fate of local governments continues to be dependent on the political process in Kathmandu. They will begin to become functional only when the parties reach a resolution on the federal structure to be adopted, begin the slow process of establishing institutions in line with this agreement, and hold local elections. This will undoubtedly take years. In the interim, any effort can consist only of small-scale tinkering that will have a limited impact.