17 Local Governments Borrowed Rs 338.78 Million Without Federal Approval

KATHMANDU, Oct 11 — Seventeen local governments borrowed Rs 338.78 million from the Town Development Fund last fiscal year without obtaining the federal government's approval, according to the National Natural Resources and Fiscal Commission.

The commission's eighth annual report, presented to the National Assembly on September 28, states that the 17 local governments mobilized a total of Rs 338.781543 million in internal loans from the Town Development Fund in fiscal year 2025/26.

Some of the local governments had not included the loans in their annual budgets, while none had sought the federal government's consent before borrowing, according to the report.

Section 14 of the Intergovernmental Fiscal Arrangement Act, 2017 requires provincial and local governments to obtain the federal government's approval before taking internal loans.

The commission said the Ministry of Finance had no records of any of the 17 local governments seeking approval to borrow from the Town Development Fund during the last fiscal year.

"Seventeen local governments appear to have mobilized loans from the Town Development Fund without obtaining the federal government's consent," the commission said in its report.

Seven of the local governments had also borrowed without including the loans in their annual budgets.

The commission has repeatedly recommended that local governments estimate their borrowing needs in their annual budgets and mobilize internal loans only within the approved limits.

For fiscal year 2025/26, the commission had recommended that local governments be allowed to borrow up to 12 percent of the combined revenue they receive through revenue sharing from the federal and provincial governments and their own internal revenue.

The commission had also recommended that such borrowing be used only for projects aligned with national, provincial or local policies and plans and found viable through cost-benefit analysis. It had further advised local governments to assess projects using indicators such as internal rate of return (IRR) and net present value (NPV).

The report also found that two local governments in Morang district borrowed beyond the internal borrowing limit recommended by the commission.

The commission has urged all provincial and local governments to complete the required legal, institutional and structural arrangements and obtain federal approval before including internal borrowing in their budgets.

"The legal requirement for provincial and local governments to obtain the federal government's consent before taking internal loans has not been followed," the report said.

The commission also noted that 16 local governments had borrowed from the Town Development Fund in fiscal year 2024/25.

It has emphasized that internal borrowing should be directed toward productive sectors, particularly projects that contribute to capital formation, infrastructure development, job creation, income growth and long-term benefits.

The commission also raised concerns over local governments providing guarantees for loans taken from the Town Development Fund by various user organizations.

According to the annual report, local governments where projects are located have provided guarantees for loans taken by different organizations from the fund. However, the commission said existing laws governing local governments do not authorize them to provide such guarantees.

The commission has also recommended developing an integrated electronic system for managing, recording and reporting internal and overall public debt mobilized by the federal, provincial and local governments.

It suggested operating the system through the Public Debt Management Office and providing the commission with access to the system.