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Assessing the financial condition of municipalities in Nepal

Author

Listed:
  • Resam Lal Poudel

    (Prithvi Narayan Campu, Faculty of Management, Tribhuvan University)

  • Surya Bahadur G C

    (Faculty of Management Studies, Pokhara University, Nepal)

  • Devi Lal Sharma

    (Faculty of Management, Tribhuvan University, Nepal)

  • Umesh Singh Yadav

    (School of Business, Pokhara University, Nepal)

  • Indra Prasad Tiwari

    (Faculty of Humanities and Social Science, Pokhara University, Nepal)

  • Ajay Thapa

    (Faculty of Humanities and Social Science, Pokhara University, Nepal)

Abstract

The research issue centers on examining the solvency of urban municipalities in Nepal, focusing on their ability to meet long-term financial obligations. The main aim of the study is to assess the financial condition of municipalities in the context of Nepal. A descriptive research design was employed to assess the financial condition of municipalities. The study targeted only the urban municipalities of Nepal. The study comprises two years of data from 2019/20 and 2020/21. The sample consisted of 37 urban municipalities representing different types in different geographical locations representing all seven provinces and all ecological zones in Nepal. The analysis of the financial condition of local urban governments in Nepal across two fiscal years (2019/20 and 2020/21) reveals no significant differences in LGFCI based on municipal type (f(2,72)=0.166, p>0.05) or ecological zone (f(2,72)=0.229, p>0.05). In FY 2019/20, 5 local governments were classified as having a good financial condition, 25 as average, and 7 as poor. In FY 2020/21, the numbers dropped to 3 in good condition, 29 in average, and 5 in poor condition. There was limited movement in financial status between the two years, with 7 local governments shifting, and most remained in the average category. This suggests a need for improved financial management in local governments. In conclusion, the financial condition of local urban governments in Nepal, based on LGFCI, shows no significant difference by municipal type or ecological zone. Most local governments are classified as having an average financial condition, with only a few in good or poor financial status. Over the two fiscal years, few local governments showed changes in their financial status, highlighting the need for better financial management practices to improve stability. The results have policy implications for strengthening fiscal federalism in Nepal. Key Words:Budgetary Solvency, Financial Condition, Financial Flexibility, Financial Independence, Long-Term Solvency, Service-Level Solvency, Short-Term Solvency

Suggested Citation

  • Resam Lal Poudel & Surya Bahadur G C & Devi Lal Sharma & Umesh Singh Yadav & Indra Prasad Tiwari & Ajay Thapa, 2025. "Assessing the financial condition of municipalities in Nepal," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 14(3), pages 174-186, April.
    • Handle: RePEc:rbs:ijbrss:v:14:y:2025:i:3:p:174-186
    DOI: 10.20525/ijrbs.v14i3.4041
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