Central Local Fiscal Relations in Low Income Countries, the Case of Nepal

Maintaining the proper equilibrium between centralized and localized fiscal management is a dilemma facing the low-income developing countries today. More decentralization is desirable in order to supply the right mix of public services that are needed by the diverse regions. At the same time, the very great difference in the level of development growth rates of the major urban areas compared with the countryside require very different levels of resource mobilization. In the poorest developing countries, the central government that has the capability of generating the resources needed by the expanding urban areas and in turn is the only level of government that has the capability of planning for the delivery of services in the rural areas. In Nepal, the Local Self-Governance Act of 1999 has expanded both the function and revenue authority of the local government. It will not be easy to translate theory into practice. Decentralization will require strong political will, and an improvement in administration and support from the central government (particularly in the case of rural local government).if it is to succeed.