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April 25, 2022

Drivers of Nepal’s New PFM System for Local Governments

April25

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Posted by Sarita Sapkota[1]

Nepal is gearing up for a new round of local elections on 13 May 2022 - the second round since the promulgation of the new constitution in 2015 that established a federal structure with 753 local governments and seven provinces. Functions, responsibilities and resources for service delivery were transferred to the provincial and local governments as part of the new federal system. A PFM blog from October 2016 highlighted a need for a “substantial reengineering of the public financial management system at local level” given the change. 

Heading into the second local elections, the country has come quite far in setting up those systems. This includes passing necessary financial management legislation, hiring staff, supplying training, setting up IT systems, and more. The adoption of a local government financial management software, SuTRA, is one such noticeable example. By Nepali fiscal year 2020/21, all 753 local governments had used SuTRA for at least a few core functions – revenue projection, budget preparation, budget approval, consolidated fund accounting, and expenditure accounting.

SuTRA was adopted as the official software for local governments through a Cabinet decision in 2019. Making it mandatory for some functions is not however the only reason behind its successful adoption. Other possible reasons for SuTRA’s rapid adoption are discussed below.. 

Need driven and realistic, yet ambitious 

Before federalism, local bodies kept financial records varyingly - some used spreadsheets, some used stand-alone software, and some kept paper records. This approach was not an option when the country became federal and there were 761 governments with the authority to plan, budget, and spend. Before the rollout of SuTRA, the Financial Comptroller General’s Office (FCGO) sent excel spreadsheets to all local governments to find out their financial positions and prepare a consolidated report. This process was cumbersome, expensive, and slow and was done annually. 

Under the new federal structure, the FCGO started with a basic version of SuTRA which it quickly rolled out. Three modules were created - budgeting, accounting, and reporting - and the system was kept simple – using the Nepalese language, web-based, easy to use. Part of the simplicity was introducing SuTRA as one system, as compared to the federal level where separate systems are used for budgeting, expenditure, and revenue. Initially online and offline versions were developed keeping in mind electricity supply and internet access issues. However, the team quickly realised that the system required room to develop and having to continuously send software updates to several places would thwart the utility of the whole system. 

Currently, there are 13 modules and five sub-modules, that have been added incrementally over the years based on the demands and needs of both local and federal governments. The gradual expansion of SuTRA’s functions was designed to balance simplicity against the benefits of operating a one-stop IT system, allowing time for learning while focusing on the application of priority functions. SuTRA is a strong example for countries with limited technical and human capacity that favor a bottom-up approach to project development. The performance of the system compares favourably with more sophisticated, larger, integrated systems. The government’s role in leading and driving the adoption of SuTRA is also a large part of the story. Rolling out training, especially in the initial years, and availability of responsive IT and accounting helpdesk support were also crucial. 

Milestones ahead 

SuTRA tracks the spending of taxpayers’ money at the activity level. It has helped improve transparency. Data from SuTRA are used in preparing and approving the budgets of local legislatures and allows municipalities to publish monthly income and expenditure statements. (For example, Dhulikhel Municipality began publishing such statements using SuTRA in 2019/20.) Civil society organizations are the main users of these data which have also attracted media coverage from journalists scrutinising local government spending on the Covid-19 response. As a digital system, SuTRA has instituted basic but essential practices in fiscal discipline such as stopping payments after the end of the fiscal year or backdating payments, reducing mid-year discretionary and ad-hoc spending, and expenditure outside authorized budgets.

Despite these large steps forward, there remain challenges to be overcome. 19 local governments did not regularly use SuTRA on a real-time basis in FY 2020/21. Some local governments in remote areas must travel to district centers to input data due to a lack of a stable supply of electricity, internet access, or the availability of computers. Staffing is another key challenge. In some places, IT officers are required to enter data on behalf of the accounting officers, in contravention of financial regulations. The challenge of adequate training remains, especially with newer modules that are expanding the ambition of SuTRA. Users need to be trained on recently instituted features such as the daily closing of accounts, e-payments, payroll, climate-related transactions, and gender and social inclusion. The current FCGO system that is used to prepare the annual consolidated financial statements of the general government is planned to become interoperable with SuTRA. This will further help improve the efficiency and reliability of reporting on local government finances.

 

 

[1] The author is Governance/PFM Adviser at the Foreign, Commonwealth and Development Office, Nepal. Views expressed are the author’s solely and not of the Nepalese authorities.  

 

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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