The Bhutanese Leading the way.
The Member of Parliament (MP) of Gelephu constituency, Harka Singh Tamang, has questioned the government on what he described as growing constraints on Local Government (LG) flexibility and autonomy, despite constitutional and legislative provisions that empower LGs to determine their priorities and utilize annual grants accordingly.
He stated that while the Constitution and the Local Government Acts grant LGs the authority to set their own priorities, the current Resource Allocation Formula (RAF) and the 30 percent performance-based fund withholding have increasingly limited LGs’ flexibility, predictability, and the timely implementation of local development activities. He asked the government to explain what measures and reforms were being considered to ensure flexible disbursement windows that would strengthen LG capacity in line with the spirit of the decentralisation mandate.
In response, the Ministry of Finance (MoF) stated that the constitutional and legal provisions indeed empower LGs to identify priorities and implement development plans. The ministry explained that LGs prepare Annual Work Plans aligned with the Local Government Key Result Areas and the 13th Five-Year Plan (FYP). It added that resource allocation to LGs is based on the 13th FYP outlay and guided by the Resource Allocation Framework, which applies objective criteria such as population, poverty levels, geographic area, and development needs to ensure both equity and predictability. Annual ceilings, according to MoF, are finalized based on the overall resource envelope and fiscal capacity.
MoF also said that within the annual Capital Block Grant allocation, LGs have the flexibility to prioritize and re-prioritize their spending based on emerging local needs, as long as these remain aligned with the LGKRA objectives of the 13th FYP. To balance autonomy with accountability, efficiency, and development outcomes, it stated that the Performance-Based Grant mechanism has been introduced with clear assessment criteria and incentives to support responsible and effective use of limited resources.
MoF further stated that the 30 percent performance-based withholding for gewogs is made accessible within the first quarter of the financial year, ensuring that LGs receive adequate upfront resources while maintaining accountability. It added that the Annual Grant Guidelines 2024 provide further clarity on delegated budget authority, roles, and responsibilities.
MoF stated that it remains committed to supporting LGs in strengthening financial management capacity through training in budget formulation, execution, and reporting. As fiscal decentralization continues to deepen, MoF said it will keep reviewing and, where appropriate, enhancing budget delegation mechanisms to improve efficiency and accountability.
