The government recently decided to slash the national budget by Rs 168 billion, reducing it to Rs 1.692 trillion. The decision highlights a recurring problem in Nepal’s fiscal planning: the tendency to propose overly ambitious budgets, which later needs significant downsizing. The mid-year adjustment was driven mainly by sluggish capital expenditure, inadequate revenue collection and low realization of foreign loans. This pattern of formulating inflated budgets following an inevitable reduction is not new. In the last Fiscal Year as well, the government had to trim its budget by 12.62 percent. Since this cycle erodes fiscal credibility and disrupts economic planning and development initiatives, the government must take a more pragmatic approach to budget formulation. When the government fails to meet its revenue targets, it will not be able to fund critical infrastructure projects, social programs and essential services. This will ultimately hamper the overall economic growth of the country.
In the mid-term review of the budget, the government has decided to reduce both the recurrent and capital expenditures. While the recurrent expenditure has been cut by 9.76 percent, the capital expenditure has been reduced by nearly 15 percent—something experts warn will bring negative consequences for the country’s development. The failure of the government to spend even one fifth of the total budget allocated for the development in the first seven months of the current FY exposes the inefficiencies in government’s mechanisms. The reduction of the budget allocated for development expenditure—vital for the country’s economic growth—is concerning development. Finance Minister Bishnu Paudel has admitted that the target of the revenue collection was ‘over ambitious’. This reinforces the call for bringing a more realistic budget. Notably, the government fell short of its target despite a 12.7 percent increase in revenue collection during the first seven months of the current FY as compared to the same period last FY. Overestimation is largely to be blamed for this failure as the government does not seem to have taken into account the prolonged economic slowdown.
The recurring pattern of downsizing the budget suggests that the government must adopt a more pragmatic approach while unveiling a new budget. The budget planning should be strictly based on realistic revenue projections, practical expenditure capacities and a clear assessment of external borrowing potential. It is equally important for the government to make necessary efforts to enhance efficiency of the government bodies to increase capital expenditure. Bureaucratic red tape, project delays and poor financial planning are largely to be blamed for delayed utilization of capital expenditure. The government agencies involved must work towards introducing reforms to improve the implementation of development projects, streamline public spending and create a conducive environment for investment and growth. It is important for the government to acknowledge the fact that the budget should serve as a roadmap for sustainable economic progress. This should not serve as an exercise in wishful thinking. The government's decision to slash the budget even this FY should serve as a lesson that all future budgets must be grounded in the country’s economic realities rather than the political aspirations.