Reform budget process

Weak expenditure is one of the most serious obstacles in expediting Nepal’s flagging developmental pace. That is why experts say Nepal is poor not only due to lack of resources but also, and mainly, because of a weak capacity to expend the resources available for development projects. It is unfortunate that even years of reform in public expenditure have not been able to cure this ill. The expenditure statistics released this week by the Ministry of Finance signal that development expenditure will continue to lag in the current fiscal year also. According to the figures, the total capital expenditure, which mainly finances development activities, was roughly 14 percent of the total outlay at the end of the first seven months of the current fiscal year.



We take this poor performance as rather strange because in past years delay in announcing the fiscal year budgets due to political complications used to be fingered as the prime reason for low expenditure levels. But this year the case was different, as the budget was announced on time and parliament also endorsed it within the normal timeframe. So, what went wrong? What is preventing the country from spending its available resources for development purposes? These questions have been raised so many times, but without any concrete answers.



What is at work, we believe, is a deep-seated systemic problem afflicting the development-related ministries, and it is these ministries which absorb three-fourths of the development budget. It is a fact that government agencies that oversee development activities, such as the National Planning Commission, keep on adding to the number of projects and the size of the budget for these ministries very year, but pay scant attention to improving their institutional capacity to execute the projects. Take for example the Ministry of Physical Planning and Construction, which gets the biggest amount of funding for road construction. The ministry was allotted Rs 34 billion for the current fiscal year but its expenditure stands at a disappointing Rs 5.3 billion.



Against this background, we believe there is an urgent need to initiate reform in the way the annual budget is endorsed in parliament. We waste the first two months of the fiscal year awaiting parliamentary endorsement of the budget and another three months dealing with the complex contract-awarding processes. When contracts are awarded, the contractors take at least another month to line up the manpower and equipment. So, actual construction work begins only in February and continues till the arrival of the monsoon at the beginning of June. If only we could endorse a new budget before the beginning of the fiscal year and cut short the contract-award process through e-bidding, as many countries have successfully done, we think we can stretch the project construction period to seven months from the current three months.

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