One of the biggest ironies of Nepal’s budget system has been that while the country somehow manages to allocate budget for development of infrastructure projects, huge portion of such budget remains unspent, even frozen in some cases. During the pre-budget discussion period, leaders from local, provincial and federal spheres demand money for different development activities. The respective governments address their concerns too by allocating it for the development projects demanded by them. But at the end of the fiscal year, very little of the allocated budget is spent, putting the development works in limbo. This has been going on for decades. This had to completely change after the country executed the federal system—which, in principle, has made it easier for these governments to expedite development works in their respective constituencies. But in practice very little has changed.
Recurrent spending spikes, capex rising steadily
Take the data of the first four months of the current fiscal year. According to Financial Comptroller General Office (FCGO), total expenditure as of Wednesday stands at 20.17 percent, or Rs 309.19 billion, of the total budget. The government introduced the budget of Rs 1,532.97 billion for FY2019/20 this year but it has not managed to spend more than 9.25 percent, or Rs 38.2 billion, of the total capital budget of Rs 408 billion. Slow pace of spending has consequences. First, project development process itself goes slow, hampering the prospects of economic and social developments the timely completion of such projects could unleash. Second, when capital spending goes at slow pace in the first quarter of the fiscal year, it tends to increase in the second and third quarters. We have had several precedents of capital spending expedited at the last few months of the fiscal year, which has come to mean that works get done in hurry along with a lot of financial irregularities. The infamous Asare bikas, metaphor for capital spending at the last days of the fiscal year, has taken toll on quality and durability of the works as well. Only solution to this is to plan well and spend the capital from the beginning of the fiscal year. It is mainly to help this process that the constitution itself has institutionalized the provision of announcing budget in Nepali month of Jeth, two months before the fiscal year actually begins. But as things stand, even such constitutional arrangement has not helped us much especially in enhancing our capacity to spend the capital efficiently, transparently and qualitatively.
Good news is that secretaries of major ministries with the highest capital budgets—such as Ministry of Energy, Water Resources and Irrigation, Ministry of Water Supply, Ministry of Physical, Infrastructure and Transport and Ministry of Finance — have admitted this shortcoming and vowed to improve the performance in remaining months. Speaking at a meeting of the Finance Committee of the federal parliament on Thursday, they admitted that implementation of the capital budget is slow and this needs to change. There has been a general agreement among the stakeholders—secretaries, lawmakers and even ministers—that progress in spending has worsened and that if this trend continues it could breed frustration among people. They have also pointed that poor preparation and contract management system, land acquisition problem, and lack of skilled staff and mechanism have led to low spending. Truth is that these stakeholders themselves are responsible for removing such constraints. Nepal has to reverse the underspending trends of past several years. It is time to do away with this stigma of failing to spend what the country manages to allocate for its capital formation.
