Govt targets to achieve higher economic growth of 6 pc through increased recurrent expenditure than promoting development budget

Govt increases size of recurrent expenditure by Rs 387 billion, while it cuts down capital expenditure by Rs 72 billion

KATHMANDU, May 30: The government has announced the budget for the fiscal year 2023/24 at Rs 1.751 trillion, which is way higher than the ceiling fixed by the National Planning Commission (NPC).

Citing the heavy fall in the government revenue collection, the NPC had fixed the limit for the next fiscal year’s budget at just Rs 1.688 trillion. The government however breached the threshold given by the planning authority and surpassed the limit by Rs 63 billion.

The government was expected to cut down the budget size by a notable amount at a time when the government revenue has largely dropped. The government has been depending on domestic borrowing to meet its major financial liabilities. However, the government reduced the budget size by a nominal value of Rs 42 billion compared to the current fiscal year.

The government had allocated a budget of Rs 1.793 trillion for the current fiscal year, which it later on downsized by 14 percent to Rs 1.549 trillion through the mid-term review.

Of the announced expenses for the fiscal year 2023/24, Rs 1.141 trillion (65.20 percent) is recurrent expenditure and Rs 302 billion (17.25 percent) has been allocated for the capital expenditure. Similarly, Rs 307 billion has been allocated for financial management.

While the government talks about adopting austerity measures to cut down unproductive expenses of the government bodies, the budget under recurrent expenditure has been increased heavily. The fund for the administrative uses has been increased from Rs 753.40 billion, allocating an additional Rs 387 billion for unproductive use in the next fiscal year.

The government has set a target of achieving a growth rate of six percent for the next fiscal year ignoring the fact that the economy has been reeling under recession. Surprisingly, the government has cut down the development budget to Rs 302 billion in the fiscal year 2023/24 from Rs 380 billion in the current fiscal year.

Economists and the private sector say that the government has reduced the size of capital expenditure as it fears from its inefficiency to utilize the capital expenditure, while facing a notable shortfall in its financial resources to invest in infrastructure projects.

Vishnu Agrawal, president of the Confederation of Nepalese Industries, expressed his dissatisfaction over the reduced capital expenditure. He said the target of government revenue collection will be a nutshell for the government even next year.

The government has separated Rs 307.45 billion for financial management, which is significantly higher than the amount of Rs 231.22 billion allocated under the heading for the current fiscal year. The notable rise in funds under the heading shows that the government is obliged to set aside huge funds just to pay principle and interest amounts of the public debt.

To meet the exorbitant expenses, the government has aimed to finance Rs 1.248 trillion from revenue collection and Rs 49.94 billion from foreign grants. The shortfall amount will be managed through foreign loans of Rs 212.65 billion and domestic borrowing of Rs 240 billion.

Looking at the revenue collection of this year, which is a shortfall of the public expenditure by Rs 276 billion in the first 10 months, the government expectation for revenue collection for the next fiscal year seems very challenging. This clearly indicates that the public debt will increase heavily in the next fiscal year, just to finance the government's hefty recurrent expenses.

Rajendra Malla, president of the Nepal Chamber of Commerce, said the government-announced budget is more distributive in nature than productive. “As the economy has shrunk greatly, the implementation of the announced budget is challenging,” he said.