However, much of that fiscal discipline dissipated during the last two years. The economic outlook appears to be okay only because of the stellar performance of the two pillars of Nepali economy: Remittance and revenue. Revenue has grown by over 50 percent and remittance by over 47 percent during the review period.
But the robust growth in revenue and sluggish developmental expenditure has left the government awash with cash, most of the time prompting it to make imprudent expenses, bypassing standard procedures. The Ministry of Finance, entrusted to manage fiscal activities in the country, has long been complaining about growing instances where the cabinet takes decisions to spend money without its consent, thereby resulting in financial liability.
The record non-budgetary demand worth Rs 12 billion within the first two months of the new fiscal year itself is a testimony of the fact that the long-maintained fiscal discipline is weakening. The government has found an easy way in the form of non-budgetary expenses to spend wherever it wants, with total disregard for fiscal prudence and completely bypassing parliamentary oversight and scrutiny. Above all, the increasing practice of pork-barrel spending to prop up the vulnerable coalition is an ominous trend that should be tamed sooner rather than later. Profligate spending will not only scatter scarce resources but it will also encourage misuse of funds and eventually raise inflation. Inflation, which remains at two-digit figure despite drastic fall in Indian inflation rate, has already hit the poor the hardest. Government’s failure to spend sensibly can trigger a macro-economic instability that will only add to the hardship of the common people and take away the confidence of the ruling elite.
Against this backdrop, Nepal’s willingness to rejoin PRGF is a wise move since the Facility compels the government to disclose and justify doubtful financial decisions. In addition, the reentry will also ensure that its vital fiscal indicators are at par with international norms and there are no serious misappropriations and leakages of resources. Moreover, the certification will help Nepal mobilize more assistance and investment that is badly needed to lay the foundations for a long-term economic stability and growth.
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