A pre-requisite for the prosperity and growth of an economy is development of social and physical infrastructure like road, electricity, drinking water, irrigation, education, health and communication, among others. Expenditure that directly contributes to the creation of such infrastructure is capital expenditure. The accounting system of the Government of Nepal classifies purchase of land, buildings, furniture, vehicle, software; construction and substantial improvement of building, public construction as well as research and consultancy expenses as capital expenditure. There is a symbiotic relationship between capital expenditure and development with a sound and successful management of the former helping to accelerate the latter and more development, in turn, generating greater resources for capital expenditure.
Looking back, Nepal has witnessed dismal fiscal performance, mainly with respect to capital expenditure, from the very beginning. None of the governments from 1951-52—when the budget started being presented in parliament—has been able to allocate capital expenditure enough to meet the set target. The advent of democracy in 1949-50 gave the opportunity to make government coffers public for the first time. It is then that the recording of the government’s fiscal statistics started, unfortunately always yielding abysmal results. No periodic plans have met the target yet. This shows that it was not just capital expenditure that was failing to meet set targets but also current expenditure. Recent trends, however, show an increase in current expenditure combined with a fall in capital expenditure. Although governments, since the constituent assembly election, have been stepping up the size of the budget, availability of funds for capital expenditure is being squeezed by a rapid rise in current expenditure needed for managing the current transition.
Government gathers resources in the form of revenue and disburses them for meeting regular expenses as well as for development work. Developing and less developed countries like Nepal face a severe resource crunch as the expenditure is higher than the income raised as tax and non tax revenue. In this context of a deficit budget, compensation for resource deficiency by utilizing grants, donations and borrowings (both domestic and foreign) becomes imperative.
It is extremely unfortunate that we have not been able to get funds reimbursed from donors because so far, we have been unable to spend appropriately out of grants committed by them. This is not only a waste of an opportunity but is also disappointing for the donor countries that have extended help in uplifting Nepal. Donors have also pointed towards Nepal’s low absorbing capacity of around 60 percent, owing largely to an inefficient structure and bureaucratic hurdles. Further, in case of borrowings, poor management and misuse can push the country into a debt trap.
A number of changes have been introduced to help modernize the functioning of the public exchequer and increase spending to speed up capital expenditure. These include new methods as well as modifications to existing policies. The method of designing the budget has been changed from a ‘top down’ to a ‘bottom up’ approach. Expenditure standards and directives are being followed and multi-year contracts, medium term expenditure framework, expenditure tracking and programmed budgeting system have been brought in. Treasury Single Account (an essential tool for consolidating and managing governments´ cash resources, thus minimizing borrowing costs) was introduced but the bureaucracy couldn´t adapt to it. Overall, despite a string of measures being brought in, not much has improved. And some of the major causes for this failure are enlisted below.
First, a late budget allows little time for implementation. Second, cumbersome tender practices result in delaying procurement. Third, strikes, lockouts and protests/campaigns by locals against projects hinder their smooth operation. Fourth, arbitrary and frequent transfer of project managers (led by political and financial motives) also hampers development work. Fifth, inefficient and corrupt consumer committees damage the very spirit of development and infrastructural works. Sixth, irresponsible contractors who take up the contract only to receive mobilization advance are least interested in efficient implementation of their task. It is a startling fact that these major bottlenecks, coupled with other minor factors, have not allowed any single project in the history of Nepal to be completed beyond 70 percent.
Removing these obstacles is possible only through a steadfast commitment from stakeholders. The government, political parties and bureaucracy need to initiate the r\much-needed reform. Tradition of an early budget should be started. New methods such as E-tenders, which lessen the time of making a contract and economizes the procurement, should be adopted
A strong coordination between the Planning Commission, Ministry of Finance, other line ministries and department as well as field projects is a must. To bring in accountability, the project manager should be made responsible for not meeting the expenditure target, defaulting contractors should be black listed and the monitoring and evaluation should be spruced up. Projects that contribute to social capital formation should be implemented with the active involvement and participation of the benefited community by making them take the ownership.
Those works that can be commercialized can be handed over to the private sector, with the government being the facilitator. For this, we have many models like public private partnerships (PPPs), build-operate-transfer (BOT), co-operatives etc. However, most important is an unfaltering commitment towards efficiency, greater public capital expenditure and economic development by all stakeholders. It is only then that Nepal will succeed in moving towards a better and more prosperous future.
The author is section officer at the Ministry of Finance. Views are strictly personal.
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