Last minute capital expenditure does not take the country anywhere but it will backfire the whole economy dramatically
Sujata Awale
Kathmandu
Providing top priority to infrastructure development, agriculture, tourism and energy sector, the government has aimed to accelerate Nepal from least developed country to developing country status by 2022. To achieve the target, Finance Minister Ram Sharan Mahat has set six per cent economic growth at the end of this fiscal year. Despite of these commitments for development activities, the government always fails to spend the allocated budget on time, which directly results inflation in economy, a liquidity surplus and hurts development endeavours.
The first half of this fiscal year has already passed and the government’s expenditure is limited to 12.34 per cent (Rs 67.7 billion) of the total allocated budget Rs 618.10 billion for this fiscal year. Out of the total budget, Rs 398.95 billion has been allocated for recurrent expenditure, Rs 116.75 billion for capital expenditure and Rs 102 billion for financial management. Till November 3, only Rs 4.34 billion — 3.73 per cent — was spent under capital expenditure. The delay in capital expenditure shows the low fund absorption capacity of development projects and loophole in the public financial management system.
Why delay?
According to the government officials, delayed in budget approval from the Cabinet, early approached festive season and rainy season has lowered the expenditure this fiscal as compared to the same time last year.
President of Federation of Contractors Association of Nepal, Jaya Ram Lamichhane, says, “The whole process from budget approval to contract awarding process is cumbersome and time consuming.” The budget presented on July 13, was approved on October 20 from the Cabinet. He says, “It took three months to get budget approval from the Cabinet and will take four other months to get green signals for tender, initiate bidding process and awarding the projects to contractors.” Citing that whole procedures kill three quarters of the fiscal, he comments, “Contractors get projects at their hand by March-April and within two months they are forced to complete their projects whatsoever. The government should shorten these cumbersome and lengthy process for the better outputs.”
Pointing on the wrong mentality of the working habit of bureaucracy and whole system, Lamichhane stresses on the need of introducing fiscal year from mid-April to mid-May (Baishakh). He further says, “While November and December are best time to work we have to stay back leisure, whereas we are compelled to work on last minute during rainy season which definitely decreases the sustainability and quality of the projects.” According to him, there are many infrastructure development projects of roads, schools, bridges, irrigation, water supply, electricity projects compelled to complete on last minute without concerning about the quality.
Trend and its outcome
However, Tulasi Prasad Situala, Secretary of Ministry of Physical Infrastructure and Transport, says that they work throughout the year but the transaction of the projects will be done on last two months. Citing that they are keeping their pace on projects, he says, “We are continuing a national priority projects along with some new road projects to increase the connectivity.”
There is no doubt that capital expenditure will surge during the last quarter of every fiscal. Once again this shows the habitual trend of expediting spending only at the eleventh hour which does not really help development.
Economist Bishamber Pyakurel says, “This trend needs serious correction as haphazard spending for the sake of spending, only contributes to inflation and ineffective outcome.” He elaborates, “In the last fiscal year, the government could only spend 32 per cent of total capital budget in 10 months. But in the last two months, the spending accelerated up to 80 per cent.” Citing that the country follows expansionary fiscal policy, he says, “To have effective impact on gross development products, sustainable development and employment generation from the capital expenditure, there should be need basis budget allocation and distribution.”
According to him, instable government, lack of political will, unfavourable environment, centralised system, policy wise and legal difficulties are reasons for lower capital expenditure. He complains, “About three dozen Acts and Policies desperately needed for developmental activities are pending with Parliament. These pending Acts and Policies have been barriers to development programmes and projects.” He is of the opinion that the government needs to immediately endorse the policies and acts including Procurement Act to speed up the development works.
Wrong practices
On this Netra Prasad Subedi, Deputy Financial Comptroller General at FCGO, says that the bottom up approach on developing plans and programmes is compulsory. Moreover, human resources turnover and procurement act are responsible for least expenditure in development activities. “Development is only possible with function driven programmes but here we have money driven approach. Centralisation system and lack of enabling local bodies further added to least development,” he says.
While experts comment on the hefty expenditure at the end of fiscal year, Suman Prasad Sharma, Secretary of Ministry of Finance, accepts that the budget expenditure is flown uneven throughout the year. Citing that low expenditure in the first quarter of fiscal year is not a serious issue, Sharma says, “Although we have allocated budget on time, it took much time to get budget approval from the Cabinet. And the early approached festivals and extended rainy season also resulted for lower capital spending as compared to the last year.” Citing that this year the capital expenditure will be better, he says, “We prepared well before allocating budget. Only well defined projects are given funds.”
Need of serious concern
It is undeniable that development of infrastructure only can add the growth to GDP. Urban Planner Sanjaya Uprety says, “Capital investment in roads, hydropower, irrigation and other infrastructure development is essential to develop the country. However, instable political situation and unclear policies could not secure the investments of national and international investors.” Stating that urban contribution to GDP is high, he says, “Eighteen per cent of urban concentration of the nation is contributing 64 per cent on GDP. This clearly shows that urbanisation is must to uplift our GDP.”
According to him, increasing road accessibility is major area to improve the whole economy. Uprety says that private resource mobilisation plays vital role in development activities. “National and international investors are reluctant to invest on infrastructure development as the government fails to create favourable and secured environment. Moreover, there is no clear provisions of risk bearing, exchanges, facilities and others,” he adds. Meanwhile, he suggests the government to focus on developing regional bigger towns than developing small cities and municipalities, which does not decrease on the pattern of migration in the capital city.
Published on November 09, 2014 / THT Perspectives
Sujata Awale
Kathmandu
Providing top priority to infrastructure development, agriculture, tourism and energy sector, the government has aimed to accelerate Nepal from least developed country to developing country status by 2022. To achieve the target, Finance Minister Ram Sharan Mahat has set six per cent economic growth at the end of this fiscal year. Despite of these commitments for development activities, the government always fails to spend the allocated budget on time, which directly results inflation in economy, a liquidity surplus and hurts development endeavours.
The first half of this fiscal year has already passed and the government’s expenditure is limited to 12.34 per cent (Rs 67.7 billion) of the total allocated budget Rs 618.10 billion for this fiscal year. Out of the total budget, Rs 398.95 billion has been allocated for recurrent expenditure, Rs 116.75 billion for capital expenditure and Rs 102 billion for financial management. Till November 3, only Rs 4.34 billion — 3.73 per cent — was spent under capital expenditure. The delay in capital expenditure shows the low fund absorption capacity of development projects and loophole in the public financial management system.
Why delay?
According to the government officials, delayed in budget approval from the Cabinet, early approached festive season and rainy season has lowered the expenditure this fiscal as compared to the same time last year.
President of Federation of Contractors Association of Nepal, Jaya Ram Lamichhane, says, “The whole process from budget approval to contract awarding process is cumbersome and time consuming.” The budget presented on July 13, was approved on October 20 from the Cabinet. He says, “It took three months to get budget approval from the Cabinet and will take four other months to get green signals for tender, initiate bidding process and awarding the projects to contractors.” Citing that whole procedures kill three quarters of the fiscal, he comments, “Contractors get projects at their hand by March-April and within two months they are forced to complete their projects whatsoever. The government should shorten these cumbersome and lengthy process for the better outputs.”
Pointing on the wrong mentality of the working habit of bureaucracy and whole system, Lamichhane stresses on the need of introducing fiscal year from mid-April to mid-May (Baishakh). He further says, “While November and December are best time to work we have to stay back leisure, whereas we are compelled to work on last minute during rainy season which definitely decreases the sustainability and quality of the projects.” According to him, there are many infrastructure development projects of roads, schools, bridges, irrigation, water supply, electricity projects compelled to complete on last minute without concerning about the quality.
Trend and its outcome
However, Tulasi Prasad Situala, Secretary of Ministry of Physical Infrastructure and Transport, says that they work throughout the year but the transaction of the projects will be done on last two months. Citing that they are keeping their pace on projects, he says, “We are continuing a national priority projects along with some new road projects to increase the connectivity.”
There is no doubt that capital expenditure will surge during the last quarter of every fiscal. Once again this shows the habitual trend of expediting spending only at the eleventh hour which does not really help development.
Economist Bishamber Pyakurel says, “This trend needs serious correction as haphazard spending for the sake of spending, only contributes to inflation and ineffective outcome.” He elaborates, “In the last fiscal year, the government could only spend 32 per cent of total capital budget in 10 months. But in the last two months, the spending accelerated up to 80 per cent.” Citing that the country follows expansionary fiscal policy, he says, “To have effective impact on gross development products, sustainable development and employment generation from the capital expenditure, there should be need basis budget allocation and distribution.”
According to him, instable government, lack of political will, unfavourable environment, centralised system, policy wise and legal difficulties are reasons for lower capital expenditure. He complains, “About three dozen Acts and Policies desperately needed for developmental activities are pending with Parliament. These pending Acts and Policies have been barriers to development programmes and projects.” He is of the opinion that the government needs to immediately endorse the policies and acts including Procurement Act to speed up the development works.
Wrong practices
On this Netra Prasad Subedi, Deputy Financial Comptroller General at FCGO, says that the bottom up approach on developing plans and programmes is compulsory. Moreover, human resources turnover and procurement act are responsible for least expenditure in development activities. “Development is only possible with function driven programmes but here we have money driven approach. Centralisation system and lack of enabling local bodies further added to least development,” he says.
While experts comment on the hefty expenditure at the end of fiscal year, Suman Prasad Sharma, Secretary of Ministry of Finance, accepts that the budget expenditure is flown uneven throughout the year. Citing that low expenditure in the first quarter of fiscal year is not a serious issue, Sharma says, “Although we have allocated budget on time, it took much time to get budget approval from the Cabinet. And the early approached festivals and extended rainy season also resulted for lower capital spending as compared to the last year.” Citing that this year the capital expenditure will be better, he says, “We prepared well before allocating budget. Only well defined projects are given funds.”
Need of serious concern
It is undeniable that development of infrastructure only can add the growth to GDP. Urban Planner Sanjaya Uprety says, “Capital investment in roads, hydropower, irrigation and other infrastructure development is essential to develop the country. However, instable political situation and unclear policies could not secure the investments of national and international investors.” Stating that urban contribution to GDP is high, he says, “Eighteen per cent of urban concentration of the nation is contributing 64 per cent on GDP. This clearly shows that urbanisation is must to uplift our GDP.”
According to him, increasing road accessibility is major area to improve the whole economy. Uprety says that private resource mobilisation plays vital role in development activities. “National and international investors are reluctant to invest on infrastructure development as the government fails to create favourable and secured environment. Moreover, there is no clear provisions of risk bearing, exchanges, facilities and others,” he adds. Meanwhile, he suggests the government to focus on developing regional bigger towns than developing small cities and municipalities, which does not decrease on the pattern of migration in the capital city.
Published on November 09, 2014 / THT Perspectives
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