Nepal’s capex saw a five-year high at Rs 267.25 billion in the FY 2017-18 that ended mid-July 2018, with the last month of the fiscal alone witnessing Rs 108 billion spending.

The government drew wide criticism for its rush spending in the last month!

Responding to remarks over the spending rush, the Finance Minister Yubaraj Khatiwada recently made new statements citing ‘dependence on revenue collection’ as the key reason behind the last-hour spending.

Government’s expenses, mainly capital expenses rise in the last quarter of the fiscal because the payments are issued based on revenue collection. Revenue collection surges only after the first half, says Khatiwada.

He further informed that the budgets for developmental projects were released in the third and last quarters of the fiscal after reviewing the performance of the completed tasks and that doesn’t mean the projects were taken up in the last month.

“Contractors who completed works in the third quarter might have received payments in the last quarter,” he added, while also admitting delays on contractors’ side in executing tasks.

Key Structural Concerns Haunting!
Ending the criticism, Khatiwada noted that the government will soon take necessary measures to address the structural concerns pertaining to budget execution.

In this regard, he highlighted key concerns that are acting as hurdles for the government.

Tax Revenues: According to the minister, timely collection of tax revenues in line with the taxation rules is one major concern delaying the early release of payments from the government’s treasury.

The taxation rules mandate individuals to present 40 percent of the annual income tax estimation by the end of the first half of the fiscal, which decides the surge in governmental revenue for further spending.

Project Preparedness: Another key concern is the lack of preparedness in case of some projects put forth for inclusion in the budget.

Ministries select projects without any preparation. They should know that just announcing projects is not sufficient to implement them. They should at least understand the basics of project implementation, says the Finance Minister.

Need of the Hour
Khatiwada pitches for early addressal of the aforementioned problems to ensure planned budgetary execution.

The minister calls for trimming down the projects that lack early preparedness.

The concept of a project bank must be established, and only matured projects should be included in the budget, says the Ministry of Finance.

He further pitched on the need for development of necessary measures that support project implementation driving planned execution through feasibility studies, environmental impact assessment, legal clearances, among others.

Highlighting lack of inter-agency coordination as another key concern, the minister said budget execution is a collective responsibility of all the related stakeholders followed by strict quality monitoring.

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The government’s capex saw a five-year high at Rs 267.25 billion in the ended fiscal against the actual allocation of Rs 335 billion, with Rs 108 billion spending in the last month considered as a major factor behind the rise.

Infrastructure development & construction accounted to a major share i.e., 79.7 percent of the total capital budget allocated for FY’18, the highest after 82.56 percent in FY 2012-13.

Factors Behind Rise
Provision of early budget system, releasing of full budgets to local units in three tiers, approving the programs and projects in line with the Line Ministry Budget Information System are among key factors that contributed to the rise in capex, say the officials.

“This might have played a part, if not a big part, in the increase in capital expenditure of the government. The government’s move to take action against non-performing and under-performing contractors was another reason for the rise in capital expenditure in the last fiscal year,” says Jagannath Devkota, Information Officer at Financial Comptroller General Office (FCGO).

Meanwhile, economists feel that allocation of funds to new projects outside budgetary allocation is also one of the key contributing factors to the increase.

“Funds totaling Rs 4-5 billion have been allocated for some new projects which are linked with political parties,” says Rameshore Khanal, former Finance Secretary.

In its mention about high spending in the last month, FCGO pointed that there hasn’t been any change in government’s act of late disbursement of the capital budget.

According to the regulatory, disbursing of more than 40 percent of the total capital budget has become a common trend for the country in the last five years.

Developmental Projects Hit!
Meanwhile, government officials argue that the high spending in the last month is not just for new developments and also include payments for tasks completed over the year.

On the other side, government agencies complain that the developmental projects are getting delayed due to untimely release of budgets forcing contractors to move away due to lack of needed resources.

According to the Roads Department, construction of nearly 800 bridges has been pending due to lack of required budgets.

“Thus, a large portion of payments is made in the closing months of the fiscal year. This practice hinders timely implementation of projects by contractors,” says Khanal.

Spending rush at the end of the fiscal is a clear sign of elevated fiduciary risk and improper execution of the allotted budget, says FCGO.

It’s time for the government to rethink on budget planning & execution!

Also Read : Ministries to Expedite Budget Expenditure in FY’18

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