Fiscal deficit grows wider as revenue shortfall continues

With the government struggling to strike a balance between income and expenditure, the federal budget is currently in deficit which is increasing every successive month. The statistics of the Financial Comptroller General Office (FCGO) show the federal budget is in deficit by Rs 153.61 billion till March 5. The government revenue till the first week of March stood at Rs 594.91 billion whereas expenditure has reached Rs 748.52 billion. With the government failing to collect enough revenue while expenditures, particularly the recurrent expenditure, are rising fast, the fiscal imbalance is growing alarmingly.

According to FCGO, the fiscal deficit began by the end of Ashoj (mid-September to mid-October) with the government failing to collect revenue as per target while recurrent expenditure, especially continue to increase.

The government has targeted to collect Rs 1,244.75 billion in revenue in the current fiscal year. However, even after almost eight months, only 44.58 percent of the target has been achieved. With fiscal deficit looming, the government on February 12, announced a cut in its annual budget by a whopping 13.59 percent, the largest cut in recent times, after realizing that it would not be able to raise the required resources from all the most sources—particularly revenue and foreign aid. The revised budgetary allocation now amounts to Rs 1,549.99 billion from the original size of Rs 1,793.83 billion. The government’s revenue collection suffered mainly due to the prolonged import restrictions on a number of products including vehicles, alcohol, and expensive mobiles as well as the provision of cash margin in imports. The restrictions were first imposed in April 2022 for the import of 10 types of products. The number of restricted products was later reduced gradually but the ban on vehicles, alcohols, and expensive mobile sets continued till mid-December last year when the embargo was eventually lifted. The Nepal Rastra Bank made it mandatory to deposit a cash margin of up to 100 percent for opening letters of credit for the import of a number of products which also hit import-based revenue. Import covers around 50 percent of Nepal’s total revenue, according to the Department of Customs. Though these measures were taken to address the external sector vulnerability amid the ballooning balance of payment deficit and depleting foreign exchange reserves, the restrictive steps created a new problem of shortfall of resources for the government. The shortfall in revenue was also aggravated by increased compulsory liability by the previous government led by Sher Bahadur Deuba by increasing salaries for public officials and increasing the beneficiaries of social security allowances. This prompted the government to take harsh measures of budget cuts. A reprioritization of projects which have not been implemented even after getting a resource guarantee from the finance ministry, surrender of the budget which cannot be spent in the current fiscal year, and abandoning any proposal that creates new liabilities are other austerity measures announced by the Finance Ministry.