In those two years too, the government had collected less than the targeted revenue. Since FY2019/20, the government has struggled to raise the targeted revenue. The revenue target for FY2021-22 was Rs1180.60 billion but the collection stood at only Rs1113.84 billion.
In FY2020/21, the revenue collection was 92.69 percent of the target, according to Financial Comptroller General Office (FCGO). In FY2019-20, it targeted to collect Rs981 billion but could collect only Rs705.49 billion. Economic activities and the lives of the people were deeply affected by the Covid-19 pandemic in 2020 and 2021 affecting revenue collection. “When the government can raise revenue as expected, pressure on internal loans grows,” said Hira Neupane, information officer at PDMO. “We usually raise targeted revenue if not downward adjustment made during the mid-term review of the budget.” When the resources in the government treasury remain unspent because of the low spending capacity of the government, it has a history of abandoning raising internal loans. In FY2013/14, the government had raised only 45.42 percent of targeted internal loans as it failed to spend available resources from revenue and other sources adequately. PDMO said in its annual report 2021/22 that whether the government raises internal debt as targeted depends on the availability of the financial resources in its treasury. There are instances in the past when the government refrained from meeting the internal debt target due to its inability to spend the allocated budget. According to FGCO, in FY2018/19, the government raised only 56.04 percent of the targeted domestic debt when budget spending stood at just 84.44 percent of the allocations. Raising internal loans is also an easier alternative for the government to raise resources compared to foreign resources. It is because the disbursement of foreign loans depends on the government's expenditure as foreign lenders reimburse based on the government’s expenditure. Foreign loans are usually used for capital expenditure and the government’s rack records of spending capital budget have consistently remained poor which results in poor disbursement of foreign loans. When it comes to domestic debt, the government can raise the amount anytime it wants as per the need of the resources for the government. The government has been in greater need of resources since 2015 after the new constitution was promulgated and the federal system of government was brought into practice. As a result, the government has increasingly relied on debt to finance its needs. As a result, both domestic and external loans have grown rapidly in the last seven years. Particularly, the size of internal loans has grown more rapidly than that of external loans. For example, outstanding internal loans more than tripled to Rs987.44 billion in FY2021-22 from just Rs283.71 billion in FY2016-17. When it comes to external loans, it more than doubled to Rs1.02 trillion from Rs413.97 billion in FY2016-17, according to PDMO. Though there is little risk of foreign exchange volatility, the government has been taking domestic loans at relatively higher interest rates. So, the government paid more interest for domestic debt than external debt, which has mostly been borrowed from multilateral donors such as the World Bank and Asian Development Bank. According to the annual report of the PDMO, the government spent Rs37.58 billion in interest payments to domestic creditors while it spent Rs7.44 billion in paying interest to external creditors.
