The Ministry of Finance has denied access to additional budget, other than reduced allocated funds, for government agencies following the January 31 decision to cut government expenditure amid a financial resource crunch. In line with the decision of reducing recurrent expenditure and cutting expenditure for not ready-to-go projects, the government has already reduced the size of the budget in the mid-term review of the budget for the current fiscal year 2022/23. On February 12, the government announced a cut in its annual budget by a whopping 13.59 percent, the largest cut in recent years, after realizing that raising the required resources from all sources, particularly revenue and foreign aid, is not achievable.

The revised budgetary allocation now amounts to Rs 1,549.99 billion from the original size of Rs1,793.83 billion.

“Along with overall trimming of budget, the budget has been trimmed under individual headings too,” said a senior official at the Financial Comptroller General Office (FCGO). “Now, the Line Ministry Budget Information System (LMBIS) automatically refuses to entertain any demand for extra resources other than reduced allocation.” According to the official, any payment order issued exceeding the new limit is being turned back by the system itself. “Allocation of the budget has been revised for the development projects depending on their progress in the works,” the official said. The government’s revenue suffered mainly due to the prolonged import restrictions on high revenue-generating goods including vehicles, alcohol, and expensive mobile handsets. 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 ban was lifted. Likewise, 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 steps invited a new crisis of a shortfall of resources for the government. “It is for the first time since the fiscal year 1967-68 that the country has witnessed a negative growth in revenue collection,” said Deputy Prime Minister Finance Minister Bishnu Paudel, presenting a mid-term review of the budget in Parliament on February 12. In the past, there was a trend of reduced revenue growth but not negative growth. The shortfall in revenue was also aggravated by added liability by the previous government led by Sher Bahadur Deuba whose administration increased salaries for civil servants and increased the beneficiaries of social security allowances. This prompted the current government to take harsh measures of slashing the overall budget which is likely to result in reduced economic growth. Likewise, reprioritization of projects which has 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 measures planned by the finance ministry. Addressing the parliament, minister Paudel had said that the government also aims to control revenue leakages by taking action against those involved in such practices and recover the prolonged dues of revenue to improve the revenue situation.