Experts say that there is a dire need to boost capital expenditure to take the country’s economy out of the current downturn. According to them, with the private sector investment in the economy contracting sharply this year, government expenditure is a must to revive the economy.
The government expects capital expenditure of 67.91 percent of the allocated amount, according to the budget document. Overall, government expenditure is expected to remain at 83.90 percent of the allocation. A report from the Prime Minister’s Office (PMO) shows implementation problems of the budgetary programs. According to the report, PMO had set 1,270 activities and 2,795 milestones, besides 339 result indicators for 21 ministries to determine the implementation status of the policies and programs for the current fiscal year. As of the end of the third quarter of the current fiscal year 2022/23, only 10.39 percent of the activities have been completed, while 20.57 percent of the milestones have been achieved. Of the 356 activities in the infrastructure sector, 28 were completed, 296 are under construction and 32 have made no progress, according to the report. “One of the reasons why the government's capital expenditure has been poor this fiscal year is due to lack of resource availability,” said a government official. “Citing the lack of the resources, the government has been delaying making payment to the contractors.” During a press meet last week, the president of the Federation of Contractors’ Association of Nepal (FCAN) said that the government’s failure to make timely payments hindered the contractors’ ability to intensify the construction activities which resulted in poor capital expenditure. “The government paid as much as Rs 25bn in the past two months,” said FCAN President Rabi Singh. “The government still owes us around Rs 70bn.” The government resources were badly affected by the imposition of an import ban in April 2022 which lasted nearly eight months. A customs department official said that the customs offices could only raise as much as just over half of the targeted revenue as of mid-May. With the government failing to spend and the private sector no longer interested in taking loans from the banks citing the shrinking demands in the market, the economy is suffering badly. The government has estimated the country’s economic growth at just 2.16 percent in the current fiscal year, much lower than the projections of the World Bank and the Asian Development Bank. Both international agencies have forecasted Nepal’s economic growth to be at 4.1 percent in the current fiscal year. Economists say that when the private sector investment dries up, it is the government that has to boost its spending. But, the government itself is facing a resource crunch and has little ability to accelerate the implementation of the development projects. But the government hasn’t yet come up with any stimulus package to boost the economy every government does when the economy is slowing. In fact, the government brought down the budget for the next fiscal year by 2.37 percent compared to the budgetary size for the current fiscal year. Even the Nepal Rastra Bank (NRB) also time and again hinted that the central bank alone could not be relied on to revive the economy. “Primary job of the monetary policy is to control inflation and there is not much room for the NRB to introduce loose monetary policy as inflation has continued to remain at a high level,” said a senior NRB official. According to NRB, the inflation rate stood at 7.41 percent as of mid-May. “The government should itself focus on how to accelerate the capital budget and create a conducive environment for the private sector to make investments,” the NRB official said.
