A disappointing fiscal year

With the government struggling to strike a balance between income and expenditure throughout the year, the fiscal year 2022/23 turned out to be a disappointing one. 

The restriction on imports that stayed for the first six months of the last fiscal year badly hit the government’s income with revenue collection turning negative for the first time in the last 55 years. The government’s other two sources of income—foreign loans and grants—also remain below the target.

The revenue collection at the end of the fiscal year was even below the revised target. Initially, the government aimed to raise Rs 1403.13bn in revenue which was lowered to Rs 1180bn on May 29. However, the actual revenue collection stood at Rs 957.15bn, which is 68.21 percent of the actual target.

The deficit in revenue collection against the initial target is Rs 445.99bn. Never in history has there been such a huge gap between the initial target and the actual collection. In fact, the Department of Customs (DoC) and the Inland Revenue Department, the two major revenue collectors of the federal government, failed to achieve their target. 

The slowdown in economic activities, the decline in imports, and poor capital expenditure have contributed to poor revenue collection this year.

The Financial Comptroller General’s Office (FCGO) data shows the government’s total expenditure in the last fiscal year stood at Rs 1429.56bn.

According to Finance Ministry officials, the budget deficit exceeded Rs 500bn by the end of the fiscal year, and the government treasury account is negative by Rs 1.93bn. 

The budget deficit increased as revenue could not be collected as targeted while liabilities increased in areas of salary, pension, social security allowances, and domestic and external debts among others. 

Despite huge pressure on resources, the growth rate of the government’s expenditure (budget spending) rose to a five-year high in the fiscal year 2022/23. The budget expenditure increased by 10 percent compared to the last fiscal year.

The government, which has been able to spend about 80 percent of the total budget allocation, has succeeded in spending 85 percent of the recurrent expenditure, 61 percent of capital expenditure, and 83 percent of the financing budget.

The capital expenditure increased by eight percent in the last fiscal year. The government spent Rs 233.69bn in FY 2022/23, up from Rs 216.37bn in FY 2021/22. However, most of the capital expenditure happened in the last two months of the fiscal year. Economists term this late surge in capital spending ‘a misuse of state resources’.  The report of the Office of the Auditor General (OAG) also shows that 40 percent of the total capital expenditure takes place in Ashad (mid-June to mid-July), the last month of the fiscal year.

This pattern of spending increases the possibility of sub-standard quality of capital projects and an increase in recurrent spending, in operations and maintenance costs, for the coming years, they said.  “This also shows that the government is not maintaining fiscal discipline,” said economist Chandra Mani Adhikari. 

However, the expenditure under the financing heading that is used for debt servicing, surged by a whopping 61 percent. The government spent Rs 190bn in financing in the last fiscal year. 

With revenue collection declining by 10.37 percent, fiscal management will remain challenging for the government in the current fiscal year. The government has set a target of collecting Rs 1422bn in revenue in FY 2023/24. Given the revenue collection in the last FY, the government can meet the target if it succeeds in increasing revenue collection by 48.58 percent in the current fiscal year. 

Economist Adhikari said that the government faces a huge challenge in the new fiscal year also. “Now, the new monetary policy should take a policy direction of keeping economic activities running and vibrant,” he said. “The interest rate of loans to the productive sector should be made cheaper. This will increase economic activity and increase revenue collection.”