Govt begins work on next budget amid spending concerns

Capital expenditure is not gaining momentum this year as well. Only 19 percent of the capital budget has been spent even though six months of the fiscal year have already passed.

Amid this backdrop, the government has begun preparations for the budget for the fiscal year 2024/25. Experts say unless a systemic change is made in budget implementation, all these lengthy preparations for the budget will yield no result.

Out of the Rs 302.07bn allocated for capital expenditure in the current fiscal year, only Rs 57.74bn have been spent so far. Slow capital spending has affected the overall economic cycle in the country. Cash flow to the market has been affected. As a result, manufacturers of cement, steel, and other construction materials, as well as laborers, have been affected. Banks are awash with loanable funds. Interest rates too have come down. But new demands for loans are not coming.

On the other hand, the government hasn’t been able to meet revenue targets. The government has set a target of raising Rs 1,422.54bn in fiscal year 2023/24, which ends in mid-July. But it has mobilized only Rs 549bn till the end of January.

Although the external sector of the Nepali economy has improved of late, the economy continues to see pressure on internal sectors, economists say. The share of exportable goods to total trade has come down as factories are running below capacity. The share of imports, as a result, has reached 91.11 percent in Nepal’s total trade. Since imports have also come down due to a fall in demand, the government’s revenue has been hit.

The National Planning Commission (NPC) recently completed discussions with ministries on their priorities and programs for the fiscal year 2024/25. “The ministries have been told to bring programs based on the 16th National Plan document. Since it will be the first fiscal year of the 16th Plan, the ministries should make a policy departure to incorporate basic tenets of the plan,” Ramesh Paudel, a member of the NPC, said.

According to Paudel, the NPC would provide a budget ceiling for ministries after studying their proposals. “We will also get the idea of resources by holding discussions with the Revenue Advisory Committee. We will take resources available to us into consideration while setting a budget ceiling for ministries,” he added.

Economic expert Dilli Raj Khanal said the NPC should set up a division to analyze allocations made to ministries, actual budget spent, and the income and expenditure pattern. “The budget-ceiling process looks like mere ritual. This is because the actual budget is entirely different from what the NPC estimates,” he added. “The credibility of the overall budget is losing due to the tendency of spending the budget in the last month of the fiscal year. This is happening because of haphazard budget allocation and the tendency of powerful people selecting programs without rationale.”

Another economic expert, Chandra Mani Adhikari, said since ministries select programs and priorities based on the ceiling provided by the NPC; NPC should set the ceiling at the earliest. “Since capital spending is not picking up, there is a need to change the budget system and working style, and hold the people responsible for this accountable,” Adhikari said. He also said NPC should discourage ministries from entering unfeasible projects in its project bank. “Only the projects ready for implementation and for which resources are guaranteed should get priority in the budget,” he said. “Also, NPC should clearly state that implementing agencies will be held responsible if projects are not implemented as per the schedule.”

Dhaniram Sharma, the spokesperson for the finance ministry, said he was confident that the capital budget would be spent in the remaining months of the fiscal year. “Slow spending is due to shortcomings in prioritizing projects. That is why the ministry has prepared a standard for the classification of the budget based on their priorities,” he added. “It controls small projects. We will strictly enforce the standards in the coming fiscal year.”

Since ministries can’t propose programs having a budget of less than Rs 30m, Sharma said the number of small projects will go down considerably. “This will, in turn, increase public spending,” he added.

The ministry has also prepared standards for tendering for multi-year projects. As per the standards, such projects should be tendered by mid-October. The standards will also come into operation from the next fiscal year.

The finance ministry has already held the first round of discussions with the ministries on the upcoming budget. “We will hold the next round of meetings after the NPC sets the budget ceiling,” Sharma added.