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Editorial: Challenges in budget implementation

Editorial: Challenges in budget implementation

The government has brought an ambitious budget for the upcoming fiscal year. It aims to spend Rs 1,860.39bn, achieve six percent economic growth rate and contain inflation at 5.3 percent in fiscal year 2024-25. On paper, the budget appears balanced. It focuses on economic reforms and private sector participation, and prioritizes sectors like agriculture, tourism and information technology. However, the real test lies in its implementation as the government has historically struggled in budget implementation.

One of the major hurdles is the ambitious revenue target. The government has set a target of collecting 23 percent of GDP as revenue in the upcoming fiscal year. This seems unrealistic as the government could raise only around 18 percent of GDP as revenue in the current fiscal year. There is nothing wrong in being ambitious. However, setting unattainable goals can undermine credibility and lead to significant deficits. Another challenge lies in the allocation of resources for projects without finalized agreements for foreign aid or investment. 

This tendency of allocating funds based on anticipated deals is one of the reasons behind inflated budget size with limited actual spending. Furthermore, there have been frequent policy shifts in certain sectors, such as tax incentives for billet manufacturing industries and taxation of electric vehicles. Frequent changes in policies can discourage private investment and erode investor confidence, and could derail the government’s efforts to achieve high economic growth.

Strong coordination among various government agencies and three tiers of government is needed for effective implementation of the budget. We have seen how lack of coordination among state agencies can lead to delays, cost overruns and sub-par outcomes. The budget has brought ambitious plans for economic corridors, industrial zones and special economic regions. If we are to transform these ideas into reality, we need to have a strong commitment, consistent policies and a conducive investment climate. The proposed Sovereign Wealth Fund to channel remittances into productive sectors is a promising concept. However, it remains unclear how the government intends to implement it. Moreover, slow capital spending has always been a problem in our budget implementation. The government needs to expedite capital spending if it is to achieve targets set in the budget.

The success of the budget hinges on the government’s ability to prioritize and execute important projects and initiatives effectively. Past budgets have suffered from a lack of focus, slow spending and allocation of resources thinly across numerous projects. Overcoming bureaucratic shortcomings, maintaining policy consistency and fostering an enabling environment for private sector participation will be important for effective implementation of the budget.