COVID-19 has its toll on already serious problem of low capital expenses

Kathmandu, Jul 4

The tradition to ramming up the mobilisation of capital budget in the last three months of the fiscal year has proven costly for the economy of the country this year.

Only 38 per cent of the total capital budget has been mobilised till Friday, with just four days of the current fiscal year 2019/20 remaining. In monetary terms, it is just Rs. 151.5 billion out of Rs. 408 billion development budget. In July 11 last year, the capital expenditure was about 59 per cent.

Finance Minister Dr. Yuba Raj Khatiwada had announced the budget of Rs. 1,532.9 billion for the current fiscal and set the growth target of 8.5 per cent with the hope that the high growth trajectory of the previous three years would continue this year as well.

But the COVID-19 pandemic and the lockdown imposed to save the lives people put most of the development work, industries and businesses off operation at the time when the capital expenditure would have picked up.

The last month of the fiscal year, mid-June to mid-July, generally witnesses as high as 40 per cent mobilisation of capital expenditure while 10–11 per cent budget is spent in the second and third last months, said Dr. Shanta Raj Subedi, former Finance Secretary.

However, the same has not happened this year as budget mobilisation increased by just 4 per cent in a week. A week earlier, the capital expenditure stood at 34.24 per cent. According to the experts, the expenditure will not cross 50 per cent.

According to the Financial Comptroller General Office (FCGO), the country had mobilised 91.3 per cent recurrent, 87.38 per cent development and 92.4 per cent financing expenditure.

 

Institutional problem

As per the statistics of the FCGO, about 67 per cent of the budget is utilised by Friday which includes 80 per cent recurrent, 38.2 per cent capital and 63.24 financing management.

Although the senior officials at the Ministry of Finance (MoF) and National Planning Commission (NPC) did not comment on the issue, the country has failed in timely execution of the budget even though it is announced 45 days ahead of the start of the new fiscal year.

Dr. Subedi said that had the government agencies and contractors worked in time, and better monitoring and problem-solving mechanism was put in place, the development work would have caught momentum resulting in the mobilisation of the capital budget.

Economist Dr. Dilli Raj Khanal, who had led the Public Expenditure Review Commission this year, said that it was the coronavirus pandemic that largely affected the execution of development work but the country had chronic institutional problems when it came to implementation of projects.

“The problem was inherent in the system, corona had just intensified the crisis,” he said.

 

Improving spending

Dr. Khanal suggested a robust oversight mechanism to improve budget spending. “There should be powerful and efficient oversight agency to monitor the development projects. Besides, a provision should be made for the projects to publish the quarterly progress through the media.

He said that the failure to improving budget implementation would result in time and cost overrun of the development project, private sector investment would be discouraged and economy would experience disorder.

Dr. Subedi also said that the focus should again be given to the implementation aspects. If the same trend continued the next year, the economy would face a severe crisis, he said.

The government had announced to create 750,000 employments and develop the sectors like agriculture but the sluggishness in the execution of development projects will impact such plans. “Government’s development expenditure is investment which facilitates further investment from the private sector. Every rupee invested by the government attracts 4-5 rupees from the private sector,” said Dr. Subedi.

Similarly, 7 per cent growth target is set for the next fiscal year. Without increased expenditure and economic activities, the aim would be a far cry.

Meanwhile, the government has collected 66.7 per cent revenue of the total target.

The revenue target was Rs. 1,112 billion while Rs. 741 billion is collected by Friday. The revenue includes Rs. 657.9 billion tax, Rs. 83.7 billion non-tax, Rs. 16.6 billion grants and Rs. 45.6 billion other receipts.

Published in The Rising Nepal daily on 12 July 2020.