Poor revenue poses challenges to public fiscal management

Kathmandu, June 30

Although government expenditure has caught a worse trajectory for the last three years registering poor yet identical achievements, income has been severely disturbed in the current fiscal year.

The government could achieve only 62 per cent of its income target by Thursday, June 29, according to the Financial Comptroller General Office (FCGO). Through the budget of the current fiscal year 2022/23, the government had announced to raise a total revenue (including non-tax income) of  Rs. 1458.6 billion but it could collect only Rs. 899.7 billion.

This poor revenue performance has a detrimental impact on the overall budget performance as the public expenditure in the same period has reached Rs. 1229.8 billion creating a gap of Rs. 330.1 billion which has posed a threat to the government to manage its operations for the remaining period of the current fiscal year.

The challenge is likely to be aggravated further with the clearance of the dues to the contractors involved in the public construction and development works. According to the Federation of Contractors' Association of Nepal (FCAN), the government has a liability of about Rs. 50 billion to the contractors.

FCAN's President Rabi Singh said that only Rs. 20 billion has been paid to the contractors in the past couple of months. According to him, the government agencies have cited the lack of funds as the main obstruction to clearing the contractor's bills.

 

Poor fiscal management

The FCGO statistics showed that revenue mobilisation has remained the poorest this year compared to the past few years. This is worse even compared with the FY 2020/21, and FY 2021/22, the years when the business and economic activities were severely disturbed by the Coronavirus pandemic.

In the last FY 2021/22, the government collected Rs. 1025.5 billion in revenue by the end of the second week of the last month of the fiscal which was 82.67 per cent of the total annual target of Rs. 1240.5 billion.

Likewise, in 2020/21, the collections were 82.45 per cent – Rs. 884.1 billion of the annual estimate of Rs. 1072.2 billion.

Sensing the inability to meet the annual revenue target, the government had revised the revenue estimates by 11.29 per cent of the total target of Rs. 1403.1 billion to Rs. 1244.7 billion this year.

Economists and financial experts said that the poor revenue mobilisation was the result of poor fiscal management and authorities' failure to gauge the impact of internal and external factors.

Former member of the National Planning Commission, Dr. Dilli Raj Khanal, who also led Public Expenditure Review Commission, said that the worse scenario in the revenue sector was the result of multiple factors like import restrictions, tight monetary policy, high inflation and shrinkage in industrial production.

Owing to the depleting foreign currency reserves during the economic boom in the recovery period after the pandemic, the government imposed a moratorium on the import of luxury vehicles, liquors and other items and imposed a provision of maintaining cash margin while opening letters of credit for dozens of items.

Likewise, tight monetary policy and the tough stance of the government on real estate caused a debacle in multiple areas. Meanwhile, the Russian invasion of Ukraine further disturbed the international supply chains affected by COVID-19 and sent the price of goods up.

Similarly, high inflation decreased the demand and industrial production reached a record low with large industries operating at 30-40 per cent of their capacity. "In addition to these, the black economy flourished during the difficult period this year. The perpetrators of the black economy are trying to influence the government to wash their wealth," said Dr. Khanal.

He maintained that the government announced an 'unnecessarily large' budget and revenue target for this year.

 

Capital expenses remain low

The government has mobilised only 43.46 per cent of the capital budget so far. With only 17 days remaining to conclude the current FY, it has a burden to spend Rs. 148.5 billion – the size adjusted during the mid-term review of the budget in February this year.

During the mid-term review of the budget for the current FY 2022/23, then Finance Minister Bishnu Prasad Paudel lowered the budget by 14 per cent to Rs. 1549.99 billion.

Published in The Rising Nepal daily on 1 July 2023.