Weak capacity poses risk to manage resources at local level

Kathmandu, Nov. 1:

Weak or incomplete systems at the subnational level have posed an immediate risk to the use and management of funds at the local level, according to the World Bank’s Nepal Development Update Report 2018.

“Weak or incomplete systems, processes and capacity at the subnational level pose an immediate risk to the use and management of resources, especially funds allocated for local governments,” said the WB.

Citing example of the three-year Medium-Term Expenditure Framework (MTEF) the multilateral donor said that such framework would take time to implement at subnational levels given the difficulty of recording expenditures for local governments since local governments did not know the provisions in the law or that they are required to do three-year budgets.

“The MTEF requires a good overview of local revenue but local governments are unable to forecast revenue. Revenue sharing information from the federal level will also need solidly in place,” read the report.

It has warned that if those shortcomings were not addressed, the local governments would fail to provide the services necessary to crowd in the private sector.

The report also recommended for urgent reforms to strengthen Public Financial Management (PFM) system to inform decentralized decision making and service delivery. Also needed is the integrated IT system to report about the fund mobilisation.

“Risks to the outlook arise primarily from the transition to and implementation of federalism, including the resource and capacity needs. Failure to raise the needed resources to meet the projected increase in spending could undermine service delivery or lead to a significant deterioration of the fiscal position,” read the report.

The WB has suggested maximizing finance for development.

In order to materialize the government’s ‘Prosperous Nepal, Happy Nepali’ campaign and become a middle income country by 2030, at least 7-8 per cent growth rate is imperative, and it can only happen with a shift from remittance-led and consumption-based growth to one that is investment and productivity driven, it said.

Saying that business as usual will not be sufficient to accelerate growth and achieve graduation to middle-income country status by 2030, the report maintained that reforms are needed to improve the competitiveness of the private sector and integrate with global markets, strengthen the financial sector through development of long-term financial instruments, and strengthen the framework for infrastructure finance, including Public-Private-Partnerships (PPPs).

“But, to increase firm productivity and exports, it is necessary to raise foreign direct investment (FDI) through development of a world-class investment and regulatory framework,” it said.

It also recommended reforms to reduce the infrastructure gap by enacting PPP law.

Improved access to finance, improved intermediation, and the development of long-term finance will be crucially important to channel finance to productive activities, it said.

The multilateral development bank said that Nepal’s public investment had averaged 4 per cent of the Gross Domestic Product (GDP) which was below average among both South Asian and low-income countries.

“There is a chronic under-spending of the capital budget, with spending averaging about 70 – 80 per cent,” read the report.

Finance Minister Dr. Yuba Raj Khatiwada, speaking at the launch ceremony of the report, said that the government was for the growth that ensured that jobs were created.

“The government is putting its efforts for the reforms. We are ready to have dialogue with the private sector. But, the private sector should also be transparent and responsible,” he said.

The Finance Minister expressed serious concerns about the widening export-import gap.

Published in The Rising Nepal daily on 2 November 2018.