The spending capacity of the Government of Nepal is quite poor, to say the least. The government has been routinely allocating capital expenditure, also known as the development budget, every year. But it has routinely failed to spend the money. In the first nine months of the current fiscal year, the government has been able to spend only about 26 percent of the development budget. In the previous fiscal year, such spending was about 29 per cent. Government officials are authorized to make capital expenditure right after the parliament endorses the national budget. But they don’t move for months and wait for the final trimester to spend the development budget in a hurry. This has developed as a culture.
It’s not only the government-funded projects but also the donor-funded ones that are affected by this chronic tendency. The projects funded by the World Bank (WB), Nepal’s largest multilateral development partner, could be taken as an example. In the first six months of the current fiscal year, spending by the WB-funded projects has been poor with disbursement standing at 5.3 per cent against a target of 13.2 per cent. According to the WB, disbursement amounted to Rs 38.06 million during the period against the targeted Rs 94.6 billion.
The ineffectiveness of the government machinery is clearly visible here as almost all of the WB’s funding is channelled through the government system. There have been talks about enhancing the government’s spending capacity but they are limited to just that – talks.
The unspent amount has soared as this year’s budget also has a carry-over of Rs 15 billion from last year’s unspent budget. It shows that billions of rupees meant for development works have been remaining unspent.
For years, we have been fatigued by this bizarre development practice. We have a measurable trend of low expenditure every year for various reasons. Since fiscal year 2011/12, capital expenditure has not crossed 30 percent of the allocated amount during the three trimesters. The delay in spending the budget can lead to multiple problems in the market such as lack of liquidity, no job creation and slow development work.
If a major chunk of the budget continues to pile up, there is persistent risk of spending the budget unaccountably at the end of the fiscal year. This has been happening for the last several years. Every year, newspapers are replete with stories of hasty and hurried expenditure of development funds when only a few months are left prior to the end of the fiscal year. The expenditure of development funds expedites a few months before the expiry of the fiscal year. This puts people's concerns about quality development into question.
Laws and guidelines clearly stipulate that development expenditures have to be made within a set deadline, and accountability and transparency must be maintained in the process. But brushing aside such legal and procedural mandates, expenditures are being made in such a way as to produce miserable development output against hefty expenditure. It has become a common sight in and around the cities, towns and villages that construction of new tracks and blacktopping of roads unusually pick up momentum during June and July each year. Nepal’s fiscal year ends at mid-July. One can imagine the quality of construction and development works when a major chunk of the national budget is spent in a few months before the expiry of the fiscal year.
Procedural delays in approving the project and awarding the contract, a tendency among contractors not to work after receiving the mobilisation fund in advance, frequent transfer of technical and top level staffers at the project and fear of the anti-graft body are some of the reasons for the low spending of the capital expenditure. Whatever the reason might be, the fact is the government hasn’t been able to spend the development budget year after year. Therefore the responsibility of spending the development budget should be given to the private sector.
If we adopt such practice, the private sector, which is far more efficient and capable than the public sector, can take the leadership of our development projects. The government, on its part can create a mechanism to periodically monitor the progress of such projects.