Nepal’s formal practice of presenting the principles and priorities of the budget three months before its tabling in Parliament as a mandatory pre-budget practice merits appreciation.

The Financial Procedures & Fiscal Responsibility Act of 2019 stipulates that 15 days before the finance minister submits the budget to the joint session of Parliament, the government must submit the principles of the budget, programmes and details of project priorities included in the appropriation bill to the federal parliament. Unfortunately, the conclusions and suggestions arising from these discussions were not typically integrated into the budget itself. The government's new ordinance requiring this to be done three months prior has been approved by Parliament.

Despite the budget being presented one and a half months before the end of the fiscal year, as mandated by the 2015 constitution, there has been no improvement in the overall expenditure pattern of the government. For example, as stated in the 60th annual report of the Office of the Auditor General, a significant portion, 21 percent, was spent in the last month of the fiscal year. The percentage of expenditure in the last week of the month (Ashad) was 8 percent. This pattern persists in all fiscal years. As per the daily budget statement of the Comptroller General's Office, a total of 46.8 percent of the total budget had been spent by Tuesday morning (March 19). Regarding capital expenditure, only 27.97 percent has been utilised.

It is shameful that our capital expenditures remain so low with four months until the fiscal year-end. Despite the budget being presented well in advance, there has been a lack of serious review regarding why our spending capacity has not improved. When government agencies fail to spend their allocated budgets on time, it raises questions about their accountability.

It is imperative to establish a policy whereby budgets are allocated to ministries capable of utilising them efficiently. Similarly, legislation should be enacted to ensure that Parliament rather than the government determines the allocation of budgets to relevant ministries and the distribution of fiscal transfers to the provinces and the local level.

Another weakness of the fiscal system is the reduction in budget size every year during the half-yearly review. This shows the government’s lack of care to accurately predict spending capacity while presenting the budget. For instance, in the half-yearly review of the current fiscal (2023-24) budget, the total size was slashed from Rs1751 billion to Rs1530 billion.

If we discuss tax revenue for the current fiscal year, an estimated Rs1305 billion has been projected. Yet, only Rs586 billion has been collected as of Tuesday. The revenue does not cover administrative expenses, including mandatory obligations such as social security and loan payments. Furthermore, the revenue is primarily derived from the custom points.

Nepal's economy heavily relies on imports, and any import decrease directly impacts revenue. Consequently, fiscal transfers to subnational governments are also affected when revenue declines. Unfortunately, there hasn't been a significant initiative to address this issue. Moreover, Nepal's budget system prioritises distribution over production, and there has been insufficient effort to improve this aspect.

Despite governments consistently discussing reforms, expenditure patterns and revenue generation have not improved. The Ministry of Finance should focus on revenue generation, including seeking foreign assistance, while the Planning Commission should concentrate on managing expenditures. The Planning Commission's role extends beyond drafting planning documents; it should also provide regular guidance to relevant ministries to adhere to planning guidelines and to manage expenditures effectively. However, the government has failed in this aspect, and the Commission has not adequately addressed it.

Additionally, all provinces have planning commissions similar to the National Planning Commission at the centre. While the necessity of these commissions is up for debate, it is essential that they work diligently and sincerely toward their objectives.

While different levels of government discuss budget issues, the primary challenge in implementing programmes and projects lies in their duplication. It has been observed that the federal government has encroached on the jurisdictions of provincial and local governments, while the provinces have also executed projects in a manner that leads to duplication at the local level.

In the current fiscal year, the percentage of projects valued at Rs5 million or less within the sectoral ministries are as follows: 66 percent in the Ministry of Physical Infrastructure, 98 percent in the Ministry of Urban Development, 84 percent in the Ministry of Water Supply, and 99 percent in the Ministry of Sports. Upon examining the sectoral ministries' details in the pre-budget document tabled in Parliament, there appears to be no improvement in the principles and priorities. Plans and programmes remain constrained like those of the previous fiscal years, thereby encroaching on the jurisdictions of provincial and local levels.

Another serious issue with the budget is an unfair allocation of programmes and projects. There is a tendency to disproportionately allocate the budget towards the constituencies of the prime minister, ministers and certain influential political leaders. In reality, the fundamental principle of the budget should be to uphold provincial and local balance. However, the pre-budget remains silent on this aspect as well.

A few weeks ago, the Council of Ministers approved the “Projects Classification Procedure Guidelines 2080,” stipulating that the federal government does not implement infrastructure projects smaller than Rs30 million. According to the constitution, the federal government is tasked with carrying out “game changer” and “national pride” projects. If implemented, it should be viewed positively. According to the Guideline, projects costing at least Rs10 billion are classified as “game changer” ones, while those costing at least Rs50 billion are designated as projects of national pride.

If the constitution were to be fully implemented and the Guidelines approved by the Cabinet adhered to, half of the ministries at the federal level would be rendered unnecessary. There is no need for more than 10-12 ministries at the federal level. The pre-budget remains silent on this aspect, including the classification of projects. As originally intended, the federal government will also undertake small projects.

As a parliamentarian, I discussed the budget for the current fiscal year and argued, using facts and figures, that there is no need for more than 12 ministries at the federal level. If the workload is shifted to the provincial and local executives, then there is no need for more ministries and institutions at the federal level. Prime Minister Dahal had a significant opportunity to reduce the number of ministries; however, he missed this chance.

As a reason for ineffective monitoring, parliamentary committees lack adequate funding. This fiscal year, a mere Rs16 million was allocated for monitoring across 16 federal parliament committees, averaging just Rs1 million per committee. Weak parliamentary oversight gives rise to government arbitrariness, contrasting with countries like Australia, Germany, India, Kenya, Switzerland, the United Kingdom and the United States, where research and monitoring hold significant importance.

Remarkably, Nepal's parliamentary budget for the fiscal year 2023-24 constitutes a mere 0.07 percent of the total fiscal budget, a fraction unparalleled globally among legislative bodies. Strengthening parliamentary oversight enhances governmental accountability but calls for a budget aligned with the legislature's needs.

Merely advancing pre-budget discussions won't suffice unless coupled with the empowering of Parliament in budget formulation and allocation, ensuring effective vertical and horizontal distribution. For a meaningful change, Parliament must be central to shaping the budget to reflect the nation's needs.