Capital expenditure fails to pick up paceConstruction of critical physical infrastructure projects that are required to unlock private investment and rekindle economic growth may not move ahead at a desired pace this fiscal year as well, as the government’s capital spending is yet to show signs of picking up pace.
Construction of critical physical infrastructure projects that are required to unlock private investment and rekindle economic growth may not move ahead at a desired pace this fiscal year as well, as the government’s capital spending is yet to show signs of picking up pace.
As of Thursday, the government has spent only Rs 2.7 billion, or 0.9 per cent of the total capital budget of Rs 311.9 billion, show the data of the Financial Comptroller General Office, signalling weak capital spending.
The slowdown in capital spending comes at a time when the annual budget was launched one-and-a-half-month prior to the beginning of the new fiscal year on July 16 and was approved by Parliament well before the dawn of 2016-17.
If this trend continues, ministries implementing various projects may not be able to meet the Ministry of Finance’s target of spending 32 per cent of the capital budget in the first four months of the current fiscal year.
“We are well aware of this problem. And to discuss this issue, we called secretaries of 12 ministries and the National Reconstruction Authority to our office yesterday and told them to do everything possible to ramp up capital spending,”
Finance Secretary Shanta Raj Subedi told the Post.
This is not the first time capital expenditure has lagged behind in the initial months of the fiscal year.
Slow spending in initial months prompts capital expenditure to bunch towards the last quarter of the financial year, raising questions on the quality of spending.
For instance, of the total capital expenditure made in the fiscal year 2015-16, about 70 percent was used in the last three months and 49.4 percent was spent in the last month of the financial year.
The trend was the same the previous year when about 63 percent of the capital budget was utilised in the final quarter of the fiscal year 2014-15 and 44 percent in the last month.
This pattern of spending increases the likelihood of sub-standard quality of capital projects and an increase in recurrent spending, in operations and maintenance costs, for the next few years, says the latest Macroeconomic Update of the Asian Development Bank.
Timely and quality capital spending is a must for a developing country like Nepal which lacks critical physical infrastructure like hydroelectricity projects, transmission lines, irrigation projects, airports and roads. Investment in these areas helps attract private investment, create jobs and accelerate economic growth.
A report prepared by the National Planning Commission says every rupee that the government contributes to gross fixed capital formation draws investment worth Rs 4.40 from the private sector. This roughly means utilisation of every rupee allocated by the government for capital budget—except for investment made in land—attracts Rs 4.40 in private investment.
Government’s capital investment crowds in private investment because the private sector expands businesses to areas where there is presence of critical physical infrastructure. This helps create hundreds of thousands of jobs, reduce poverty and share prosperity. This is the reason why higher capital investment is considered as the bedrock for sustainable economic growth.
“To ensure that capital spending does not lag behind, the Ministry of Finance will coordinate with the National Planning Commission, and the Office of the Prime Minister and Council of Ministers to conduct joint monitoring of infrastructure projects,” said Subedi, adding that the joint monitoring would begin within a month or two.