The National Planning Commission (NPC), the apex body that frames country’s development plans and policies, is mulling over limiting public spending in the next fiscal year to Rs1,206 billion to Rs1,259 billion, as the government starts drawing up budget for 2017-18.

The proposed government expenditure ceiling for the next fiscal year is 15-20 percent higher than that of the current fiscal year.

The NPC’s proposal to expand the new budget’s size by up to a fifth comes on the back of “higher availability of resources”.

“Revenue growth has remained impressive so far this fiscal year and major development partners have also expressed commitment to scale up financial support,” a highly placed NPC source told the Post.

The government’s tax and non-tax revenue surged by 69 percent to Rs277.6 billion in the first half of this fiscal year ended mid-January, while development partners have so far pledged to extend Rs191 billion in grants and soft loans to Nepal. “The resource committee which fixes the budget ceiling is going through all these figures,” the source said. “Once this process is complete, it will give budget ceilings to all the ministries by next week.” 

Based on these caps, each ministry will have to propose programmes and projects for the next fiscal year, following which discussions will be held to finalise them.

Although the cap for the budget of the upcoming fiscal is extended every year, the Ministry of Finance, which launches the fiscal policy, generally does not abide by the recommendations of the NPC.

In the last fiscal year, for instance, the NPC had initially extended a budget ceiling of Rs 908 billion, calling on ministries to embrace frugality and focus on cost effectiveness while formulating programmes. 

But by the time the budget was presented at Parliament the figure had swollen to Rs 1,048.92 billion-up 28 percent than in fiscal year 2015-16. No wonder, many called the budget “distributive” and “populist” because of sharp hike in grants extended to each of 594 lawmakers-from Rs2 million to Rs5 million-under the Constituency Development Programme. Also, grants for each of the 240 electoral constituencies were raised to Rs30 million from Rs15 million under the Constituency Infrastructure Special Programme.

These programmes have drawn widespread criticism because the money is used to build small projects with very little developmental impact, or is spent to serve vested interest of lawmakers or secure vote banks.

At a time when Nepal is in need of big strategic projects to shift to higher trajectory of economic growth, focus on small insignificant projects tends to consume unnecessary time and divert resources to less-important areas. This also reduces the government’s fund absorptive capacity, resulting in lower spending.

This is one of the reasons why the government has been able to spend only 28 percent of the budget after over six months into the financial year. Worse, capital spending, which is crucial to narrow down the country’s infrastructure gap, currently stands at 12.7 percent of the total allocation of Rs312 billion.

It is therefore not surprising that when a team of the International Monetary Fund recently visited Nepal it asked the government to “come up with a budget that could be implemented rather than an aspirational budget”.