Lax money: Rs233.6b sits idle in state coffersA whopping Rs233.6 billion is sitting idle in government coffers, thanks to the surge in revenue collection and inefficiency in spending of the capital budget by different government agencies.
A whopping Rs233.6 billion is sitting idle in government coffers, thanks to the surge in revenue collection and inefficiency in spending of the capital budget by different government agencies.
With the normalisation in the supply situation in the current fiscal year, demand for goods and services has soared, which has pushed up government’s revenue collection.
As of Wednesday, the government had collected Rs432.72 billion in revenue, a staggering growth of over 40 percent compared to the amount collected during the same period last fiscal year.
On the contrary, the government’s capital spending has not gone up significantly. As a result, the government is sitting atop piles of cash.
As of Wednesday, the government’s capital expenditure stood at Rs88.1 billion, which is around 28 percent of the total capital budget allocation of Rs312 billion for the current fiscal year.
The government has not been able to utilise even a third of the capital budget so far, while less than three months are remaining for the fiscal year to end.
Because of this inefficiency in capital spending, huge chunk of fund has been piling up at state coffers, while the banking sector is reeling under a shortage of loanable funds.
“The government’s inability to ramp up capital spending is one of the major reasons for the credit crunch faced by banks and financial institutions in the country,” said Nepal Rastra Bank (NRB) Governor Chiranjibi Nepal addressing a programme organised to mark the 62nd anniversary of the central bank on Thursday.
“Only a hike in public spending in development works can ease the problem of credit crunch.”
In order to replenish the stock of loanable funds, the NRB has allowed banks and financial institutions to calculate credit to core capital-cum-deposit (CCD) ratio by deducting 50 percent of loans extended to the productive sector. The central bank has allowed banks and financial institutions to enjoy such relaxation till mid-July.
Introduction of this provision is said to have released around Rs127 billion, which banks and financial institutions can extend as loans.
Anil Shah, president of the Nepal Bankers’ Association, praised the central bank for easing the lending rules. “At a time when the banking industry was under serious pressure, the NRB came up with a practical solution and offered us breathing space,” said Shah.
The International Monetary Fund (IMF), however, has shown concern over the central bank’s decision to provide leeway to banking industry to extend credit beyond the regulatory lending limit. Such relaxation, according the IMF, has posed a threat to the financial sector stability and should be withdrawn promptly.
Although the latest provision is valid till mid-July, the “temporary regulatory relief granted by the central bank would allow for continued rapid credit growth, raising macro-financial risks”, says the full-text of the Article IV Consultation Report of the IMF released in March.
This relief, according to the IMF, should be “withdrawn promptly when it lapses in mid-July in order to moderate credit growth, normalise interest rates, discourage excessive risk taking, and reduce the impetus to capital outflows”.