The government’s capital spending has failed to gather pace in the current fiscal year as well, signalling delay in construction of critical physical infrastructure projects that are essential to put Nepal on higher economic growth trajectory.

The government’s capital spending hovered around Rs47 billion in the first six months of the fiscal year, which is only 14 percent of total capital budget of Rs335.2 billion allocated for 2017-18, show the data of the Financial Comptroller General Office. 

The capital spending in the first half of this fiscal year is higher than in the same period of the last fiscal year when the government had spent around Rs35 billion, or 11 percent, of the annual capital budget. But the progress is not satisfactory, as the budget of 2017-18 was introduced and approved well before the commencement of the current fiscal year and ministries, this year, were allowed to spend the money allotted to them without seeking permission of the National Planning Commission. 

This is an indication that capital expenditure will most likely bunch towards the final quarter of the fiscal year as in previous years, resulting in construction of sub-standard infrastructure projects.

“There are three main reasons for underutilisation of the capital budget in the current fiscal year,” said Finance Ministry Spokesperson Arjun Prasad Pokharel. 

First is the floods of August, which delayed the process of implementing various infrastructure projects, according to Pokharel. 

“Second is the state assembly and federal parliamentary elections of November and December. During the polls, labourers took leave to cast votes; government officials were transferred to various locations, which prevented them from overseeing progress of development works; and some of the contractors even became candidates, diverting their focus away from construction projects to election campaigns,” said Pokharel. “The third reason is implementation of federalism, which led to transfer of some of the works from the central government to local governments. This also affected capital spending, because of delay in transfer of projects and confusion over whether the implementing agency was the central government or local bodies.”

Government’s capital expenditure includes spending on civil works, and purchase of land, building, furniture, vehicles, plants and machinery, among others. In a country like Nepal with huge infrastructure gap, low capital spending creates a binding constraint on economic growth, delaying the process of raising living standard of people and sharing prosperity. 

One of the major reasons for low capital spending is incorporation of premature projects in the annual budget. The budget of the current fiscal year, for instance, comprises a plan to expand the runway and parking bay at Tribhuvan International Airport by building an underpass at Koteshwor. The plan sounds feasible, but it was included in the budget without conducting any study. This means funds allocated for the project will not be utilised in the current fiscal year.

To avoid such mistakes, the government has introduced what it calls project readiness filter, under which detailed project report must be prepared, environmental impact assessment must be conducted, resettlement requirements must be fulfilled and social impact assessment must be carried out before budget is allocated to projects.

But there is no guarantee that this filter will be used effectively because some of the projects or programmes are added to the budget in the last minute without conducting any homework due to political pressure.

Other reasons that lead to low capital spending are delay in preparation of detailed project design, land acquisition, establishment of project management offices and preparation of procurement plans.

The Ministry of Finance has said it will withdraw budget allocated to projects that fail to initiate procurement process by the end of the first eight months of the current fiscal year in mid-March. “The amount would then be diverted to projects that are facing short of cash,” said Pokharel.