Money
Poor revenue collection puts government in tight spot
The Economic Survey shows the government is under pressure to manage resources in relation to the expanding government expenditure.Rajesh Khanal
The government has been under pressure to manage financial resources with the slow growth in revenue collection, decline in the pledged foreign aid and increase in debt services, among others.
The Economic Survey 2018-19 that the Ministry of Finance unveiled on Monday, shows that the government has been under pressure to manage resources in relation to the expanding government expenditure—80 percent of which goes to recurrent expenditure and debt financing.
The report on the country’s macroeconomic status shows that during mid July-mid March, the expenses of federal government escalated by 2.2 percent to Rs540.9 billion while the revenue collection increased by 1.64 percent at Rs454.6 billion. Consequently, the budget deficit soared by 12.1 percent to Rs86.29 billion compared to the same period in 2017-18.
The portion of government expenditure was 35.87 percent of the GDP, while the revenue collection was 23.98 percent. Likewise, the country’s foreign aid materialisation dropped by a third during the period to Rs50.84 billion.
With the growing pressure of the public borrowing, the government’s debt stood at 28.2 percent of the GDP of which the share of external loan was 17.3 percent and that of the domestic borrowing was 12.9 percent.
Tax revenue and public borrowing are the main source of the government’s financial resources. The government is still relying mostly on the tax revenue from imports.
According to the survey, the share of import tax on revenue collection stands at more than 40 percent. Of two-thirds portion of VAT, the major source of the government revenue is from the import. Likewise, 43.1 percent of excise duty collection is derived from the imported goods.
The 10-month statistics of the Department of Customs show that revenue from the import tax surged by 20 percent to Rs293.57 billion. The customs revenue collection is less than 28 percent—the tax revenue set by the government.
“Amid slowing pace of income tax collection and growth in the import taxes, the government will have hard time attaining sustainable base on the revenue mobilisation,” the survey says.
Foreign aid, one of the major sources to supplement the government financing, also painted a gloomy picture. During the
first eight months of the current fiscal year, the country has received foreign aid commitment worth Rs107 billion, down from Rs150 billion in the same period last year.
Of the pledged amount, the share of foreign grant slumped to 12.6 percent, down from 41.5 percent. But the portion of the external loan rose to 87.4 percent from 58.5 percent. The government has attributed the rise in the external loan to an improved capacity in utilisation of funds.
The rise in external loan, however, indicates that the government’s liability in debt financing could rise significantly in future. The government paid Rs11.3 billion in debt financing in foreign loans during the review period.
In the survey report, the Finance Ministry has sought improved coordination among the sub-national governments, enhancement in the capacity of provincial and local governments and expansion in tax bases to ease pressure on the financial resources. It has also set a target to make maximum utilisation of foreign loans to ensure rewarding return from the development projects.
Following the Nepal Investment Summit in March, the government is pinning high hopes of attracting substantive amount of foreign direct investment. However, analysts express doubts over receiving foreign investment till the country improves on Doing Business Index.
Raghu Bir Bista, assistant professor at Tribhuvan University, said the shortfall in resource would lead to unusual spike in budget deficit that will result in the economic imbalance such as adverse balance of payment. Bista pointed out the lack of political commitment and government’s failure to diversify revenue sources and maintain fiscal discipline as the major problem in the resource crunch.
Keshab Acharya, an economist who served as economic advisor to the government during 2009-11, said the government will have to rely more on the market borrowing which is also being observed in the government latest move.
Recently, the government has started the process of raising Rs86 billion in domestic debt in the last quarter of the current fiscal year, in a departure from the practice of mobilising internal loans by publishing calendar typically at the beginning of a fiscal year. Acharya said such a step—taking the domestic borrowing—could hit the private sector’s initiative to inject their capital.
The government in its 15th five year development plan has projected to invest Rs9.24 trillion in development projects. Out of the projected amount, the government plans to generate 55.5 percent from the private sector. According to Acharya, the government’s move in this regard could also affect the target of the new plan.