Government sets record in rush spending at end of fiscal yearOn Saturday, despite being the weekend, it paid out a whopping Rs14.72 billion, setting a record for the highest one-day capital expenditure.
The government has outdone itself in rush spending budget money with the end of the fiscal year fast coming up. On Saturday, despite being the weekend, it paid out a whopping Rs14.72 billion, setting a record for the highest one-day capital expenditure.
And in order to facilitate fast-track spending of the capital budget, the Finance Ministry has written to the provincial and local governments allowing them to settle bills even on the weekend.
Despite these efforts to speed up capital expenditure, spending may drop to a new low this fiscal year ending July 16, officials say.
In the last fiscal year, capital expenditure reached 64.69 percent of the budget allocation, according to official records.
Former finance minister Janardan Sharma had announced through a replacement bill last September that spending would be made at the rate of 10 percent of the capital budget monthly to address the long-standing problem of low capital spending.
Sharma resigned last Wednesday after being charged with breaching budgetary discipline which experts say amounts to financial crime.
His pledge to speed up spending turned out to be a charade as capital expenditure in the current fiscal year could be one of the lowest in several years.
According to the data of the Financial Comptroller General Office that keeps track of the government’s income and expenditure and publishes details online on a daily basis, capital expenditure only crossed the half-way mark on Saturday.
The statistics show that Rs189.69 billion had been spent on capital expenditure as of Sunday. The figure represents 50.2 percent of the total budget allocated for capital expenditure.
The government spends money under three headings—recurrent expenditure, capital expenditure and expense on financial management. Recurrent expenditure refers to administrative costs, including operation grants, capital grants and costs for ongoing projects.
Capital expenditure involves expenses made in infrastructure development, construction and other sectors that help generate real capital in the country.
The government’s capital budget includes funds allocated for the purposes of executing civil works and purchasing land, buildings, furniture, vehicles, plants and machinery.
In a country like Nepal, where infrastructure is very poor, low capital spending creates a binding constraint on economic growth, delaying the improvement of people's living standards.
A low spending situation arises because government bodies need to spend the allocated funds within the fiscal deadline. When the fiscal year ends, which is generally the spending deadline, unspent funds are frozen under the use-it-or-lose-it budget rule.
The Ministry of Finance often allocates a budget to agencies based on their spending capacity in the previous fiscal year. This prompts agencies to spend their allocated budget by any means so that they do not receive a reduced budget the next year.
Delays in awarding contracts as well as a high level of corruption at the bureaucratic level have also been blamed for rush spending, according to officials.
Statistics show that over the past seven years, the government has been spending 72 percent of the capital budget on average, which displays the state’s inability to use the funds allocated under the prescribed headings.
“The amount might increase by Saturday, the last day of the fiscal year 2021-22,” said Navaraj Dhungana, spokesperson for the Financial Comptroller General Office.
“Although the amount to be transferred from the accounts of the local and provincial levels has been closed, the federal government’s account has not been completely closed,” Dhungana said. “Expenditure can still be made in big amounts with late transfers of funds.”
Capital expenditure in the first six months of the fiscal year, which ended mid-January, was a meagre 13.44 percent.
Expenditure totalled Rs137.96 billion, or 36.49 percent of the capital budget, in the first 11 months of the current fiscal year, which ended mid-June.
Despite the provision in the Financial Procedure and Fiscal Accountability Regulations for clearing payments at least a week before the completion of the fiscal year, more than 11 percent of the capital expenditure in the last fiscal year was done in just seven days.
“The same thing might be repeated this fiscal year too,” said government officials.
Writing in a report submitted to the Finance Ministry last January, the Public Expenditure Review Commission, led by economist Dilli Raj Khanal, pointed out various flaws like implementing projects without proper planning and preparation, disregarding government standards, and inappropriately prioritising projects as the major reasons for the delay in the completion of development projects and poor utilisation of capital expenditure.
There are a few factors that cause the expenditure to see a sharp rise towards the end of the fiscal year.
For Dhungana, lengthy paperwork is one of the reasons behind the delay in expenditure. “It takes around two months to clear a payment of more than Rs2 million.”
The Department of Roads, one of the key sectors which pushes spending, had spent only 50 percent of its allocated funds as of Sunday.
Department officials say the figure may reach 60 percent by the end of the fiscal year as they have cleared payments for a number of projects completed months ago.
Arjun Jung Thapa, director general of the department, said that even if expenditure touches the 60 percent mark, it would still be 16 percent less than in the last fiscal year.
"Around 76 percent of the budget allocated for the department was spent in the fiscal year 2020-21," said Thapa.
Officials say that capital expenditure slowed after the Federation of Contractors’ Associations of Nepal, the national association of builders, suspended construction activities from April 24, demanding price adjustment in line with inflation.
According to contractors, 3,500 out of 5,000 projects across the country have come to a stop.
“Although the government has partially addressed our demand, it has not implemented the agreement about adjusting prices of construction materials,” said Ravi Singh, president of the association. “Officially, the construction holiday is still on. We are discussing the issue.”
Another reason for the poor expenditure has been the formulation of projects without assuring the resources. Though the government had held talks with donors, agreements did not move forward in many projects, according to Thapa.
“For instance, the Rs5 billion Butwal-Pokhara road project was to be carried out through foreign loans,” Thapa said. “But neither do we know about the source nor were there any agreements.”
Similarly, funds for the Suryabinayak-Dhulikhel road section were supposed to come from the Japan International Cooperation Agency, but so far no agreement has been signed.
"No agreement was signed with the Chinese government for the Kathmandu Ring Road project either," said Thapa.
Officials say frequent transfers of the chief of the department too have slowed the implementation of projects. The director general of the Roads Department has been changed three times in a year.
Economists say around 15 percent of the expenditure could still happen within less than a week. But they doubt the quality of the work.
“Last-hour spending is nothing new. This happens every year,” said Jagdish Chandra Pokhrel, former vice-chairman of the National Planning Commission and an economist.
Despite the presentation of the budget 45 days before the beginning of the fiscal year, there are delays in the formulation and implementation of the projects and a tendency to rush development activities at the end of the fiscal year to meet the deadline, say economists.
"Besides a lengthy service procurement process, the list of projects and programmes is too long," said Pokhrel. “The project handling capacity of the implementing agencies is poor. In Nepal, an engineer is involved in the implementation of around 100 projects.”
Contractors taking more contracts than their capacity has also delayed work and caused low expenditure, he added.
The government had initially set aside Rs374.26 billion for capital expenditure in the current fiscal year's budget presented by the then finance minister Bishnu Paudel on May 29 last year through an ordinance.
Paudel’s successor Janardan Sharma increased the capital budget to Rs378.1 billion in September last year. The capital budget was slashed by 10 percent to Rs340.32 billion after the government failed to spend it.
“We need to improve our systemic capacity for effective utilisation of the capital budget,” said Pokhrel.