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Cost of Unspent Capital Budget

A unique trend has emerged in Nepal over the last ten years or so whereby the success of a Finance Minister is measured by the amount of revenue generated by the state during his/her term rather than the soundness and impact of his/her policies. And interestingly, Nepal government has been able to generate higher and higher revenues with every passing year. But has the increased revenue been able to deliver real growth, or greater achievements in development indicators for Nepal? Not quite! And this is where another attribute of Nepal government comes into the scene—greater revenue collection but consistently low capital spending.

* Source: Financial Comptroller General Office & Nepal Rastra Bank

Fiscal year Percentage Capital Expenditure (CE) budget in total budget Actual capital expenditure (% of allocated budget for CE) 9-month spending (% of allocated CE Budget)
2016/17

30

23.75

2015/16

26

56.30

15.5

2014/15

18.9

76.09

17.5

2013/14

16.45

78.37

26.9

2012/13

16.33

82.56

* Source: Ministry of Finance & Nepal Rastra Bank

As can be seen above, the Government of Nepal (GoN) has been boosting revenue collection every year. Likewise, provision for capital expenditure—which is seen as the backbone of economic development—has also been growing. These ever-increasing revenue targets (and actual collection beyond the targets) are not necessarily problems in themselves; however, the fact that government consistently fails to employ these resources to development activities is definitely one.

With reference to this year’s data, only 31 percent of the total capital expenditure has been injected in the economy as we approach the end of tenth month of this fiscal year. Weaker spending capability pushes the deadline of the governmental projects and also increases the cost of the projects. The mega-projects like Pokhara Int’l Airport, Postal “Hulaki” highway, Melamchi drinking water project, ‘Madhya Pahadi Lokmarg’ and other national priority projects have been affected by weaker spending ability. Piles of billions of rupees worth of unspent capital expenditure prove that government is achieving its targets only in papers. And these sorts of failures only create bottlenecks for greater economic growth.

A question then arises—why does the government collect larger revenue every year despite being unable to utilize it fully? One possible reason is that politicians can easily promise growing revenues towards new welfare programs. Welfare programs are useful tools to become more popular among voters, and these programs can be implemented in quick span of time unlike infrastructure development.  In 2016/17, the GoN doubled allowances for old age, disable, single woman and endangered communities programmes. While there is no questioning intended benefits of these programs for genuine beneficiaries, it is also equally true that these are tools of vote-bank securing at the cost of other development activities that could create greater wealth in the economy. What is ominous about these programmes is that these are irreversible, for any politician who wishes to undo these programs will be committing a political suicide—they will become unpopular among voters. And obviously, these expenses need to increase over time.

On the other hand, every penny unspent by the government compromises the ability of economy to flourish. The frozen budget which is collected from taxpayers, if had not been collected in the first place, those funds would still be in the hands of private individuals. These private individuals could have consumed, invested or even saved this money at financial institutions. For entrepreneurs and credit seekers, this would mean greater availability of funds. All these could contribute towards wealth creation inside the economy. This is the alternative way by which the economy could have grown—leading to more new entrepreneurs, more jobs in the economy, and higher production of goods and services by the private sector. Unfortunately, some of these possibilities have been largely compromised in our country.

Therefore, what could be better for the economy is that every year, as our budget-making process begins, the government factor these other things that get compromised as the government looks to grow bigger (and create new welfare programs). There is a private sector in the economy, and every time the government grows, it shrinks the space for private sector as well. If the government is inefficient at utilising resources, then it should re-think exercising control over greater resources every year.

 

Ashish Thapa

About Ashish Thapa

Ashish is working as a researcher at Samriddhi Foundation.

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