Capital expenditure:Most spending takes place at year-end

KATHMANDU, APR 25 -

Since the last six years, about three-fourths of the capital expenditure has been taking place in the last trimester thanks to delays in budget presentation and endorsement.

The Finance Ministry said that the government had been spending 73 percent of the capital budget at the tail end of the fiscal year since 2008-09. According to ministry officials, the habitual spending rush has led to a deterioration in the quality of work. 

The effects of the political mess the country has sunk into and late issuance of the government’s annual financial plan are clearly reflected in the capital budget spending pattern. In fiscal 2007-08, when there was a consensus government and the budget was presented on time, the rate of capital expenditure was good with only 57 percent of the spending happening in the last trimester. 

Following the election to the first Constituent Assembly (CA), the constitutional provision of consensus government was replaced by a majority government. The first Maoist-led government that followed the polls presented the budget on Sept 19, 2008, two months after the beginning of the fiscal year. 

Since then, the budget has been progressively delayed. The budget was presented four months late in fiscal 2010-11 and nine months late in fiscal 2012-13. In the last fiscal year, 75 percent of the capital budget was spent in the last three months, the highest rate in the last six years.

Even when the financial plan was presented on time in fiscal 2009-10 and fiscal 2011-12, it took a long time to be passed by Parliament which affected the rate of capital expenditure .

“Obviously, political problems and delayed budget presentation are linked with the late capital budget spending in the past few years,” said Baikuntha Aryal, joint secretary at the Finance Ministry. However, he pointed out the need for other reforms to execute the budget as capital expenditure has remained poor despite the timely budget presentation in this fiscal year.

Capital expenditure was recorded at 31 percent as of mid-April 2014 this fiscal year, according to the Financial Comptroller General’s Office (FCGO) although it has not covered expenditure through direct payment by donors. Delayed programme approval, poor performance of contractors, ineffective monitoring, obstruction by locals and political forces, budget allocation to projects before land acquisition and detailed designing and supply-driven projects have emerged as problems in maintaining the speed of capital expenditure , according to Aryal.

He said that the government was introducing an early budget so that the programme approval could be finalized before the new fiscal year, and a full year could be given to project implementation.. 

Meanwhile, a digitalized budget system has been initiated enabling the Finance Ministry to obtain budget proposals from the line ministries online. The ministries can also submit their programmes and activities to the Finance Ministry and the National Planning Commission (NPC) and get them approved before the budget is presented.

“This will ensure that a maximum number of programmes and projects are approved before the budget is issued and all of them before the beginning of the new fiscal year,” said Aryal.

The government’s bringing out the Fiscal Responsibility Act is also expected to help expedite capital expenditure as it envisions making timely institutional arrangement and a timeline to ensure sound fiscal discipline and timely budget planning and execution. 

Meanwhile, low capital expenditure has also worried donors as most of the aid they give is related to capital expenditure . During the annual Portfolio Performance Review Meet held on Wednesday, donors stressed the need for timely approval of the budget by Parliament, timely approval of the programmes and projects by the NPC and enforcement of trimester budget release against the budget. Citing low capital expenditure , the World Bank, Asian Development Bank and International Monetary Fund have downgraded this year’s projected growth to 4.5 percent from the government’s target of 5.5 percent despite good harvests.