The size of the annual budget expands every year in the country. But the government always fails to implement programmes and projects incorporated in the budget properly. As a result, most of the allocated funds, especially money earmarked for capital expenditure, are not fully utilised. On Saturday, Nepal witnessed launch of another annual budget. Finance Minister Bishnu Prasad Paudel introduced a budget of Rs 1,048.9 billion for the next fiscal year — 28 per cent more than in the current financial year. Of the total budget, Rs 617.2 billion has been allocated for recurrent expenditure, Rs 311.9 billion for capital expenditure and Rs 119.8 billion for financing provision. Rupak D Sharma of The Himalayan Times caught up with former finance minister Ram Sharan Mahat to discuss challenges facing budget implementation.

What do you think of the budget for the next financial year?

The programmes incorporated in the budget are pleasing to the ear but they cannot be implemented. The size of the budget has been unduly bloated and many of the programmes are half-baked because they have been incorporated without making any preparation or conducting any research. So, the budget sounds more like a bundle of desires and wants, rather than implementable plan of action. The budget has proposed a huge jump in recurrent expenses. This will add burden on future governments and generations because they will come under pressure to give continuity to many populist programmes. This budget will also build inflationary pressure because over 90 per cent of the funds allocated for recurrent expenditure will be spent, which will raise demand for goods and services. But since there is no plan to increase domestic production, imports will jump, which will widen the trade deficit. Also, capital spending is likely to remain weak, which is worrying.

Most of the programmes under the recurrent budget are not new. Does this mean previous governments should also take some responsibility for incorporating distributive programmes in the past?

Yes, many are continuation of past programmes. But the manner in which budgetary allocations have been raised for such programmes is worrying. This has violated basic principles of budget formulation. The economy, as everyone knows, is stagnant at present, with growth standing at less than a per cent, while inflation hovers around 10 per cent. So, the size of the budget should not have been raised by more than 10 per cent of this year’s allocation. In fact, the National Planning Commission had extended a budget ceiling of Rs 908 billion for the next fiscal year — up 10.80 per cent than that of the current fiscal. The Ministry of Finance should have framed the budget by remaining within this boundary. But it raised the size of the budget by 28 per cent, without incorporating policies to stimulate economic growth, enhance the productive capacity of the economy and promote capital asset formation. Also, many of the budgetary programmes were designed based on hearsay. So, funds allocated for such projects will either not be used at all or misused. For example, many of the programmes designed for the agricultural sector cannot be implemented. The country cannot expect to become self-sufficient in vegetable production in a year and paddy production in two years. It takes time to raise productivity in these areas.

Many are also saying decision to raise grants for lawmakers to Rs five million from Rs two million and 100 per cent

increment in grants for the Constituency Infrastructure Special Programme were unnecessary. As a lawmaker, what is your take on the issue?

Well, lawmakers have their own priorities and they have to respond to expectations of voters. So, the concerns of lawmakers cannot be undermined. But before increasing budget for such programmes, the government should have conducted proper assessments and studies. Only these studies could have clarified whether funds allocated for Constituency Development Programmes and Constituency Infrastructure Special Programme have yielded desired output. If such studies had identified risks or indicated misuse of funds, then necessary actions should have been taken. But what is key here is that budgetary allocations have to be made based on performance of the economy. While launching this fiscal year’s budget, I had doubled allowance for the elderly. To please that group, the incumbent government has also doubled allowance for the elderly. Such hike comes at a time when the economy is expected to expand by mere 0.8 per cent in this fiscal. So, the government should have been careful while launching distributive programmes.

Earlier, you said most of the budgetary programmes are half-baked and designed without conducting prior studies. But hasn’t that been the case in the previous years as well?

No, that has not been the case in the past. Yes, there may have been anomalies, but the ratio of such cases was very low. However, most of the big-ticket programmes incorporated in next fiscal’s budget are half-baked and cannot be implemented.

But most of the governments of the past had also failed to fully implement many programmes and projects, isn’t it?

When that is the problem, what’s the use of coming up with an expansionary budget? Shouldn’t it haveincorporated proper measures to address those issues? At present, the country needs to enhance institutional capacity of the bureaucracy and strengthen governance. The main problem lies there. And this is affecting programme implementation. But very little attention has been given to improve implementation capacity.

You think weak bureaucracy is the only reason hindering programme implementation?

The quality of civil service has deteriorated lately because of heavy politicisation of the bureaucracy. So, the concept of ‘best man for the job’ no longer applies. Instead, favouritism and nepotism have started playing a bigger role in selection of civil servants for various posts. And this government has gone the extra mile to promote this culture. Nowadays, Supreme Court judges are being appointed based on political affiliation. Also, look at what is happening at the National Reconstruction Authority. It has failed to take off. As a result, it has not been able to move earthquake survivors from temporary shelters to permanent houses even over a year after earthquakes struck the country. This is an example of incompetence of the present government.

But shouldn’t all political parties take some blame for politicisation of bureaucracy because each of them has tried to manipulate the system when in power?

Why should political parties be blamed? Whichever party is leading the government should take the responsibility for this. If my party has done something wrong, then it has to acknowledge its mistake. When one party goes the extra mile in politicising the bureaucracy, it does not set a good precedence and parties that rise to power in future will try to emulate that practice, which further pollutes the system. So, everybody should respect the basic norms. Lately, heavy politicisation of bureaucracy has destabilised the civil service. You’ll hardly find anyone who has served in the same capacity for two to three years. Frequent transfer of government secretaries and chiefs of departments and projects creates uncertainly and hits the morale and confidence level of civil servants. This also prevents the government from holding anyone responsible for programme implementation failures. Then the blame game starts.

But again frequent transfer of civil servants isn’t a new problem, isn’t it?

Yes, I have raised this issue in the past as well. But the problem has worsened now. Look at the way the government has appointed six deputy prime ministers. No other government has done that in the past. Also, this government has split ministries just to gain political mileage. This act cannot be justified. Now, the government has decided to raise the salary of civil servants by 25 per cent. This was done keeping an eye on the election of civil servants’ trade unions (scheduled for Wednesday). This means the ruling party wants to see the victory of its side.

So, what prescriptions would you like to provide to ensure timely implementation of projects?

We have to create an atmosphere to motivate people to work harder and innovate. Also, atmosphere has to be created to motivate people to invest more and enhance productivity. Unless you do that the economy cannot prosper. Beautiful slogans and nice-sounding rhetoric are not going to help the economy. Economic development and prosperity demand hard work, not cheap talks.

Earlier, it was said the Fiscal Responsibility and Budget Management Act would help the government in expediting project implementation and give a boost to capital spending. Work on the legislation began when you were finance minister. But it has not been introduced so far.

Certain legislations can help in project implementation. But they have to be enforced properly. So, unless there is political will and a serious work culture to enforce the legislation, nothing is going to happen.

But if legislations are enforced properly they will exert pressure on civil servants to work harder, as almost every

government of the past has failed to implement most of the programmes, isn’t it?

Don’t say every government has failed to implement programmes. Nepali Congress has done a very good job. Look at reforms introduced by our government in the taxation system. Because of these reforms, Nepal’s GDP-to-revenue ratio is the highest in South Asia. We also introduced modern tax system like Value Added Tax (VAT). We are now far ahead of other South Asian countries in implementation of VAT, which has become the largest source of revenue for the government. We also made sweeping changes to the income tax regime. As a result of this, the contribution of income tax in government’s revenue has jumped from nine per cent around two decades ago to around 25 per cent now. We implemented these programmes properly. That’s why the country can now rely on domestic resources to finance development and reduce reliance on foreign aid.

But the share of foreign aid in annual budget has now jumped to around 29 per cent from 18 per cent in 2012-13. What is your take on this?

Previously, two-third of the development budget comprised foreign grants and (soft) loans. Now that portion has come down to a third. So, we are much more self-reliant now. This is because of the reforms made by us in the tax system. These reforms have also given a lift to economic activities in the country. We also liberalised the banking and telecom sectors. As a result of these initiatives, the government is currently earning tens of billions of rupees in revenue. We also brought about changes in foreign investment and trade policies and invested heavily in the social sector, including education and health. Because of these investments, Nepal is now one of the star performers worldwide in the area of human development. So, do not undermine the contribution of Nepali Congress in expanding the economy. Despite these initiatives taken by us, the economy is currently not in a good shape because of political instability, excessive politicisation of the bureaucracy, frequent changes in the government and weak governance.

Do you think Nepal will see political stability in the near future?

I cannot make any prediction on this front. We will do our level best to ensure stability and focus on development of the country.