Though the government had presented the budget one-and-a-half months prior to the beginning of fiscal year 2016-17 with expectations to properly execute the fiscal policy, implementation has still remained weak like in previous years. In the mid-term review of the fiscal budget held a few weeks back, the Ministry of Finance lowered the budget expenditure target.

As per estimates, only 84 per cent of the total allocated development budget worth Rs 311.95 billion will be spent. The sagging performance of the development projects has caused the cost of development to rise and failed to provide benefits to the people in a timely manner. Pushpa Raj Acharya of The Himalayan Times caught up with Shanta Raj Subedi, Secretary of the Ministry of Finance, to discuss what the Ministry is doing to effectively execute the fiscal budget. Excerpts:

The government has just spent around 20 per cent of the capital budget till date and it has set a target to spend 84 per cent of the total allocated capital budget worth Rs 311.95 billion during the mid-term review of the budget. Do you believe this target is achievable?

We had expected to spend 25 to 30 per cent of the capital budget in the first quadrimester of this fiscal as the budget was presented one-and-a-half months before the end of the previous fiscal year calendar. All the processes required to delegate authority to line agencies were concluded before the beginning of this fiscal. However, we failed to translate the early approval of the budget into action due to weak project implementing capacity of the implementing agencies. To execute the budget properly the line agencies under various ministries were asked to prepare their procurement plans and all other groundwork during the budget formulation process of last year so that they could start procurement process immediately after they received the authority to spend the budget.  I must say the pace of capital expenditure is not satisfactory. The Ministry of Finance (MoF) has been providing all necessary impetus to ramp up capital expenditure. We have been regularly asking various ministries and line agencies where we could facilitate them. Despite this we have not seen positive results with regard to utilisation of the allocated budget as several projects are yet to start bidding process for contract award and some are yet to finalise the modality of the project. This is why we have slightly revised the expenditure target and brought it down to Rs 262 billion from Rs 311.95 billion. Capital spending will gather momentum from the second quadrimester as payments to contractors will be released. We hope we will be able to achieve the revised target.

What are the major reasons behind slow capital spending?

We have gathered various reasons through our monitoring and discussions with various ministries and line agencies. Though MoF delegated the authority to spend allocated budget to the ministries, they delayed approving the budget to their line agencies. On the other hand, the concerned agencies could not implement the projects despite having authority as programme approval was delayed by National Planning Commission (NPC). Usually the transfer of civil servants takes place in August but this year the government initiated the transfer process in October, which also affected implementation of development projects. Similarly, contractors also delayed projects citing the lack of construction materials. Some of the contractors also fled after obtaining 20 per cent of the contract amount as mobilisation fee. Likewise, we have allocated resources for public corporations like Nepal Electricity Authority for expansion of transmission line and rural electrification, among others. However, such state-owned enterprises also have not tried to obtain the budget that was allocated to them.

The government has been harping on monitoring development projects to expedite their implementation but the performance of ‘National Pride Projects’ and ‘Priority 1’ projects is dismal, which reveals the haphazard classification of projects under high priority. What do you have to say on this?

We know that there are some flaws in our allocation system and we are trying to correct them. We  have allocated resources for implementation of some projects without proper groundwork, which we call project preparedness. This includes all the required works like detailed project report, implementing modality, among others.  The fiscal budget of 2016-17 allocated Rs 10 billion for Kathmandu-Tarai Fast Track Road, but the implementing modality of the project was finalised just a few weeks ago. The panel, led by NPC vice chairman, decided to build the fast track through the government’s own resources under either company model or development committee model. Likewise, the resources allocated for Budhigandaki Hydel Project also remains unutilised. We have allocated resources for land compensation of Budhigandaki Hydel Project site but that has remained unspent due to obstruction of locals. There are many other projects facing similar hassles due to high demand for land compensation from locals, stringent rules of forest and environment ministries for right of way clearance for road, transmission line and other projects through the forest area. Many projects are being delayed and cost of implementation has been rising due to such obstacles. But one silver lining for projects like Kathmandu-Tarai Fast Track Road and Second International Airport is that if we are able to award contract in this fiscal, they can be implemented over the given period because these projects will award multi-year contracts.

During mid-term review of budget, Suman Prasad Sharma, secretary of Ministry of Peace and Reconstruction, who previously served as finance secretary, pointed out that various agencies were reluctant to spend budget as MoF does not provide the adequate amount of fund that is required to accomplish the work. What will MoF do to facilitate this?

The MoF and NPC approve the budget after discussions with the concerned ministries and allocate resources during the budget formulation process. I will not deny that there might be inadequate resources allocated for some projects, but MoF is always open to bridge the resources gap if the ministries and line agencies come to us with the progress report on project implementation. For this purpose, we have told the ministries while delegating the authority and during mid-term review of budget to surrender the budget from the beginning of last quadrimester of this fiscal (mid-March) if projects fail to make any headway by that time. Through this we can bridge the resources gap of well performing projects. I can guarantee that no project will have to halt work till next fiscal due to lack of resources. We have allocated additional Rs two billion for road improvement in Kathmandu. We have released adequate budget to the Integrated Development of the Bagmati Civilisation Project and also for Kathmandu Metropolitan City, Lalitpur Sub Metropolitan City and Bhaktapur Sub Metropolitan City for road expansion and improvement. Thus, we have been managing and releasing additional resources for timely completion of projects. But interestingly, ministries that have not yet spent the budget under the allocated headings have been seeking resources to spend under other headings.

You mentioned that some ministries are seeking resources under other headings. Will MoF give approval to spend budget under other headings because fund transfer is always a political issue?

There has been new demand of around Rs 216 billion, which is around 69 per cent of the total allocated resources. We cannot give approval to the ministries to spend budget under their wish list. We can transfer the fund to similar projects from unspent headings. The ministries themselves are allowed to transfer up to 25 per cent of the allocated budget from one project to another similar project. There has not been any restriction by MoF to transfer funds but we approve fund transfer based on the recommendation of NPC. The NPC has been looking into the proposals of various ministries and funds will only be transferred to projects related to roads, drinking water, irrigation, control of water induced natural disasters, restoration of land slide and flood victims and also for post earthquake reconstruction. For this we can even transfer the unspent recurrent expenditure to capital budget heading. We are stringent regarding fund transfer and provide the facility to only feasible ones as we do not have sufficient time to implement new projects and there will be high chances of substandard works, lack of transparency and misuse of funds while providing approval to new projects in the last hour.

It is said that projects are often delayed due to lack of effective monitoring. Why does the MoF not propose effective monitoring mechanism in the fiscal budget?

There is monitoring committee under the leadership of secretary of Office of the Prime Minister and Council of Ministers, joint secretaries from the Ministry of Finance, National Planning Commission, Ministry of General of Administration, Office of Financial Comptroller General, and National Vigilance Centre to effectively monitor the development projects. This committee has been facilitating to resolve the ground level issues and also recommending ministries, MoF and NPC to resolve the issues concerned with them.

You have said that lack of project preparedness affected capital expenditure. What will MoF and NPC do to avoid this problem in the next fiscal?

We must be more cautious while selecting and approving projects as we are facing a raft of challenges in implementation due to lack of project preparedness. We will allocate resources only to those that are ready to implement the budget so that we can achieve desired outputs from budget implementation. We will also provide resources to all the ministers dealing with development works and productive sector enhancement to prepare project bank. That project bank will not only be utilised for implementation of projects through government resources but also to attract foreign investment in projects related to energy, road, aviation and productive sector enhancement. It is the need of the hour, because public expenditure under infrastructure and productive capacity enhancement is very low at around 15 per cent in the first half of this fiscal as compared to allocated amount of Rs 353.58 billion and Rs 84 billion, respectively. By reforming the allocation system we can contribute more in capital formation and economic growth through proper implementation of budget.