Challenges in budget implementation

  • Selection and allocation are critical in determining if budget is implementable

Kathmandu, January 4

Half-way through the fiscal year calendar, the government has spent only 22.54 per cent of the total budget of Rs 1,048.92 billion. The sagging performance in budget implementation is due to slow capital expenditure, which stood at less than 10 per cent of Rs 311.95 billion in the review period, according to the Financial Comptroller General Office.

In the last fiscal, the government had spent 56 per cent of the allocated development budget despite unfavourable economic situation caused by the supply line disruptions and development works affected due to the subsequent fuel crisis.

To improve budget implementation so that the country could move towards higher growth trajectory by stimulating the economy through massive development projects and post-earthquake reconstruction works, the government had presented the budget in June of last year, a month-and-a-half prior to the new fiscal year calendar.

Yet, the budget implementation continued to remain retarded.  Moreover, the cost of implementing projects has been rising every year due to lack of effective and proper implementation of the budget.

While development planners and policymakers are quick to identify the hurdles in implementing the budget, often times they are mum when asked about the feasible solutions.

Against this backdrop, the National Planning Commission (NPC) has initiated the process of formulating the budget for next fiscal 2017-18, and the resource committees, led by NPC vice chairman, has held several rounds of meetings to fix ceiling for next fiscal.

Since the formulation process governs the effectiveness of budget implementation, this will be the litmus test for the NPC and Ministry of Finance (MoF) — whether they will address various bottlenecks that begin with the budget formulation process.

Project selection, allocation

Selection of the projects and allocations are critical in determining if the budget is implementable.

During the recently held meeting of National Development Action Committee, Prime Minister Pushpa Kamal Dahal had urged finalising the modality to implement the Kathmandu-Tarai fast track project. Since the budget of this fiscal has allocated Rs 10 billion for the project without the modality being finalised, it is becoming increasingly clear that the resource allocated for the project will not be spent in this fiscal.

Of the total of 353 projects under the banner of P1, there are many whose allocated funds will remain unutilised because of lack of project readiness.

“Budget implementation will always be weak if we do not do away with the existing trend of selecting projects and allocating resources,” said Min Bahadur Shrestha, vice chairman of NPC.

Only labelling the ready-for-implementation projects as P1 projects and allocating resources for the components of the projects that could be completed within the given fiscal could be instrumental in improving Nepal’s budget implementation, according to Shrestha. “For example, if we are able to only acquire the land for a project in a given fiscal, why should we allocate the funds needed to complete the project?”

Since a large chunk of the country’s development budget is financed by the development partners, which is around one-third of the total budget, slow project implementation is always a concern among the donor community.

According to Baikuntha Aryal, joint secretary of the International Economic Cooperation Coordination Division under MoF, the government should develop a project bank of ready-to-implement projects, including details of feasibility study, detailed project report, environmental impact assessment, among others.

Delay in approval process

The introduction of online system called Line Ministry Budget Information System (LMBIS) was expected to expedite the approval of various projects. However, the fact that the projects still need to be approved twice has defeated this purpose.

Through the LMBIS, NPC and MoF approve the projects and procurement plans proposed by line ministries during the budget-making process. However, the same projects and procurement plans have to get a go-ahead from the NPC again before the allocated funds can be utilised after the budget is endorsed by Parliament.

According to NPC, it is granting the approval for the second time based on the authority given by Financial Procedure Rules 2007 to approve central-level projects. In this regard, the MoF is preparing to include a provision in the appropriation bill of next fiscal to skip this procedural step, according to Madhu Kumar Marasini, chief of budget division under MoF.

Weak institutions

While the government needs to refurbish its institutional capacity, the state is also mulling over introducing carrot and stick policy for the project implementing agencies.

Against the general assumption of lack of competent government staff hindering effective implementation of projects, NPC Vice Chairman Shrestha opined capacity building of the government employees and reward and punishment system are essential to deliver better outcomes.

Ineffective monitoring

Another critical aspect for the proper execution of budget, which may need to be revisited, is monitoring. Regular monitoring of the ministries that mobilise large chunk of the development budget at the central level and regular interaction with project chiefs need to be intensified.

There are various mechanisms in place to monitor the executing, implementing agencies and contractors. But the monitoring mechanism has been performing very ineffectively.

As per Sri Ram Poudel, economic adviser to prime minister, the government is preparing to set up a high-level monitoring mechanism under the prime minister. After it is established, the ministry-level monitoring mechanism and chiefs of the P1 projects will have to regularly report to the high-level monitoring mechanism.