KATHMANDU: Civil servants, who demand funds for various projects and programmes but fail to fully utilise them, may soon face action, as government is mulling over introducing a provision in this regard through next financial year’s fiscal policy.

“We will introduce a system to penalise inaction so that the practice of underutilising allocated budget can be discouraged,” Finance Minister Ram Sharan Mahat told parliamentarians today while announcing principles and priorities of the budget of next fiscal year.

“At the same time, we will now adopt a policy of enhancing the capacity of officials in project designing and implementation, and frame development programmes and projects based on research and studies.”

His statement comes at a time when the government is planning to introduce an even bigger expenditure plan for next fiscal — which begins on July 17 — to finance recovery and reconstruction works in the aftermath of the earthquakes of April and May.

Earlier, the National Planning Commission had extended a budget ceiling of Rs 841 billion for next fiscal year — up 36 per cent than this fiscal’s. And the Ministry of Finance has already started framing next fiscal’s budget by referring to this cap.

“We will allocate adequate funds for rehabilitation and reconstruction in the next fiscal. These funds will go towards rebuilding personal houses, government buildings, physical infrastructure required to deliver public services, and cultural and heritage sites using earthquake-resilient technology,” the minister said.

To support development works at the local level, the minister added, the government will also hold local elections next year and delegate adequate power to them to execute various tasks.

The government always earmarks a huge budget every year to finance development activities, but fails to make full use of it. The average planned capital expenditure of the government, for instance, stood at 5.6 per cent of the gross domestic product (GDP) in the past four years, but actual spending in that period averaged 3.3 per cent of GDP.

Capital expenditure is expected to remain weak this fiscal as well, as only 46.60 per cent of Rs 116.75 billion allocated for the purpose was utilised till yesterday, while only two weeks remain for the current financial year to end.

To address this problem head-on, the Ministry of Finance was planning to introduce Budget Management and Fiscal Accountability Act to hold government officials accountable for underspending. But, so far, the Act has not been tabled in Parliament.

“It is important to increase government spending to give a boost to capital formation process. This is necessary not only to address post-disaster situation but to keep the economy vibrant,” the minister said.

The country’s gross fixed capital formation (GFCF) as percentage of GDP is below the average of least developed countries (LDCs), indicating much of the financial resources are being exhausted on consumption rather than on accumulation of physical assets required to boost production and raise economic growth.

The country’s GFCF averaged 21.2 per cent in between 2004 and 2013, as against LDC average of 24 per cent. The GFCF of middle income nations stands at 29 per cent of the GDP.

It is said the country’s gross fixed capital investment has to be raised to at least 30 per cent from the existing level to support higher economic growth.