Govt urged to ramp up capital expenditure

If Nepal wants to remain a recipient of EU aid, then the country has to show that the money is being well spent

• Rensje Teerink, Ambassador of the European Union Delegation to Nepal

Kathmandu, January 15

Rensje Teerink, ambassador of the European Union (EU) Delegation to Nepal, has called on the government to ramp up capital spending if it wants to continue receiving aid from the EU.

“The pattern of capital expenditure in Nepal has been disappointing,” Teerink told an interaction organised by Media Plus here today. “If Nepal wants to remain a recipient of EU aid, then the country has to show that the money is being well spent.”

The EU had stepped up support for Nepal in 2014, when it tripled its aid to 360 million euros (approximately Rs 44.8 billion) under the EU-Nepal Cooperation Programme, which continues till 2020. However, not much of this fund has been utilised because of low fund absorptive capacity of the government.

“Unless serious efforts are made, money is not going to reach the people,” Teerink said, urging the government to become serious about pushing up the capital spending.

The government was able to spend only around seven per cent of the annual capital budget of Rs 208.88 billion in the first six months of the current fiscal year. If this trend continues, capital expenditure in the current fiscal year is expected to remain at a historic low level.

A low level of capital spending indicates rampant slowdown in development activities, especially construction of crucial physical infrastructure, such as roads, bridges and hydro and irrigation plants. This will ultimately suppress the country’s economic growth, hindering the process of raising living standard of the people and delivering prosperity.

While Nepal needs to increase capital spending, this is not the sole condition for the country’s sustainable development.

“Higher spending should be accompanied by reform agenda, accountability and transparency,” Teerink said, indicating construction of physical infrastructure through higher capital spending only helps the country to lay partial foundation to attract investment.

“Another key issue here is policies of the government,” she added.

The existing policies of the government, according to Teerink, are not investor-friendly.

“Look at Article 33 of the Telecommunications Act,” she said, referring to the provision which allows the government to nationalise assets of a telecom company established with foreign equity of over 50 per cent upon expiry of the licence tenure. Under this provision, the foreign company will have to buy back the assets by paying a sum fixed by the government.

“This is not in conformity with the rules of the World Trade Organisation,” Teerink said. “Also, problems faced by foreign investors in repatriating profit are not encouraging ... Big foreign firms will only come to Nepal if an enabling environment is created.”

Despite these deterrents, Teerink informed the EU was keen on helping Nepal till the time it graduates to

the league of developing nations.

“We have other instruments through which we can mobilise funds in addition to the pledged 360 million euros if there is need,” she said.