KATHMANDU: Nepal’s ranking in terms of budget credibility and policy-based budgeting is at par with developing nations. However, lapses in external scrutiny and internal control are holding back the country’s overall public finance management (PFM).
The second PFM assessment report as of 2013-2014, which was unveiled today, has said that the country’s overall fiscal discipline has improved when compared to 2007-08 — when the first PFM assessment was held.
However, a raft of reforms are required in terms of predictability and control of budget execution, as a large chunk of development budget had remained unspent till the end of the fiscal since a few years due to imperfect budget allocation and procurement process guided by the country’s procurement laws.
Timely budget — budget submission in the Parliament by mid-July as per fiscal year calendar — was also a daunting task due to House obstruction and in the absence of Parliament, when the government needed to go through ordinance.
Apart from that, the report found the government offices weak in terms of maintaining financial data, including accounting, recording and reporting, which are considered crucial for a country like Nepal that is dependent on foreign aid for development. Submission of such reports is imperative for the country to receive disbursement from the development partners.
The report also identified that the country needs to adopt reforms in terms of comprehensiveness of the budget and it needs to be transparent as well. As compared to low income countries, Nepal has performed better. However, to lift its rank to that of middle income countries, Nepal needs to adopt reforms related to reporting all government operations in the budget. Due to higher proportion of ‘extra-budgetary operations’, the country has slipped in the indicator under the heading of ‘comprehensiveness of the budget’ compared to its ranking in 2007-08, according to the report.
Besides, lapses have been identified in aggregate fiscal risk from other public sector entities, and the government needs to audit and monitor its net fiscal position for betterment. Under the category of comprehensiveness of budget, the country is still weak in transparency and intergovernmental fiscal relations. The report stressed on strengthening the government’s fiscal data reporting.
The foremost thing, public purse handlers need to be scrutinised by the oversight agencies — Parliament, auditor general and other anti-graft watchdogs — for fiscal discipline. The country also slipped in the ranking under the ‘external scrutiny’ heading. Legislative scrutiny of annual budget law and external audit reports are largely ignored, according to the report.
In the period between 2008-09 to 2013-14, the Parliament remained dissolved from May 28, 2012 to November 19, 2013, which also posed challenges in fiscal discipline during the assessment period.
The report has said that the government’s effort on multi-annual planning, budget reforms, awareness of tax system and implementation of treasury single accounts as well as vigilance of oversight agencies over the government agencies are instrumental for improved PFM. The recent PFM assessment conducted by the government has shown that 19 indicators, or 61 per cent, have improved; two indicators went down; and the remaining 10 remained the same over the review period.
Of the total 31 indicators of the PFM in global practice, 28 indicators are related with government and remaining three with the development partners’ practices. All three indicators regarding donors’ practice has improved compared to 2007-08. Still, development partners need to improve the timeliness of disbursement for the predictability of direct budget support.
The development partners have improved their status regarding information on budget support and their support (aid) gradually managed by the national procedure or their expenses is gradually coming through the budgetary system and government’s purview.Unveiling the report, Finance Minister Ram Sharan Mahat has vowed that the government will take actions regarding all the gaps identified by the PFM assessment report to ensure public money is being spent transparently and in accordance to the needs of the people.
The PFM assessment is conducted by the Public Expenditure and Financial Accountability (PEFA) Secretariat under the supervision of finance secretary led PEFA Steering Committee.