‘Quality of governance must be improved to spend the budget’

The government presented the fiscal budget for 2017-18 in the Parliament last week prioritising the implementation of the federal structure in the country as envisioned by the new constitution. The caretaker government presented the fiscal policy without any new programmes. However, it has expanded the size of the budget to Rs 1,278.99 billion, which is an increase of 21.9 per cent as compared to the current fiscal’s budget. Pushpa Raj Acharya of The Himalayan Times caught up with former finance minister Ram Sharan Mahat to get an overview of the budget for next fiscal and its implementation and regarding economic stability in the country. Excerpts:

The government has expanded the size of the budget by 21.9 per cent for next fiscal despite the low spending witnessed this fiscal. Why is the size of the budget expanded every year despite low spending?

There is a tendency to inflate the size of the budget every year overlooking the implementation aspect. What we have seen in the past is that capital expenditure is very low due to unrealistic allocation, however, the size of the budget is always inflated. I think this budget will also suffer a similar fate. The government has allocated resources to projects without making sufficient preparations to implement them. The projects require feasibility study, detailed design and other technical studies to start bidding process to spend the allocated budget. However, the government has allocated resources for some projects, which have not completed the aforementioned preparations. What I had suggested the government during budget formulation process was that the new budget should emphasise on the implementation aspect rather than increasing its size.

The fiscal budget has also announced some measures to ramp up capital expenditure. Do you think it will contribute to proper implementation of budget?

Administrative measures are good but they are not sufficient. In Nepal, frequent change in the government has immediate impact on civil service as the government starts reshuffling the civil servants — secretaries, departmental chiefs and project chiefs, among others. This also affects the delivery. The quality of governance must be improved to spend the budget. On the other hand, the government should immediately strengthen the administrative capacity of the local units. And work on that front needs to be carried out adequately.

Local units will be spending huge resources from next fiscal. What should the central government immediately do to strengthen the project implementation capacity of the local bodies?

That was my immediate comment after the budget. Fiscal transfer to the local units means transfer of responsibility that is also in accordance to the provision of the constitution. Until and unless we raise the capacity of the local units the announcement of fiscal transfer alone cannot deliver the desired results. Political functionaries have been elected in local units and now there must get proper administrative backing and required physical infrastructure should also be in place. Around 90 per cent of the local units have no proper physical infrastructure to start service delivery. The government’s priority should be in creating necessary administrative and physical infrastructure for the local bodies. Elected representatives in local units have high enthusiasm and their full potential will be achieved when we do have proper administrative machinery in place.

The fiscal budget for 2017-18 has allocated Rs 146 billion for post earthquake reconstruction work and Rs 89.5 billion for strategic road networks. Ongoing projects have also been allocated adequate budget. Do you believe these resources will be mobilised?

Here too the major concern is about the implementation. Given the past trends, people are doubtful about the expenditure capacity of the government to utilise the allotted amount. The government must create the necessary environment to implement the budget. Also due to the frequent change in government, there is no administrative stability. There is no proper accountability too. We have a long way to go to improve the expenditure capacity of government.

Don’t you think the budget should have brought new programmes?

What the finance minister has proposed is in accordance with the political agreement that there will not be any new programmes in the budget. Moreover, this is a caretaker government as the prime minister has already resigned. Being a caretaker government it has also followed the code of conduct as defined by the Election Commission. This is why the budget for next fiscal does not have any new and populist programmes and there is continuation of ongoing programmes. I have always stressed that more than populism, we should create an environment for implementation of ongoing programmes, and promote new investment, innovation and enterprise for nation building, which I firmly believe should be the focus of any new economic programme. Even if we are able to implement only the ongoing programmes we will be able to achieve a lot.

The new government is likely going to be formed under the leadership of Nepali Congress as per the understanding between Maoist-Centre and Nepali Congress. As there is no new programme in the budget will the next government bring supplementary budget?

I cannot speak anything regarding the supplementary budget at the moment. It is too early to talk about supplementary budget. We have to wait for expenditure and income pattern of the new fiscal year. It depends on the need. As far as the fiscal space is concerned, there is very little space for a supplementary budget.

The budget for 2017-18 has set revenue collection target of Rs 730 billion, which is 29 per cent more compared to current fiscal. Is this target achievable?

As far as I know there have been no changes in any tax rates except for alcohol and cigarettes. Adjustment in excise duty of alcohol and tobacco products will help increase revenue to some extent. However, revenue growth depends on income and consumption growth. I feel the revenue growth target is achievable.

The country has adopted federalism. Will we be able to achieve economic prosperity under this structure?

Only the future will be able to tell us about that. When you have multiple layers of government — local, provincial and central — governance will be naturally closer to the people. That is a positive aspect but at the same time there will be conflict of authority and jurisdictional issues and this could create problems. This is why, we must be very clear in defining the division of functions and responsibilities of the different layers of government. Another risk could be excessive administrative expenditure, which could hamper long-term development of the country. The federal system is not an easy system — we will have three tiers of government and each has authorities defined by the constitution. Managing the federal system is a tough job, so we have to handle it properly for the best interest of the country. Our main focus should be on the economy for the overall development of the nation.

Private sector is apprehensive about the multiple taxes that could be levied in various layers of the government in future, which will raise the cost of doing business. How could we avoid it?

We have to be very careful in defining the functions and authorities of the different tiers of the government. The federal system is quite an expensive system as well. There are various layers of administration so care must be taken to minimise the administrative cost and we should focus more on capital investment. If we start spending more on administration, the new political structure will be too expensive for the country to afford. We have to be careful to prevent such a situation.

Since a new government will be formed will it affect implementation of the budget of fiscal 2017-18 that was brought by the caretaker government?

There will not be any problem in implementing the budget. We must work hard to ensure the delivery because there are some unrealistic allocations (without proper work schedule and groundwork to implement like developing 17,000 megawatts of electricity in seven years). And we have to work for administrative stability providing opportunity to the appropriate person in the appropriate place for the delivery. And I hope that there will be a conducive atmosphere for people to work.