Nepal | July 13, 2020

Treasury surplus at all-time high as govt fails to spend

Rupak D Sharma
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At a glance

Budget Allocation Expenditure Per cent
Recurrent 484,266,375 242,661,103 50.11
Capital 208,877,242 44,504,144 21.31
Financing 126,325,267 48,898,710 38.71
Total 819,468,884 336,063,957 41.01

Kathmandu, May 11

The state’s treasury surplus surpassed Rs 200 billion for the first time in history, as the government failed to make use of allocated funds on time due its inefficient public financial management system.

As of yesterday, the treasury surplus stood at around Rs 206 billion, Krishna Prasad Devkota, head of the Economic Policy Analysis Division at the Ministry of Finance told The Himalayan Times. “Such a huge amount is sitting idle in state coffers largely due to underutilisation of the budget,” he said.

The government allocated a budget of Rs 819.47 billion for the current fiscal. But as of Monday, only 41.01 per cent, or Rs 336.06 billion, of the allotted funds have been used, show data of Financial Comptroller General Office.

Since only around two months are remaining for the current financial year to end, the government is likely to accrue a budget surplus this fiscal.

A budget surplus definitely indicates that the country is maintaining good fiscal discipline, which ensures macroeconomic stability. But Nepal’s budget surplus results from severe erosion in government’s spending capacity, which hits construction of critical physical infrastructure projects, such as highways, bridges, hydroelectric plants and airports, that are critical to foster economic growth and share prosperity.

“Considering Nepal’s infrastructure gap, a modest budget deficit will do no harm to the economy. So, a budget surplus, in this scenario, will have perverse effect,” Swarnim Wagle, senior economist and former member of the National Planning Commission, told THT.

To give impetus to public spending, Wagle said, government should come up with a separate set of regulation for infrastructure projects identified as ‘national pride’ so they could be completed as early as possible.

Lack of infrastructure, especially those related to energy and transport, has hit almost all the sectors in the country, from agriculture and trade to tourism and education. In other words, the country’s infrastructure deficit has hit basic service delivery, failed to enhance quality of life of people, posed barriers for businesses and hindered growth.

“It is a pity that concerned authorities cannot even blacktop the road from Beni to Jomsom, which can actually give a boost to flagging tourism industry. Also, if the road from Nepalgunj to Bardia is blacktopped, we can hope to diversify away from Kathmandu-Pokhara-Chitwan domestic tourism triangle. This is the same with Kathmandu-Tarai fast track, which can reduce travel time and consequently reduce cost of transporting goods,” said Wagle, adding, “There are so many low-hanging fruits waiting to be reaped. But the government seems to have done nothing to tap those opportunities.”

A World Bank (WB) report published two years ago had categorically said Nepal’s investment in infrastructure should stand between 8.24 per cent and 11.75 per cent of the 2010 GDP per year to avoid possible binding constraint on economic growth.

Nepal’s gross domestic product stood at Rs 1,192.77 billion in 2010, whereas the government allocated Rs 208.88 billion for capital expenditure in the current fiscal year. This shows the government’s capital budget allocation for this fiscal year surpassed the outlay recommended by the WB.

Yet, the catch is that the government, as of Monday, was able to spend only 21.31 per cent, or Rs 44.50 billion, of the total budget allocated for capital expenditure.

“This shows we have to revamp the public expenditure system,” said Wagle. “This is important because without accelerating public spending, Nepal won’t be able to crowd in private investment, which is critical for Nepal’s development.”

It is said every dollar of public investment attracts two to three dollars of private investment.


A version of this article appears in print on May 12, 2016 of The Himalayan Times.

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