Poor spending performance by public institutions a challenge for the economy

KATHMANDU

Public institutions are a perquisite for accelerating economic activities to cause sound economic growth, however, their poor quality in executing development programmes remain one of the biggest challenges in Nepal that has resulted low performance in spending. Inefficiency on the part of key ministries and personnel associated with such bodies along with outmoded working style has dampened the potential economic growth. Despite Nepal being ranked highest in registering revenue-GDP ratio in South Asia, she seems poor in enhancing economic growth.

Only talking about revenue generation does not achieve economic growth because we have already failed to implement planned activities. This may continue to increase if we do not overhaul the existing bureaucratic set up

If we go by the statistics of the Economic Survey for the fiscal 2014/15, revenue mobilisation in Nepal stands at 18 per cent of GDP. Inability to effectively implement planned yearly activities with deteriorating work culture among officials engaged with implementing-agencies has pushed economic growth to a low. Finance Minister Dr Ram Sharan Mahat delivered a highly-acclaimed lecture last week at a book launch titled ‘Macro Economics: A Radical Rethinking in Growth, Inequality and Inclusiveness in Nepal' edited by Professor Dr Bishwambher Pyakuryal. Critical assessment of economic growth, existing models along with critical binding constraints were debated at length at the gathering of academicians.

A worried minister Mahat did not forget to criticise eroding capacity of implementing agencies to spend qualitatively despite the availability of enough revenue mobilisation/resources. Economists continue their debate on growth, inequality and inclusiveness to unlock the potential for registering sound economic growth.

Though debated widely, reasonable growth is yet to be seen. Current national accounts do not seem to be able to capture all new innovations and growth of service sectors or seek timely revision. As the GDP growth of Nepal stands at around three per cent currently as per the budget for 2015/16, the target to achieve six per cent after the devastating earthquake seems unthinkable, thanks to the weak spending capacity of implementing agencies and sluggish moves by the Reconstruction Authority. With increased politicisation in every sector of the economy, Nepal is now crying for quick remedy from all quarters to stick to work culture.

In the fiscal year 2013/14, the country failed to spend Rs 82.19 billion. That shows how inefficient our administration is in executing development programmes, as per the Financial Comptroller General's office. The major ministries to spend less than 80 per cent of their allocated budget are the Ministry of Energy, Ministry of Commerce and Supplies, Ministry of Science, Technology and Environment, Ministry of Industry, Ministry of Urban Development, Ministry of Health and Population, Ministry of Peace and Reconstruction and Ministry of Finance. The total allocated budget for the fiscal 2013/14 stood at Rs. 517.24 billion according to Ministry of Finance 2013/14.

Lack of proper monitoring of expenditure by the ministries has affected real progress in public service. Now the serious question that arises is in regard to spending of budget allocated in their plates. Are the ministries efficient and competent enough to work as per the target — who will answer this? Money is the blood of the economy, therefore, no agency has the authority to stop spending public money on productive sectors.

The pressing need now is to improve the capacity of government officials and reform mechanisms for enhanced development activities by adopting appropriate models. Only talking about revenue generation does not achieve economic growth because we have already failed to implement planned activities. This may continue to increase if we do not overhaul the existing bureaucratic set up. As per economic trends in the past 10 years, economic growth rates hovers at around three per cent, and the blame ultimately goes to the leaders and bureaucrats in institutions occupying key positions.

The five-pillar applications (use of latest technologies, security of private property/investment, democracy, external sector focus and progress in the health sector as propagated by the Finance Minister might be a stepping stone for Nepal to unlock increased potential for sound economic growth. The existence of structural rigidities need to be refurbished for efficiently employing a correlation between wage and productivity, monetary policy and inflation, growth and inequality. Enhancing the absorptive capacity of government agencies, improving facilitation with the business sector and managing and monitoring development activities are other key areas of reform along with removing policy ambiguity. The foremost priority of Nepal should be the economy coupled with sound business environment. As the current economy is thrilled with remittance that stands at 29 per cent of GDP, this money is not used in productive sectors for sustainable growth.

Affected by the devastating earthquake and with low absorption capacity in the development sector, Nepal needs to gear up to spend for improving internal capacity. Though challenging, augmenting capital investment and a proper understanding of economic agenda by politicians are critical factors to shape the future of the economy and trickle down benefits to the resource-starved people.

The author is an economist. He is an Advisor at the Forum for Economic Studies (FECOST) and Secretary General of the Nepal Economic Association (NEA). The author can be contacted through kajutiwari@gmail.com