Nepal | June 03, 2020

The budget blues: Nepal’s poor spending capacity

Subhanu Khanal
Share Now:

Nepal needs to find ways to manage its resources optimally and productively and be able to get every rupee’s worth. So, it needs to focus on implementing the budget in sectors that can deliver the maximum outcome like agriculture and education

It’s that time of the year again when the government scrambles to spend its budget before the next budget is executed. Local journalists have given this annual phenomenon an apt moniker of “Asare Bikas”, implying the month of Asar in the Nepali calendar when the government flounders to spend its budget.

One can easily discern the kind of substandard and haphazard development that such an approach towards implementing the fiscal policy of the country delivers. This perennial practice also exacerbates the loanable funds crisis or the liquidity crunch that banks face each year due to the sluggish pace of spending on the part of the government.

This, in turn, has an unfavourable effect on interest rates and the monetary policy that vacillate wildly, as banks and financial institutions use this as a convenient excuse to pump up interest rates to the peril of the average citizens and the larger economy.

The budget for the year 2018-19 was to the tune of Rs 1.31 trillion, or USD 11.6 billion, an unprecedented amount for Nepal. The budget this size inherently raised expectations among the Nepali people, given the fact that the house is controlled by a stable majority government. But expectations came crashing down with the Financial Comptroller’s report on the government’s performance.

According to the Financial Comptroller General Office, the government has been able to spend only 38% of the Rs 313.99 billion, or USD 2.7 billion, the total capital expenditure allocated for the fiscal year 2018-2019. This means the government was not able to spend a whopping 62% of the capital budget, which is 23.96% of the total budget for the year. This is a dismal performance to say the least on the government’s part.

Comparison of the government’s capital spending this year to the past fiscal years further shows how cringe worthy the government’s performance has been this time. Capital expenditure in the year 2015- 16 amounted to 59% of the total allocation while it was 66% of the total allocation in 2016-17. In 2017-18, the capex was 79.74% of the total allocation.

What was already disconcerting about last year’s budget was its structure. Of the total budget, 64% was allocated to manage recurrent spending. Recurrent spending is similar to operating expenses for the country that include overhead costs like salaries for government employees and maintenance costs to manage existing projects.

Another 12% was allocated for financial management, which include activities like fulfilling the country’s debt obligations. And 23.95% of the total budget was allocated for capital expenditure, which are investments that the government makes in new projects and technology that carry the promise of future returns.

With the agricultural sector employing approximately 67% of the country’s population, the budget that was allocated for it was a meagre 3.5% of the total budget, which is Rs 40.14 billion, or USD 357.4 million.

Assuming the country’s population to be 28 million approximately, the government seems to have underestimated the needs of 18,760,000 people engaged in the sector. With the said allocation each person would roughly be getting only USD 19.05 in the agriculture sector, which is little to no help.

And although the education sector received a generous amount compared to other sectors in last year’s budget, which amounted to Rs 134.51 billion, or USD 1.19 billion, there has been a general trend of declining share earmarked for the education sector. The allocation stood at 10.23% in 2018-19, down from 18% in 2013-14. The figures allocated for education might have seen an increase, but the decline in the percentage shows how education might not be a priority for the government.

Nepal had a GDP of USD 24.47 billion in 2017-18.

The government had a target to achieve a GDP growth rate of 8% for the fiscal year 2018-19. However, according to the IMF estimates, the economy grew at a rate of 6.5% during the year. So, Nepal’s new GDP would be USD 2,607,767,9000, an addition of USD 1,607,679,000.

Budgets alone do not play a role in driving the economic growth of a country. But they do play a major role in inducing other variables that affect the growth rates in the GDP equation of C+ I + G + (X- M), where C stands for consumption, I for investments, G for government expenditure or the budget, X for exports and M for imports.

The budget does influence the other variables in the said equation and creates a positive and conducive environment for private investments and stimulate demand in the economy. The investment multiplier demonstrates that a change in government spending leads to a greater change, or a multiplied change or more than a proportionate change, in the resultant GDP or income of an economy.

Nepal aims to be a middle income country by 2030 and plans to graduate from a least developed country to a developing country by 2022. For that, Nepal needs to find ways to manage its resources optimally and productively and be able to get every rupee’s worth. So, it needs to focus on introducing and implementing the budget in sectors that can deliver the maximum outcome like agriculture and education. A myopic vision would mean being pound foolish and penny wise and is surely to cost the present and future generations dearly.


A version of this article appears in print on June 07, 2019 of The Himalayan Times.


Follow The Himalayan Times on Twitter and Facebook

Recommended Stories:

More from The Himalayan Times:

Tropical storm kills 17 in El Salvador and Guatemala

SAN SALVADOR: Rains from Tropical Storm Amanda left at least 17 dead and seven missing while causing extensive damage across El Salvador and Guatemala that pushed thousands of people into shelters amid the coronavirus pandemic. EL Salvador Interior Minister Mario Durán said Monday some 7,000 peo Read More...

Is pedestrian and cycle-friendly mobility possible post-lockdown? 

Kathmandu   Cycling to his place of work, Dr Paban Sharma, Professor at Patan Academy of Health Sciences, has had to face the brunt of the police officials on more than one occasion. Ever since the nationwide lockdown was imposed on March 24, Sharma’s preferred means of commute has been h Read More...

Nepal Airlines Corporation, Airbus, aircraft, Tribhuvan International Airport, Kathmandu, Toulouse, France

Nepal Airlines operated 22 chartered flights during lockdown

Kathmandu, June 2 Although the government had restricted operations of domestic and international flights in the wake of nationwide lockdown, the national flag carrier, Nepal Airlines Corporation (NAC), has been conducting chartered flights under special conditions. According to the Corporation, a Read More...

Preparing schools for a changing digital landscape

In the last two decades, the world has witnessed a dramatic shift in both its educational and technical landscapes. Nepal has attempted to follow suit. I grew up in a middle class family in south eastern Nepal. We did not have a computer at home, let alone a cell phone. My family used a dial up p Read More...

Coronavirus cases in Karnali Province jump to 252 with 54 new infections

KATHMANDU: Fifty-four additional people have tested positive for the coronavirus infection in Karnali Province, on Tuesday. As of today, five districts of the province have witnessed cases of COVID-19. With the newly confirmed infections, number of cases has reached 252 in the province. Until Read More...

In Pictures: Masks On, Game On

Local youths playing cricket to spend time during lockdown with their mask on for safety in Kshetrapati, Kathmandu, on Tuesday, June 2, 2020. Photo: Balkrishna Thapa Chhetri/ THT Read More...

Worldwide coronavirus cases cross 6.29 million, death toll nears 375,000

At least 6,290,684 people have been reported infected with the novel coronavirus globally and 374,933 have died, a Reuters tally shows. Infections have been reported in more than 210 countries and territories since the first cases were identified in China in December 2019. Meanwhile, US he Read More...

FIFA asks leagues to use "common sense" over Floyd protests

BERN: World soccer's governing body FIFA has asked competition organisers to use "common sense" with players who display messages of protest over the death of George Floyd, an unarmed black man killed in police custody in the United States. FIFA regulations bar players from displaying any "po Read More...