Spending For Growth

Although the authorities have claimed that Nepal’s economy is set to recover from ongoing recession, the set target of economic growth has been scaled down. The domestic and external factors are blamed for the sluggish economic growth. The problems persist in the capacity of successive governments to spend capital and general expenditures as fixed by the annual budget outlay. Low capital spending has negative repercussions on the overall economic health. Job creation and revenue collections are important components to sustain the economy and avoid the unintended fiscal downturns. Poor spending has been chronic woe that continues to pester the financial ecosystem. In the budget statement of the current fiscal year, then finance minister during the budget unveiling had vowed to increase the spending capacity of the government but progress in this front has not been encouraging so far.

It seems there are structural and policy level shortcomings that hamper budget spending as per the target. Unless this issue is well addressed, development works are unlikely to gather desirable pace in the country. A news report of this daily states that the government has spent only 47 per cent of the annual budget target as there is only a quarter to spend the remaining 53 per cent. Former Finance Minister Janardan Sharma had announced the budget of Rs. 1793.83 billion for the current fiscal and set the revenue target at Rs. 1403.1 billion. The government could mobilise only 25.5 per cent of the Rs. 380.38 billion allocated for development works by Monday, April 3. Around Rs. 89 billion (38.6 per cent of the total target 230.2 billion) of capital budget has been mobilised. Likewise, of Rs. 189.4 billion earmarked for financing, only 34 per cent was utilised.

The government was able to collect Rs. 660.7 billion revenue against its total target of Rs. 1458.6 billion. Only 43.3 per cent tax revenue of the total target of Rs. 1295.37 billion has been collected. Failure to spend the capital budget has disrupted the flow of money to the market, liquidity in the financial system and payment to the contractors. The construction sector is feeling the heat of the liquidity crisis as the price of construction materials, steel and fuel has soared. Meanwhile, the Asian Development Bank (ADB) the other day has lowered Nepal’s economic growth target for the fiscal year 2023. In its latest edition of the Asian Development Outlook, the growth rate has been slightly moderated to 4.1 per cent in FY 2023 from the estimated rate of 5.8 per cent in FY 2022. The regional lending agency cites tight monetary policy, slackened domestic demand, the unwinding of COVID-19 stimulus and global headwinds for the slow GDP growth. Agriculture growth is likely to be around 2.0 per cent in FY 2023, down from 2.3 per cent in FY 2022. 

Similarly, the manufacturing and construction sectors have contracted due to the high interest rates, import restriction measures, slowdown in domestic consumption, and dampened external demand resulting in the shrinkage of industrial growth. Service sector growth is also going to fall to 4.4 per cent from 5.9 per cent in the last FY. On the other hand, inflation is likely to rise to 7.4 per cent in 2023 from 6.3 per cent in the last fiscal year. The existing scenario calls for improvement in the budget mobilisation. For this, the state’s mechanisms and procedures need to be made efficient, smooth and transparent. The political and bureaucratic leadership must work in tandem to remove snags that hit the budget spending and hinder in achieving the growth target.