Maintain Fiscal Discipline To Stem Arrears

Even when establishing good governance has been high on agenda of every political party in Nepal, arrears keep increasing considerably, indicating an alarming financial mismanagement in public offices. The 60th annual report of the Office of the Auditor General (OAG), released last week, shows that the public arrears rose by Rs. 119.77 billion in 2021-22. Including this amount, the accumulated arrears have increased to Rs. 587.33 billion in total over the past 18 years (from fiscal year 2003/04 to 2021/22).  

According to the OAG report, the unsettled amounts grew by 21.45 per cent during the last fiscal year as compared to the previous fiscal year. Of the total arrears, the arrears of federal government offices stood at Rs. 56.31 billion in 2021-22. And the arrears of provincial offices and local governments were put at Rs. 7.20 billion and Rs. 42.88 billion, respectively. The report also shows that the arrears of other public offices remained Rs. 11.97 billion. 

Cumulative arrears

Of the cumulative arrears, Rs. 296.13 was under the offices of the federal government. Provincial offices and local governments had Rs. 24.3 billion and Rs. 172.6 billion in arrears, respectively, while other public organisations and various committees had Rs. 94.2 billion as unsettled amounts. This hints at mounting financial irregularities in public offices nationwide. What is another irony that the Ministry of Finance under the federal government has the highest amount of arrears (Rs.32.46 billion) in 2021/22. This amount accounts for about 58 per cent of the total arrears of the federal government offices. With Rs. 8.79 billion unsettled amount, the Ministry of Physical Infrastructure and Transport is in the second position while the Ministry of Communications and Information Technology, with Rs. 2.70 billion in arrear, is in the third position. 

The OAG report mentions that most public offices failed to fully comply with the Fiscal Procedures and Financial Accountability Act-2020 when it comes to updating the records of their arrears and submission of fresh details of the cleared accounts. The report points out poor record keeping and the misuse of public funds are the major reasons behind the rising graph of arrears government offices. The OAG has classified the arrears into three categories -- the amounts which must be recovered, those which must be regularised, and advances. The first category includes the amount misappropriated, losses and the amount left to be recovered. The OAG report is based on the assessment of financial transactions worth Rs. 7.138 trillion of 6,546 government offices. The proportion of arrears stood at 1.68 per cent of the transacted amounts.

Despite the OAG’s frequent suggestions and recommendations regarding maintaining fiscal discipline rigorously by reducing and clearing arrears, most public offices do not seem to have made any concrete effort in this connection. The report indicates that just Rs. 15 billion arrears of the total Rs. 483.59 billion were cleared in the last fiscal year. The amount makes up only 3.10 per cent. This is a clear pointer that no effective initiative was taken to clear arrears.  The term ‘arrear’ refers to any financial transactions made without providing the required documents and meeting the legal processes. According to Investopedia, arrear is a financial and legal term that most commonly describes an obligation or liability that has not received payment by its due date. Anyway, arrear is a kind of misappropriation of funds or financial irregularity.

No doubt, arrears are also a form of corruption that affects economic development as it hinders economic efficiency and growth. Transparency International (TI) also justifies this by saying that corruption affects equitable distribution of resources across the population as this anomaly increases income inequalities, undermines the effectiveness of social welfare schemes and ultimately it leads to lower levels of human development. In due course of time, it may become an obstacle to growth and equity. The nation has recorded a continuous rise in arrears at a time when the national economy has been going through a difficult situation due to the lingering COVID-19 and global economic slump. If the existing trend of arrears continues even in the years to come, it may hinder the country’s development endeavours. 

Nepal has still been in the group of countries with extensive corruption. The nation ranked in 110th position out of 180 countries and territories in the Corruption Perceptions Index (CPI) 2022 released by TI. In 2021, the nation was ranked in the 117th place. Although the country made a marginal improvement in its score last year, it was unable to get out of the list of the countries having rampant corruption. To measure the level of corruption, TI applies a scale ranging from zero to 100. The country with zero is the most corrupt while the one having 100 is the least corrupt. 

Independent mechanism

As arrears and other fiscal irregularities have emerged as a serious challenge, it is essential for all the public offices to focus on refurbishing their fiscal management systems. Such offices must abide by the suggestions made to them by the OAG to contain arrears and misuse of funds. It has held discussions with high-level government officials, including the Chief Secretary and account officers, and issued directives to make improvements in clearing arrears. However, the situation has yet to change for the better.  

The OAG has called for making necessary amendments to the laws concerning the auditing and operation of the local governments should be amended in order to create an independent mechanism to discuss and monitor the accounts and reports of the local levels. It is infuriating that the local governments, which are close to people, have also been blamed for promoting corruption. The OAG has also suggested that only those individuals who have cleared arrears should be allowed to the contest federal and provincial elections as well.  However, candidates taking part in the local polls are required to clear arrears, if any, before filing their nominations. This provision has been helpful for clearing arrears. 

(Dahal is a deputy executive editor of this daily.)