Reforming Public Expenditure System

Prime Minister KP Sharma Oli and ministers have stated time and again that the overall macroeconomic indicators are on track and some signs of improvement are noticed in the realm of capital expenditure. However, revenue shortfalls and funds insufficiency to foot the arrears of the construction entrepreneurs show that all is not well in the area of capital expenditure. At a programme organised the other day, economists and development experts suggested that the government should implement cost-cutting measures, among others, to address the problems impairing the national economy. To this end, the government should take daring steps and even go to the extent of pruning the size of the state structures from the federal to the local level. 

The federal governance arrangement in Nepal has been structured by inter-tier assignment of the functions with national, Pradesh (state) and local levels exercising their constitutionally assigned mandates and competencies. Though the new Trump administration in the US is doing it rather indiscriminately, some cues, however, could be taken from that country for cost-cutting measures in Nepal too. Several apparatuses and agencies controlled and managed so far by the central (federal) government have to be either disbanded if they are irrelevant, restructured or transferred to the purview of the sub-national governments (state) and local for their resource efficiency, effective operation and management.  

Principle of subsidiarity

According to the report of the unbundling of the functions of the federal, state (Pradesh) and local government carried out by the Office of the Prime Minister and Council of Ministers (OPMCM) which is currently being reviewed, the principle of subsidiarity has been followed more or less about devolving some of the central level functions and responsibilities to the Pradesh (state) and local government through transfer of mandates, competencies, assets and personnel. This has been done especially to attain cost and resource efficiency and enhance effectiveness in the process of governance and service delivery. 

However, these constitutional expectations and arrangements premised upon the principle of subsidiarity have not been adequately addressed as evidenced by the huge bureaucratic apparatus yet far retained at the central level incurring huge expenses and indiscriminate creation of the ad hoc bodies and agencies at different levels thereby putting pressure on public expenditures. The government is predisposed to the creation of new agencies, programmes and new spending initiatives, instead of reorganising, or repurposing what is already available within the existing institutional arrangements. 

As a result, there are several programmes, projects and activities operated and handled by the governments that have allegedly outlived their mission and objectives, duplicate efforts and resources, or operate below peak efficiencies. This wasteful spending has been a contributing factor to the deteriorating fiscal health and discipline as reflected in the annual reports of the office of the Auditor General (AoG) and Public Expenditure Review Committees (PERCs) constituted by the previous government,  among others. Hence, there is a need to reflect on and    review the patterns of the public expenditure in the country. In this context, it would be in order to outline some of the widely applicable standards on which broad action to reduce tax payer money should be executed.  

In order to stop wasteful spending all government programmes should have a direct, clear, and immediate purpose. Likewise, all government spending should provide a necessary and essential public service, and serve a clearly defined need, demands and interest of the people. In the democratic dispensation, taxpayers deserve a government that is not spending taxpayer money to support the projects and programmes that are unrelated, irrelevant and wasteful. All public spending should fund their intended purpose and reach the targeted recipient. There should not be any improper payments that result in monetary loss to the public exchequer. 

The government should be frugal and strive to avoid overpaying to finance projects and   activities. The government should spend only the amount necessary to achieve intended objectives and goals, and all expenditures should be assessed on that basis. In fact, public spending should be geared to restrain and refocus taxpayer resources .The government should eliminate all the duplicating and overlapping projects and programmes. The programmes and projects that do not yield intended results and outcomes should be either avoided or repurposed and eliminated. All illegal, improper and irrational payments need to be revoked for proper utilisation of the public resources. 

Public spending

Moreover, an effective oversight of public spending should be conducted to minimise and eliminate wasteful expenditures.  The Public Expenditure Review Committee (PERC) headed by nationally known economist Dr. Dilli Raj Khanal in its report had made recommendations not very long back to reduce duplication, and fragmentation in the programmes. The PERC report identifies opportunities for cost savings, and a better effective and efficient service delivery for the people through addressing several types of common inefficiencies in government. When more than one government agency, or more than one component within an agency, is involved in the same broad area of national need and there are opportunities for reform towards improving service delivery. 

When multiple agencies or programmes have similar goals, engage in similar activities or strategies, or target similar beneficiaries, the overlapping agencies can be downsized or eliminated. The government should address many of these inefficiencies by reducing the funding for, and in some cases, eliminating these programmes. Very appropriately, PERC report had proposed to reorganise, consolidate and even eliminate overlapping projects and programmes to cut leakage and wasteful expenditure. These measures would allow the public programmes, projects and activities to meet and address the expectations of the people and save resources to support the needy people. However, the government failed to fully account for the PERC recommendations and take corrective measures to streamline public expenditures. The present grand coalition government should pay heed to it.

(The author is presently associated with the Policy Research Institute (PRI) as a senior research fellow.  rijalmukti@gmail.com)