Boost Capital Spending

Poor capital expenditure has become a perennial problem in Nepal. As the seventh month of the current fiscal year 2024/25 draws to a close, the mobilisation of the capital budget of the federal government has remained sluggish with just 22.08 per cent utilisation, down from 24.59 per cent during the same period last fiscal. Not just the federal government, provincial governments are also reeling from the same problem of abysmally low capital expenditure. After nearly a decade of foraying into the federal set-up, it seems that federalism is still a work in progress.

Capital expenditure breathes life into medium-term and long-term development projects. But there has been significant underperformance both in terms of allocation and utilisation of funds for development projects. The scattered allocation of resources to numerous small projects, allocation of inefficiency without strategic focus, a lack of clear project objectives, and implementation challenges are all said to have been contributing to low utilisation of the development budget.

Making matters worse is the collection of grants from foreign development partners. The government, in its budget for the fiscal year 2024/25, had announced to bring in Rs. 49.94 billion in grants, but so far, only Rs. 2.75 billion has been collected. That translates to a mere 5.52 per cent of the targeted amount. This may be a result of a host of factors, with the economic crisis in Europe, particularly in the continent's biggest economy, Germany, likely being one of them. Another factor may have to do with the suspension of USAID, which has been funding several projects across the country. Yet another may be due to weak economic growth rates in the world's major economies.  

It's no secret that every foreign aid comes with strings attached, with only a tiny fraction of the assistance money reaching the ground for tangible development work. As such, relying on them is never going to solve the problem of chronic underdevelopment.  Weaning them off and taking concrete measures to create the nation's wealth with our natural and human resources are what the government should prioritise to inject a dose of momentum into the economy. No country has ever developed by solely relying on foreign aid.

Meanwhile, the financing expenditure, which includes debt servicing and other financial obligations of the government, has achieved 46.97 per cent progress, while revenue collection stands at 48.43 per cent, up from 43.2 per cent over the same period last year. At the same time, the recurrent expenditure, which covers day-to-day operational costs of the government, has achieved 49.58 per cent of the total. Progress in tax revenue collection stands at 47.83 per cent, while non-tax collection revenue has reached 59.33 per cent of the annual target this year. To put things into perspective, there has been no drag on the recurrent expenditure; however, that's not the case with capital expenditure.  

A frustratingly slow capital expenditure starves the market of much-needed cash, the money crucial not only to fuel economic growth but also to climb out of crippling poverty. It is also the recipe for mass unemployment and, in the worst case, instability unleashed by mass protests. A lack of job opportunities pushes our youths to leave the country for better prospects. Another glaring consequence is seen in crumbling infrastructure as well as in the new ones failing to take off. Given that the cost of low capital expenditure is too high, it is high time the government leaped into action to replenish the market with cash.