Austerity For Recovery

The Sushila Karki-led government, formed at the critical political juncture in September last year, is efficiently discharging its historic responsibility. On one hand, it has to conduct the elections slated for March 5 to hand over power to the elected representatives, on the other, it must show mettle to bring the economy back on track. The country has borne additional economic costs in the aftermath of the Gen Z Movement, in which public and private properties worth about Rs. 84.5 billion were destroyed. This has impelled the government to reprioritise projects and slash the unnecessary expenses. In view of the grave situation, it has adopted a prudent economic policy to steer the nation through the transition period. First and foremost, it has cut expenditures by scrapping the fragmented and unproductive projects. This was necessary to generate a huge amount of money meant for the reconstruction of the destroyed infrastructure and holding of the elections. A total of Rs. 36.3 billion is required for the reconstruction of damaged infrastructure.

The interim government has followed austerity measures so that money goes to those areas that boost economic growth. This fiscal approach is visible in the revision of the current fiscal year budget. Under its mid-term review, the Ministry of Finance on Tuesday estimated that only 85.96 per cent of the initially allocated budget would be spent in the fiscal year 2025/26. It will spend Rs. 1,688.32 billion out of the Rs. 1,964.11 billion budget unveiled in May last year. The current expenditure will stand at Rs. 1,125.97 billion, capital expenditure Rs. 243.30 billion and financial management Rs. 319.04 billion, respectively. The government has so far spent Rs. 690.21 billion (35.14 per cent) of the total budget of Rs. 1,964.11 billion by mid-January 2026. Of the amount spent, 41.25 per cent was allocated to current expenditure (including financial transfers), 12.12 per cent to capital expenditure, and 40.95 per cent to financial management.

 Expenditure grew by just 3.39 per cent in the first half of the current fiscal year, falling short of expectations and raising concerns about the pace of recovery. The government has set a target of achieving 6 per cent economic growth and limiting consumer inflation at 5.5 per cent. According to a news report published in this daily the other day, an increase in the current expenditure has been attributed to the election to the House of Representatives, social security payments, dearness allowances for employees, and relief to be provided to the families of those injured and killed in the Gen-Z protests and the reconstruction of damaged physical infrastructure. The government has prioritised rebuilding destroyed infrastructure and paying for strategic projects now under construction.

As in the past, capital spending remained dismal largely due to a lack of prior project preparation, complications in land acquisition, utilisation of forest areas and damage to physical infrastructure. It has suspended the unprepared and unproductive small projects worth Rs. 119.53 billion. Likewise, it has stopped providing meeting allowances, hiring external consulting services, creating new positions and unnecessary foreign travel. These austerity measures are guided by the notions of 'expenditure efficiency' and 'implementation efficiency' in public financial management. This efficiency needs to be reflected in funding the vital projects with limited resources. The government is still facing challenges in meeting its revenue collection target due to tax exemptions for industrial establishments. Despite all structural difficulties, there is good news—the economy is on a recovery path.