Government loses appetite for development spending

Though successive governments have failed to spend development expenses, their recurrent expenditure has seen a steady growth in the last five years, also due to redefinition of recurrent expenditure.

"Recurrent expenditure has been redefined since fiscal year 2010-11," according to former senior advisor to the finance ministry Keshav Acharya.

The government has adopted Government Finance System-2001, prescribed by the International Monetary Fund (IMF) since the last two fiscal years, he said, adding that the grants to village development committees (VDCs), investment and loan to public enterprises like Nepal Oil Corporation (NOC) now comes under recurrent expenditure, unlike two fiscal years ago, which has ballooned recurrent expenditure.

Recurrent expenditure stands at around 65 per cent of the total budget outlay. But successive governments have been unable to spend capital budget meant for development expenses that will not only help generate employment but propel economic growth.

However, going by the trend, recurrent expenditure cannot be financed through revenue mobilisation, despite regular growth in revenue mobilisation.

Since the last five years, revenue mobilisation has more than doubled as in fiscal year 2007-08, the government had mobilised Rs 107.62 billion but in the last fiscal year it was able to mobilise Rs 244.14 billion.

But the import-based revenue was not able to help create a self sustainable economy. Value Added Tax (VAT) is the largest contributor to government coffers, though income tax has seen an increase in total contribution to the revenue since the last couple of years.

The failure of successive governments to substitute imports, though they do talk a lot about export promotion, has given a boost to import-led revenue growth that will not help create a sustainable economy, according to an entrepreneur.

The lethargic process of cash incentives, coupled with prolonged hours of power crisis and labour-management problems have hit industries, he said, adding that investors are losing confidence in the government as it is only concentrating on political issues and trying to promote state-sponsored capitalism like in communist China, and has failed to create investment-friendly environment in the country fuelling capital flight.

The government's inefficiency and bureaucratic hassles have pulled down the contribution of the industrial sector to the economy, the entrepreneur added.

According to the business confidence survey conducted by the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), some 51 per cent of the business fraternity believes that the country's economic condition will deteriorate, against only 17 per cent who think it will improve in the next six months.

 

Revenue mobilisation and recurrent expenditure

Fiscal year — Total — Recurrent — Revenue

2007-08 — Rs 168.99bn— Rs 98.17bn — Rs 107.62bn

2008-09 — Rs 236.01bn — Rs 128.51bn — Rs 143.47bn

2009-10 — Rs 285.93bn — Rs 160.63bn — Rs 179.90bn

2010-11 — Rs 337.90bn — Rs 190.31bn — Rs 200.79bn

2011-12 — Rs 384.90bn — Rs 226.61bn — Rs 244.14bn

(Source: Finance Ministry)