Friday, March 22, 2019

Effective public finance management a challenge for fiscal federalism

Stakeholders have underlined the need for the effective public finance management (PFM) for smooth transition to and effective implementation of fiscal federalism.
Speaking at an interaction programme on ‘Public Finance Management’ organised by Society of Economic Journalists-Nepal (SEJON) with the support of Public Expenditure and Financial Accountability (PEFA) secretariat today, they also pointed out various challenges for the effective public finance management – in ensuring transparency putting in place better reporting standards and strengthening institutions involved in public spending – in the new federal system.
"As the country is implementing the fiscal federalism, institutional capacity, fiscal capacity and technical capacity building is the key challenge for the effective public finance management," secretary at the National Natural Resources and Fiscal Commission (NNRFC) Baikuntha Aryal said, adding that the capacity of Finance Ministry alone is not adequate for the efficient resource allocation. "All spending agencies should have similar capacity."
However, there is a huge question on the capacity of the Finance Ministry as well.
Likewise, chief of Budget and Programme Division at the Finance Ministry Hari Saran Pudasaini, on the occasion, pointed out the problem of lack of database and reporting system at the sub-national level. He also said that the lack of functionaries at the local levels have led to the poor execution of capital budget. "We have handed over the functions and finances to the local level governments," he said, "But, there was delay in sending functionaries which has led to low spending of the capital budget, particularly that should have been spent through local-level governments."
Former Financial Comptroller General Suresh Pradhan warned that lack of proper accounting, recording and reporting system at local level could lead to financial indiscipline. 
"The public finance management in recent years is getting linked with the macro-economy of the country, rather than limiting it to budget cycle," said coordinator at the PEFA Secretariat Sushil Pandey. "The public finance or spending should be aimed at increasing social equity, maintaining financial balance and ensuring justifiable results,” he added.
Likewise, lead financial management specialist at the World Bank Office in Nepal
Franck Bessette, opined that the public finance management remains a core part of democracy. "Having right and experienced people able to prepare, discuss and implement the budget and do the procurement works at the local level in the new federal system remains a challenge."
Despite the early budget approval from last couple of years – according to the Constitution – the government spending has not been increased due to inefficient bureaucracy, lack of capacity and technical knowhow of the not only local governments but also the federal government.
Though, the government has been working to simplify the public procurement process to boost spending on development projects, it has not been able to due to mainly lack of an effective oversight agency. Almost every year, the government fails to spend budget allocated for the development projects. According to the Financial Comptroller General Office, only 28.89 per cent of the total Rs 313.99 billion earmarked for capital expenditure for the current fiscal year 2018-19 had been spent as of mid-March.
Even if the budget is spent, lack of quality, transparent and accountability has always been under question.
Former finance secretary Shankar Prasad Adhikari, on the occasion, said that the government needed to devise a mechanism to promptly address issues related to quality assurance and project design. 

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