Government, development partners launch Public Expenditure and Financial Accountability Assessments

Nepal has a robust legislative and institutional framework for public financial management, but further reforms are needed to strengthen fiscal and budget outcomes to support green, resilient, and inclusive development, says the third Public Expenditure and Financial Accountability (PEFA) Performance Assessment Reports.

The PEFA Performance Assessment Reports were jointly launched today by the government  with support from the Multi-Donor Trust Fund. The assessment is based on the internationally recognised PEFA Framework to assess the progress of Public Financial Management (PFM) across the government. Based on the assessments, the government will prepare a medium-term PFM Reform Strategy and Action Plan.

“Public financial management has the power to change people's lives and livelihoods,” finance minister Barsha Man Pun said, adding that Nepal is committed to establishing a strong and robust public finance system and transforming the public financial management landscape through rigorous reforms and adoption of digital governance.

The government partnered with the Nepal Public Financial Management Multi-Donor Trust Fund supported by Australia; European Union; the United Kingdom’s Foreign, Commonwealth, and Development Office; Norway; Switzerland; and U.S. Agency for International Development and administered by the World Bank to conduct the assessments. The reports consist of the PFM Performance Assessment, Climate Responsive PFM Performance Assessment, and Gender Responsive PFM Performance Assessment. Nepal is the second country after Bhutan in South Asia to undertake PEFA Climate and PEFA Gender Assessments. 

According to the PFM performance assessment, the government has deployed a range of information systems to enhance the efficiency of PFM. The adherence to international standards in the budget and accounts classification ensures comparability, accuracy, comprehensiveness, and transparency in financial information. Budgets are designed with a medium-term outlook, and the predictability of resource availability for spending units is at a high level. The fiscal transfers allocated to subnational governments exhibit transparency and adherence to established rules while the scope and coverage of both the internal and external audits are extensive. 

“Nepal’s successful completion of the PEFA assessment demonstrates its commitment to sound financial management practices,”  World Bank country director for Maldives, Nepal, and Sri Lanka Faris Hadad-Zervos said, adding that development partners, including the World Bank, are committed to supporting the next generation of public financial management reforms for Nepal’s green, resilient, and inclusive development. 

The assessment highlights the following areas for potential PFM reforms to achieve better fiscal and budgetary outcomes in the future:

• Restoring fiscal credibility through a sustainable medium-term expenditure framework, recalibration of fiscal rules, expenditure reprioritization, and risk management. 

• Improving public investment efficiency by reducing inefficiencies and building climate-resilient infrastructure. 

• Applying a climate and gender lens to fiscal decision-making to mainstream climate and gender considerations. 

• Enhancing fiscal transparency and accountability by enforcing fiscal rules and promoting accountability.

“As the PEFA assessment demonstrates, some crucial elements center on fiscal discipline and its impact on service delivery. Better fiscal discipline is needed for more effective, inclusive, and accountable delivery of services,” said acting mission director of USAID Nepal Karen Welch. “We, the development partners, bring assistance that supports the government’s efforts across many sectors, like health and education, environmental preservation, and attention to marginalised groups. Sound PFM allows us to work together to better benefit the people of Nepal.”

The programme was chaired by the finance secretary Madhu Kumar Marasini. chief secretary. Dr Baikuntha Aryal, revenue secretary Dr Ram Prasad Ghimire, and financial comptroller general Hari Prasad Mainali expressed their views and reiterated their commitment for PFM reforms as indicated by this assessment. The event also included a panel discussion on the topic: “How can Nepal improve capital expenditure to achieve development outcomes?”.

The event was attended by high-level government officials, accountability institutions, and development partners involved in PFM, including climate and gender agencies. 

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. 

Government has no record of its own property across the country

Not much surprising, the government does not have proper records of its own property across the country.

"The government offices have been operating from the rented houses, despite its property across the country," complained the higher government officers during the second PEFA evaluation meeting here today.

In most of the districts, the government property has been misused, they reported the finance minister Shankar Prasad Koirala.

The government must look into the matter seriously and utilise its property, they asked.

In response to their request the minister asked them to immediately start record keeping of the government property across the country.

"The Finance Ministry will help them wholeheartedly," he said, adding that the related agencies and officers must be made responsible and accountable for the preservation of government property.

The government has the property across the country but due to lack of proper records, individuals have been misusing the government property. There is no proper records of the government buildings either.

Chief secretary of the government blamed the chief regional administrator for the lack of preservation of the government property. "Its easy to blame others, but it’s the weakness of the administrators," he added.

On the occasion, the record of some 1,686 government offices across the country have also been presented. "Some 1,686 government offices occupy 90,630 ropani of land and owns 1,404 houses," reported Public Expenditure and Financial Accountability office (PEFA).

According to the Nepali legal system, the offspring have legal right of the property of their parents. But the government property across the country has no proper record and in most of the places people have already captured it.