Low Spending Development In Dilemma : Pranav Bhattarai

The state treasury holds a lot of cash meant for development works. Various media reports point to this grave reality of the government's inability to spend the allocated budget for development. As of January 2015, the government spent only Rs. 15 billion of the capital expenditure, out of a total allocation of Rs. 117 billion, for the current fiscal year. It appears that Rs. 95 billion remains unspent in the government treasury. The unspent amount has soared as this year's budget also has a carry-over of Rs. 15 billion from last year's unspent budget. It shows that billions of rupees meant for development works have been remaining unspent. We have a measurable trend of low expenditure every year for various reasons.

Low absorption capacity

As half of the current fiscal year has already passed, expenditure should have been more than 50 per cent. Since 2011/12, capital expenditure has not crossed 15 per cent of the allocated amount during the first half of the fiscal year. Experts point to the fact that growing revenue collection during the second quarter and rise in reimbursements by the donors also resulted in the exponential surplus of money in the government’s treasury. But the increasing budget surplus in the treasury is indicative of our low absorption capacity. The government should divert the resources from underperforming projects to good performing projects so that capital expenditure can be maximised. The delay in spending the budget can lead to multiple problems in the market such as lack of liquidity, job creation and slow development work.  

For years, we have been fatigued by this bizarre development practice. If a major chunk of the budget continues to pile up, there is persistent risk of spending the budget unaccountably at the end of the fiscal year. This has been happening for the last several years. Every year, newspapers are replete with stories of hasty and hurried expenditure of development funds when only a few months are left prior to the end of the fiscal year. The expenditure of development funds expedites a few months before the expiry of the fiscal year. This puts people's concerns about quality development into question.    

Laws and guidelines clearly stipulate that development expenditures have to be made within a set deadline, and accountability and transparency must be maintained in the process. But brushing aside such legal and procedural mandates, expenditures are being made in such a way as to produce miserable development output when hefty amounts are being spent for development works annually. It has become a common sight in and around the cities, towns and villages that construction of new tracks and blacktopping of roads unusually pick up momentum during June and July each year.

There are some core reasons behind this practice. First, the efficacy of the government agencies in Nepal is often linked to their capacity to absorb or spend the allocated amount. This puts them under pressure to finish the budget at any cost when the fiscal year is about to close, not bothering about the quality of services such expenditure produce. Second, spending budgets within a short duration leaves opportunities for kickbacks, corruption and commissions. Political parties and bureaucrats who often work in close cahoots have been benefiting from such a filthy development practice and culture.

Because of this mentality and culture, bureaucrats and politicians do not speed up allocation and expenditures in the early stage. It was found that around 25 government offices and their respective projects were given mandates to spend Rs. 9 billion in just a few weeks before the end of last fiscal year. Similarly, Rs. 20 billion of Rs. 49 billion allocated for 36 government offices in FY 2070-71 was spent in July. One third of this amount was misappropriated during the release of the advance, transfer to non-freezable accounts and in keeping deposits.

Corruption and margin of profit can be higher in small and tiny projects. Therefore, allocations to tiny and small projects have soared in the last few years. Objecting to the trend, the Development Committee of the dissolved Constituent Assembly a few years ago had directed the National Planning Commission not to do so, but this is being violated every year, and the trend of disbursing budgets to small projects has been increasing.

The Ministry of Federal Affairs and Local Development (MoFALD) is under pressure to release the funds to projects of non-priority when the end of the fiscal year is just a few weeks away.  There has been pressure on the line ministries and departments to finish the remaining budget in a few months. One can imagine the quality of construction and development works when a major chunk of the national budget is spent in a few months before the expiry of the fiscal year.  

Reforms required

Procedural delays in approving the project and awarding the contract, a tendency among contractors not to work after receiving the mobilisation fund in advance, frequent transfer of technical and top level staffers at the project and fear of the anti-graft body are some of the reasons for the low spending of the capital expenditure.

Our development intervention has focussed more on expenditure than on "substantial output". A government agency's capacity to spend more is linked to its efficiency, which is a wrong development approach. Until our development focus shifts from sheer "absorption" to yielding "outcomes", billions of grants will not bear development fruits. Our development initiative will not move anywhere if we fail to streamline the development process and objectively monitor the outcomes of such expenses every year.             

herefore, the government should seriously take note of the problems and issues about the low budget expenditure. Learning lessons from the past years, we must expedite the release of funds on time and spend the budget accountably and transparently for improved development infrastructure and activities. 

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