Nepal

Prioritise capital spending

Jan 18, 2018
The government has failed to ramp up capital spending in the current fiscal year as well. Capital expenditure hovered around Rs47 billion in the first half of the fiscal year, or around 14 percent of the annual capital budget of Rs335.2 billion, show government data.
 
This is an indication that capital expenditure will once again bunch towards the last quarter of the fiscal year, resulting in the construction of substandard infrastructure projects. This, in turn, will push up recurrent expenditure in the future, as more funds will have to be spent to repair and maintain physical infrastructure that was poorly built.
 
A big chunk of government’s capital spending goes towards development of critical physical infrastructure, like roads, hydropower and irrigation projects, and airports. Early completion of many of these projects can put Nepal on higher economic growth trajectory. Yet the government has been failing to make maximum use of the capital budget for years.
 
Low capital spending not only delays construction of crucial infrastructure projects but prevents banking institutions from expanding their assets in a desired manner due to a shortage of liquidity. The government has lately realised this. But instead of taking proactive measures to rectify its mistake, it has always been coming up with excuses. This year, the excuses are the floods of August; state assembly and federal parliamentary elections of November and December; and inability of newly-formed local bodies to expedite implementation of projects transferred from the centre due to a critical lack of experience in project management.
 
The government should not look for more excuses and hold back capital spending in the coming days, as the floodwaters have already subsided and elections are over. It should also introduce programmes to raise the capacity of local bodies so that they can utilise available funds in effective and efficient manner. If the fund absorptive capacity of local bodies, as well as states, is raised, a lot can be achieved in terms of infrastructure development in the next few years.
 
The central government, on the other hand, should focus on implementation of big infrastructure projects, particularly 21 national pride projects--an inventory of mega schemes on highway, irrigation, hydroelectricity, airport, railway and drinking water projects. Completion of these projects would drastically narrow down the country’s infrastructure gap, which is one of the biggest binding constraints for Nepal’s rapid growth.
 
If the new government, which is expected to be installed soon, completely focuses on early completion of these projects, the country would not only see rapid development of physical infrastructure but improvement in utilisation of the capital budget as well.
 
The Kathmandu Post, January 18, 2018

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