Special Correspondent, B360
The government has presented a budget of Rs 1,278.99 billion for the next fiscal year 2017-18 focusing on execution of federal system in the country. As per the provision of the new constitution, the budget is required to be presented one and half months prior to the fiscal year. Under the caretaker government headed by Pushpa Kamal Dahal, the budget was presented between the two phases of local polls on May 29.
The budget does not include any new programme that can attract voters in favour of the ruling parties as the Election Commission debarred the government from announcing new programmes as this is against the election code of ethics.
The fiscal budget has allocated a large chunk of resources to local units as grants. As there are no new programmes, the budget has allocated adequate resources for national pride and ongoing development projects. Post earthquake reconstruction has been given high priority with an allocation of Rs 146 billion for reconstruction.
Fiscal transfer to implement the federal system
Fiscal transfer to local units is the major highlight of the budget, which the government recognises as the first ‘federal budget’ in accordance of the provision of the constitution.
The fiscal budget has allocated Rs 225.55 billion to local units and Rs 7.14 billion to set up provincial level structures. The projects, being implemented by the central level, are to be transferred to local units for implementation. Ministries and departments have to transfer projects that have total project cost of up to Rs five million to rural municipalities, up to Rs 10 million to municipalities, up to Rs 20 million to sub-metropolitan and metropolitan cities.
Experts however have stressed enhancement of project implementation capacity of the local units so that the grant amount can be properly utilised. Fiscal transfer to local units is expected to boost economic activities at the local level.
Size of budget
The government has inflated the size of budget by 21.9 percent compared to the current fiscal budget. Madhu Kumar Marasini, Chief of the Budget Division under the Ministry of Finance, has said that the size of budget has been expanded as the grant amount to local units has increased and the government also allocated sufficient resources for post-earthquake reconstruction and to carry out two tiers of elections — provincial and national. The size of the fiscal budget is around 45 percent of the country’s economy. Though there is no set principle on the size of budget, however, public expenditure – one third of the Gross Domestic Product (GDP) – is considered ideal, according to former Finance Minister Dr. Prakash Chandra Lohani.
The government will be spending Rs 803.53 billion as recurrent expenditure, Rs 335.17 billion as development expenditure, and Rs 140.28 billion for principal and interest repayment of foreign loans and financing of state owned enterprises. The size of the recurrent budget is increased substantially in this fiscal as the grant amount for local bodies also includes recurrent headings, however around 66 percent of the grant amount that goes to local bodies will be spent on development works, according to Marasini.
Infrastructure development and job creation
Infrastructure development is another major priority of the budget as the fiscal budget has given emphasis on expansion of road networks. The government has allocated Rs 89.5 billion for road development. The fiscal budget also allocated sufficient resources for post earthquake reconstruction projects, top priority projects, and ongoing development projects. The budget has announced some measures related to procurement, contract, payment release and others to cope with the constant challenge of spending the development budget. Adequate resource allocation and some necessary measures to implement the budget is expected to bridge the yawning infrastructure gap, according to Hari Bhakta Sharma, President of Confederation of Nepalese Industries (CNI).
Construction of Kathmandu-Terai Fast Track, Budhi Gandaki Hydropower Project, expansion of trade routes, postal highway, north-south highway and another 400 kVA cross-border transmission line have been given high priority in the fiscal budget 2017-18.
Resources allocated for these sectors is expected to create a huge number of jobs in the country. The fiscal budget is expected to create 400,000 jobs and self employment for 100,000 individuals through its implementation.
Measures to ramp up development expenditure
The fiscal budget has introduced some measures to ramp up capital expenditure. Ministries were provided authority to spend allocated budget from the beginning of the fiscal year. Executing agencies can prepare procurement and bidding documents to start bidding process since the beginning of the fiscal year. Ministries would not have to take approval from the National Planning Commission to spend in programmes that are already included in the budget. The fiscal budget has instructed ministries to mandatorily frame the guidelines/directives, set up offices and hire staffers for the project within the first month of the fiscal year. Besides, if any new regulation is required to run the project, it should be developed within one and a half months from the beginning of the fiscal year. Ministries and departments would need to disclose the details of the activities of the projects, costs, expected results and responsible staffers within one and a half months from the beginning of the fiscal year. Project staffers should be selected based on their experience and performance in project implementation in previous years. The budget has vowed to discourage frequent transfer of project staff. As per the provision in the budget, the projects must complete environmental impact assessment and initial environmental examination within the timeframe. Tender notice must be issued within the first month of the fiscal and tender must be awarded within first three months of the fiscal. The fiscal budget also bars single contractors taking more contracts at the same time. The National Vigilance Centre has been assigned to check the quality of the construction works delivered by the contractors and take action against them if any work is found to be of substandard quality. The fiscal budget has also provisioned to expedite payment release to contractors within 15 days from the date they submit their bills and 10 days from the verification of works delivered by them. The fiscal budget also envisages to set up a Public Expenditure Review Commission to eliminate chances of duplication of projects and also for scientific allocation.
Momentum of high growth
The budget has targeted 7.2 percent growth rate in the next fiscal from the implementation of the budget. The government expects that economic activities in rural areas will help. Expenses on development projects will also increase economic activities which will support achieving expected growth. The country’s growth that nosedived in the last two consecutive fiscal years due to earthquake and border blockade is expected to rebound from this fiscal along with improved economic activities in the current fiscal year. Conversely, the private sector reckons it will be challenging to keep the momentum of high growth. “High growth can be achieved only from joint efforts of the private sector and the government,” said Shekhar Golchha, Senior Vice President of the Federation of Nepalese Chambers of Commerce and Industry, adding, “However, the fiscal budget 2017-18 has ignored all suggestions provided by the private sector during the formulation of the budget to enhance the production base for a sustainable and inclusive growth.”
Ambitious revenue collection target
The fiscal budget has set revenue collection target of Rs 730.05 billion in the next fiscal year from Rs 565.9 billion of the current fiscal year. The government has raised the revenue collection target by 29 percent without making any substantial changes in tax rates. The fiscal budget has not changed any tax rates except revision in excise duty of alcohol and tobacco products. Rajan Khanal, Revenue Secretary under the Ministry of Finance has said that revenue growth of 22 to 25 per cent has been achieved in previous years despite low economic growth. As the government has set a high target for revenue collection, the private sector is apprehensive about the possibility of levying taxes under various layers of the government with the implementation of the federal system. “Cost of doing business will increase and we cannot be competitive if more taxes are levied in the federal system,” said Hari Bhakta Sharma, President of CNI.