The fiscal calendar of 2016/17 has already crossed half way but the government’s expenditure in development projects witnessed very slow movement with merely 11.3 percent spent of the total allocation of Rs 311.95 billion in the first half. Less utilisation of capital expenditure has been a perennial problem resulting in challenges of low growth, high cost of project implementation, lack of investment opportunities, supply side constraints among others.
There are few examples of development projects like Melamchi Drinking Water Supply Project that is expected to complete by the end of 2017 after 17 years of its initiation. Another crucial transmission line project Khimti-Dhalkebar was completed recently after 14 years. These are just a few examples that clearly elaborate the snail pace of development work in the country. Project implementation is delayed not due to lack of resources but because of factors like procurement hassles, lack of efficient contractors, dispute with local communities, lack of project readiness, lack of effective monitoring, etc.
“The time and cost overrun in implementation of development projects makes it costly,” said Min Bahadur Shrestha, Vice Chairman of the National Planning Commission, “On other hand, it has deprived beneficiaries of the project to obtain dividends of development in a timely manner.”
However, the size of the budget allocated for development projects has increased significantly every year despite witnessing poor delivery. In fiscal 2015-16 and 2016-17, the size of the development budget expanded to Rs 208.88 billion and Rs 311.95 billion respectively but it also includes budget for post-earthquake reconstruction which have failed to gather momentum despite high priority given by the government to accelerate reconstruction work. As per data obtained from the National Reconstruction Authority (NRA) only 200 schools, 228 temporary pre-fabricated government buildings, 200 temporary health posts and 297 drinking water projects have been reconstructed till date whereas the government needs to rebuild 9,000 schools, 1,100 health posts, 2,600 government buildings, 1,200 drinking water supply projects, 700 heritage sites, some sections of roads and bridges that were ravaged by the April 2015 tremblers and subsequent aftershocks. Except from distribution of grant to individual households, there is dismal progress in post-earthquake reconstruction.
In the last fiscal only 59 percent of the capital budget worth Rs 208.88 billion was utilised. The result being that the country witnessed an economic growth of just 0.77 percent.
To stimulate the country’s economy shattered by the two major upheavals — the earthquakes and border blockade — through accelerated post-earthquake reconstruction and other development projects, the government had presented its budget in June of last year, a month-and-a-half prior to the new fiscal year calendar. However, the budget implementation continued to remain ineffective.
While development planners and policymakers are quick to identify the hurdles in implementing the budget, they are often mum when asked about feasible solutions. Against this backdrop, the Ministry of Finance and National Planning Commission, the apex planning body of the government, has been initiating measures for the budget formulation of next fiscal 2017-18 to expedite project implementation. The formulation process governs the effectiveness of budget implementation, and this will be the litmus test for NPC and Ministry of Finance on whether they are able to address the bottlenecks that begin with the budget formulation process.
Project selection and allocation are critical to determine if the budget is implementable. The false practice of allocating resources without cross-checking the absorptive capacity of projects has been identified as the major cause behind slow project implementation as well. During the recently held meeting of National Development Action Committee, Prime Minister Pushpa Kamal Dahal urged finalising the modality of the Kathmandu-Tarai fast track project implementation. This fiscal year Rs 10 billion has been allocated for the project without the modality being finalized making it increasingly possible that the resource allocated for the project will not be spent. A large chunk of resource has been allocated for 353 big ticket projects, which are listed as priority 1 (P1) projects without project readiness. As per Min Bahadur Shrestha, Vice Chairman of NPC, budget implementation will always be weak if we do not do away with the existing trend of selecting projects and allocating resources randomly. Only selecting ready-for-implementation projects as P1 projects and allocating resources for components of the projects that can be completed within the given fiscal will be instrumental in improving Nepal’s budget implementation, according to Madhu Kumar Marasini, Chief of the Budget Division under MoF.
According to experts, the government needs to develop a project bank filtering projects based on project readiness so that the existing trend of budget allocation can be improved. Since a large chunk of the country’s development budget is financed by the development partners, which is around one-third of the total budget, slow project implementation is always a concern among the donor community. Through the project bank, the government can utilise development assistance hand in hand with the commitment of development partners, according to Baikuntha Aryal, Joint Secretary of the International Economic Cooperation Coordination Division under MoF, “The government should allocate resource for feasibility study, preparation of detailed project report, environmental impact assessment, land compensation and others and include such projects only in the project bank.”
Reportedly, the government has said that it will prepare special purpose vehicle (SPV) for critical projects namely fast track, Budhigandaki Hydropower Project, urbanization, smart city project, metro rail project to expedite the project implementation.
The introduction of an online system called Line Ministry Budget Information System (LMBIS) was expected to expedite the approval of various projects. However, the fact that the projects still need to be approved twice has defeated this purpose. The MoF and NPC can check details of the project and procurement plan in LMBIS during the budget making process. However, the same projects and procurement plans have to get a go-ahead from NPC yet again before allocated funds can be utilised after the budget is endorsed by Parliament. According to NPC, it is granting the approval for the second time based on the authority given by Financial Procedure Rules 2007 to approve central-level projects. In this regard, the MoF is preparing to include a provision in the appropriation bill of next fiscal to skip this procedural step, as per officials.
While the government needs to refurbish its institutional capacity, the state is also mulling over introducing carrot and stick policy or project implementing agencies.
Against the general assumption of lack of competent government staff hindering effective implementation of projects, MoF and NPC have stressed on capacity building of government employees and reward and punishment system as essential to deliver better outcomes. “To deliver better results we need to refurbish the institutional capacity of the executing agencies and capacity building of the government staffs will be instrumental to strengthen institutional capacity of the project executing agencies,” said Shrestha. It must be noted that delay in timely accounting and reporting of development projects affects timely disbursement of foreign aid funded projects.
Another critical aspect of proper execution of the budget is lack of intensive monitoring. The MoF has authorized its Monitoring and Evaluation Division to monitor the progress of big ticket projects and recommended the government to facilitate projects that spend above Rs 500 million, according to Madhu Marasini, Chief of the Budget Division under MoF. “Regular monitoring of the ministries that mobilise large chunk of the development budget at the central level and regular interaction with project chiefs has also been given top priority.”
The MoF from this fiscal has instructed ministries and line agencies to surrender the budget for this fiscal if any project is unable to make progress by the end of the second quadrimester (mid-March). Budget surrender provision in last quadrimester will prevent rampant misuse of fund in the last moment of the fiscal through delivering substandard work and also help efficient resource mobilisation of projects making good progress, shared Marasini. But experts mull that MoF and NPC should make line agencies responsible to spend the allocated budget instead of providing easy escape from the responsibility through budget surrendering of the projects that failed to make any headway till mid-March.