Tomnath Upreti
Under-Secretary, Government of Nepal
The prosperity of the nation is determined by the infrastructure built by the budget, the productive capacity created and the development assets handed over to the future generations. For this reason, capital expenditure is considered to be the most strategic dimension of public finances. Current expenditure runs the state. Capital expenditure builds the nation. Current expenditure sustains the present. Capital expenditure lays the foundation for the future. Therefore, capital expenditure is not only an economic indicator but also a reflection of the farsightedness, administrative capacity and political will of the state.
In the fiscal year
2082÷83, the government of Nepal initially allocated Rs. 407.88 billion for capital expenditure. But by the end of the fiscal year, only Rs 190 billion was spent, which is 46.79 percent of the initial target.
Although the revised target was set at Rs 243
.30 billion from the half-yearly review, it could not be achieved. In terms of amount, this is the lowest expenditure in the last six years. In percentage terms, capital expenditure was limited to 12 percent of the total expenditure of the federal government, which is the lowest proportion in the available historical records.
This figure is indicative of the structural crisis of the public financial system. The state is spending the resources it needs to invest in the future on current consumption. Slowing growth, weakening productivity, declining private sector investment, lack of job creation and lack of expansion of revenue base are the long-term consequences of this.
The philosophical basis of capital expenditure is linked to the development of human civilization. Aristotle said that the purpose of the state is to provide a quality of life to its citizens. Modern public economics explains this concept through investment in infrastructure, education, health, technology, and public assets. John Maynard Keynes saw public investment as a means of creating demand during the Great Depression. Paul Romer’s theory of interracial growth identifies knowledge, innovation, and investment in infrastructure as the key drivers of long-term economic growth. Amartya Sen described development as an extension of freedom, which can only be achieved through roads, schools, hospitals, energy, communications, and safe public infrastructure.
Therefore, the value of capital expenditure is not limited to the buildings or roads that are immediately visible. Its real value lies in future productivity, competitiveness, private investment attraction, social inclusion, and intergenerational justice. Today’s capital expenditure is tomorrow’s national asset. The unspent capital budget today is a lost opportunity for tomorrow.
The problem of capital expenditure in Nepal is a structural crisis linked to the development management of the state.
Statistics of the last three decades show that the average annual capital expenditure has been around 60 percent. For some years, Nepal has consistently fallen short of the 85-90 per cent implementation capacity required for a developing economy, even though spending has reached 65 per cent.
This clearly indicates that the problem is not in the size of the budget but in its implementation system. It was not unusual for the capital expenditure to fall to 46 percent in the fiscal year 2019÷77 when construction work was halted due to the COVID-19 pandemic. But the lack of expected improvement even after the end of the pandemic has proved that the problem is institutional, not temporary.
The situation in fiscal year 2082÷83 is even more serious. It is a serious question on the development administration of the state that capital expenditure has been limited to 46.79 percent even in the absence of an extraordinary crisis like the pandemic. What is even more worrisome is that the actual expenditure has also come down to Rs 190 billion from about Rs 222 billion in the previous fiscal year. This means that the institutional capacity to use the resources allocated by the government for development is weakening.
However, the total
government expenditure has not decreased. In the fiscal year 2081÷82, the government had spent about Rs 1.523 trillion, which has increased to Rs 1.583 trillion in the current fiscal year. That is, the state’s expenditure has increased, but the share of development has decreased. The current expenditure has reached Rs 1045 billion while Rs 347 billion has been spent on loan repayment and financial management. This shows that the structure of public finance is gradually becoming consumption-oriented and debt-dependent.
The revenue side is also not encouraging. The government had set a target of collecting Rs 1,480 billion in revenue, but only Rs 1,224 billion was collected, which is 82.76 per cent of the target. Although the revenue increased by seven percent compared to the previous year, it could not reach the expected level. The main reason for this is the weak flow of investment into the economy. When capital expenditure decreases, economic activity slows down in all sectors such as construction, industry, transport, trade, services, employment and consumption. This has a direct impact on the tax system.
The gap between the government’s income and expenditure has also increased.
By the end of the fiscal year, the total income of the government has reached Rs 12.64 trillion while expenditure has reached Rs 1.583 trillion. As a result, the government fiscal deficit has exceeded Rs 358 billion. If this trend continues, the risk of public debt rising, a large share of interest payments will be lost, and the financial space available for growth will shrink.
Government officials have presented various reasons for the low capital expenditure. The Gen-G movement, the subsequent elections to the House of Representatives, three changes in government, the shortage of construction materials including bitumen due to the conflict in the Middle East, price hike, problems in the mobilization of contractors and administrative obstacles have been cited as the main reasons. While it is acceptable that these factors have affected implementation for some time, they do not cover up long-term structural weaknesses. This trend has multi-dimensional negative effects on the economy. When capital expenditure falls, the private sector does not get the required infrastructure, productive investment slows, demand in the construction and service sector decreases, and the multiplier effect of economic growth weakens.
As a result, job expansion is stunted, government revenue collection is pressured, and the goals of development and prosperity are continually pushed back. Therefore, Nepal’s problem is not the lack of budget, but the inability of the government to convert the budget into quality development on time. Unless structural reforms are made in project selection, public procurement, inter-agency coordination, project management and accountability systems, the excitement of announcing the budget every year will be limited to the dismal statistics of low capital expenditure at the end of June.
The real problem starts at the stage of budgeting. Projects that have not completed detailed feasibility study are included in the budget. Land is not available. Environmental clearance is pending. The design keeps changing. There is a delay in the contracting process. The public procurement process is complicated. Inter-ministry coordination is weak. There is a lack of skilled manpower in project management. The selection of contractors is based on minimum cost rather than quality. Dispute resolution is delayed. As a result, an unhealthy tendency to spend in a hurry develops in the last month of the financial year.
Development economics calls this situation an implementation deficit. The policy is right, the budget is adequate, but the implementation capacity is weak. The problem in Nepal is the lack of institutional capacity more than the lack of resources.
The impact of capital expenditure is multidimensional. First, it creates direct jobs. Second, it increases demand in the construction materials, transport, banking, industry and service sectors. Third, it attracts private investment. Fourth, reduce the cost of production. Fifth, reduce regional inequality. Sixth, expand export capacity. Seventh, it expands the long-term tax base. Therefore, capital expenditure is considered to be a multiplier engine of economic growth.
International experience also confirms this. South Korea made steady public investment in roads, ports, energy, and industrial infrastructure from 1960 to 1980. This made private industry competitive. Singapore developed ports, airports and digital infrastructure as national strategies. China made historic leaps in production, trade, and jobs through huge public investments in high-speed railways, industrial corridors, and urban infrastructure. Vietnam attracted foreign investment by linking export-oriented industrialization with infrastructure. Rwanda has significantly improved the quality of spending through project management reforms, digital public procurement and an outcome-oriented budgeting system despite limited resources.
These countries had the same characteristic. They made the budget a development agreement, not a political manifesto. The selection of the project was based on facts. The budget was allocated only after the completion of the preparations. Progress was monitored digitally. Responsibility clarified. The deadline was tightened. Success was more important than cost.
The time has come for Nepal to adopt these principles. First, the project must be fully operational. Only those projects that have completed study, design, environmental clearance and land management should be included in the budget. Second, annual political interference in multi-year projects must end.
Third, the Public Procurement Act should be made time-consuming, simple, transparent and result-oriented. Fourth, a digital project monitoring system should be implemented and the real-time progress of each project should be made public. Fifth, the performance appraisal of ministries, departments and project heads should be linked to the outcome of the project, not the percentage of the expenditure.
To improve the effectiveness of Nepal’s capital expenditure, it is imperative to institutionalize internationally certified public financial management tools such as performance-based budgeting, result-oriented budgeting system, cost-effectiveness testing, lifecycle cost analysis, and public investment management evaluation, while realizing the medium-term expenditure structure.
These measures help ensure not only the quantity of budget spending, but also its quality, sustainability and development returns. These public investment management practices recommended by the World Bank, the International Monetary Fund and the OECD have significantly increased the spending efficiency of developing countries.
In the context of Nepal, the financial dimension of federalism also needs to be reviewed.
It is natural that the capital expenditure at the federal level will decrease as the grants that go under the current expenditure of the federal government are converted into capital expenditure at the provincial and local levels. However, the effectiveness of overall public investment at the federal, provincial and local levels has not yet reached the expected level. This highlights the need for improvement in multilevel coordination, project selection and financial discipline.
The question of capital expenditure is ultimately more of a moral question than an economic one. When resources allocated for development are not spent, it is the price of incomplete roads, sick hospitals, closed schools, unemployed youth, weak industries and lost national opportunities. Every rupee that is not spent is preventing potential production, potential jobs, and potential prosperity.
Nepal is now standing at the juncture of financial transition. On the one hand, there is rising debt, rising current expenditure and limited revenue base. On the other hand, there is sluggish capital expenditure, poor project management and declining growth momentum. If this trend continues, economic growth prospects, private sector confidence and the state’s growth capacity will all suffer.
Therefore, it is not enough to increase capital expenditure, it should be made qualitative, timely and result-oriented.
Nation building can be done not by announcing the budget, but by implementing the budget. The real success of public finance is measured not by the amount spent, but by the future it creates. Nepal must now move from a culture of expenditure to a culture of results. Only this transformation can transform public investment into a sustainable foundation for national prosperity.
प्रतिक्रिया दिनुहोस्
