The government has decided to extend spending authority to all the ministries a day after the budget is presented in Parliament to expedite public spending, especially capital spending.

The constitution promulgated in September 2015 makes it mandatory for the government to present annual budget on the 15th day of Nepali calendar month of Jestha (May 28). Based on this provision, the budget of this fiscal year was presented on May 28.

Despite introduction of the budget at an earlier date, ministries were given the authority to spend the money allocated through the budget only on the first day of this fiscal year in mid-July, or one-and-a-half months after the budget was presented in the House.

“This, we believe, is one of the reasons that delayed capital spending this year,” said Min Bahadur Shrestha, vice chairman of the National Planning Commission (NPC), the apex body that frames the country’s development plans and policies.

The government has so far been able to spend only around 19 percent of the capital budget of Rs312 billion. Such a low spending even after around eight months into this fiscal year has drawn criticisms.

Although there are many reasons for slow capital spending, such as lack of project readiness, delay in initiation of procurement process, frequent change in project staff and problems in land acquisition, the government hopes the decision to extend spending authority a day after presentation of the budget will prop up expenditure. 

“Low capital spending has become a chronic problem. We believe the practice of allowing ministries to spend allocated budget at an earlier date will address the problem to some extent,” said Shrestha, adding, “To address the problem of low capital spending, we have also decided to cut short the budget implementation process by abolishing the practice of seeking NPC’s permission before rolling out projects and programmes incorporated in the budget.”

Currently, all the ministries have to get NPC’s approval prior to implementing central-level projects. Such permission needs to be taken because of provisions in the Financial Procedures Rules and the Financial Administration Regulation. These provisions, however, prevent the government from implementing budgetary programmes from the first day of the fiscal years.

“We will amend these regulations if there is need,” said Shrestha. “And to make sure ministries do not have to reach out to the NPC to implement projects and programmes, we will also include a provision on this in next fiscal year’s budget document, which is a law in itself.”

Government’s capital expenditure includes spending on civil works, and purchase of land, building, furniture, vehicles, plants and machinery, among others. In a country like Nepal with huge infrastructure gap, low capital spending creates a binding constraint on economic growth, delaying the process of raising living standard of people and sharing prosperity.

To expedite capital spending, the Finance Ministry, from now onwards, will also automatically approve projects and programmes sent using Line Ministry Budgetary Information System (LMBIS), the software introduced to make budget planning process scientific and ensure funds are not allocated for various development projects in a haphazard manner.

Projects and programmes are incorporated in the LMBIS after tripartite consultation between the NPC, the Finance Ministry and the line ministry responsible for rolling out those projects and programmes.

The LMBIS, introduced over two years ago, makes it mandatory for ministries to clearly mention timeline for project implementation, time that would take to complete the project, challenges in implementation of the project, estimated cost of the project and expenditure plan over the years. Yet many ministries submit programmes in a haphazard manner, ultimately delaying project implementation.