Fiscal year 2016-17, which will end on July 15, will be remembered as yet another year when the government failed to expedite construction of physical infrastructure that is much needed to spur economic growth. This has become apparent as the government is unlikely to meet its revised capital expenditure target of 84 percent of the total allocation for this fiscal year.

The government had allocated a budget of Rs312 billion for capital spending in the current fiscal year. This money should have been spent in civil works, and purchase of land, building, furniture, vehicles, plants and machinery, among others. But as of Saturday only 42 percent of this budget, or Rs130 billion, was utilised, show the latest data of the Financial Comptroller General Office.

In a country like Nepal with huge infrastructure gap, low capital spending creates a binding constraint on economic growth. This not only delays the process of raising living standard of people, but keeps private investment at bay, as greater public spending, especially capital spending, crowds in investment from the private sector.

The government very well knows this. But it always fails to fully utilise budget earmarked for capital spending.

“We have been persistently telling various ministries to ramp up capital spending. But they have not been able to meet much success,” said Finance Secretary Shanta Raj Subedi.

The government had realised that it would not be able to fully utilise total budget allocated for capital expenditure in the first half of this fiscal year. That was when the capital spending target was revised downwards to 84 percent of the total allocation.

“But, it appears, we won’t be able to meet the revised target of 84 percent as well,” said Subedi.

Multiple factors have been playing a role in dragging down government’s capital spending. One is weak planning.

To make improvement in this area, the Ministry of Finance and the National Planning Commission have now started holding discussions with line ministries before including a project or programme in the annual budget. Unfortunately, this system is not foolproof. As a result, some of the projects or programmes are added to the fiscal policy in the last minute without conducting any homework.

One such instance is inclusion of a plan in next fiscal year’s budget to expand the runway and parking bay at Tribhuvan International Airport by building a tunnel under the existing Koteshwor-Suryabinayak road segment.

Although the plan sounds feasible, it was included in the budget without consulting the Ministry of Civil Aviation, according to ministry officials, albeit the Ministry of Finance has refuted the claim. This means feasibility study of the project has not been conducted, which indicates funds allocated for the project will not be utilised in the next fiscal year. These types of problems prevent the government from fully utilising the capital budget.

Other problems for low capital spending include delay in preparation of detailed project design, land acquisition, establishment of project management offices and preparation of procurement plans.

Because of these delays, capital expenditure generally tends to bunch towards the last quarter of the financial year.

In the last fiscal year, for instance, about 70 percent of the budget allocated for capital expenditure was used in the last three months of the financial year and 49.4 percent was spent in the last month of the year. The trend was the same a year ago when about 63 percent of the capital budget was utilised in the final quarter and 44 percent in the last month.

This kind of spending raises chances of development of sub-standard projects, which tends to push up maintenance costs.