The Public Expenditure Review Commission has called for systemic reform in the overall budgetary system so that there is result-oriented public expenditure. “Systemic reform involves making amendments to the set standards and improvements in the project selection criteria and budget disbursement procedure,” commission Chairman Dilli Raj Khanal said Thursday. 

Implementing projects without proper planning and preparation, disregarding government standards and inappropriately prioritising projects are among the major reasons behind delays in the construction of development projects and poor utilisation of capital expenditure, according to a preliminary report released by the Public Expenditure Review Commission.

The government has been criticised for failing to fully spend the capital budget almost every year. Capital expenditure had reached a mere 12.46 percent as of mid-December. The Financial Comptroller General Office said that only Rs39.11 billion had been spent out of the Rs313 billion capital expenditure budget for the current fiscal year. The Cabinet on August 19 formed the commission under the leadership of Khanal to look into flaws in the overall budget system—budget formulation, resources allocation, project preparation, selection and execution, and timely accounting and reporting. The five-member commission consisting of senior officials of the Finance Ministry is mandated to submit its report by January-end.

Khanal said higher costs and time overruns were the major challenges for development projects. Rampant transfer of funds from one heading to another at the end of the fiscal year was among the main fiscal discipline violations. “There are increasing cases of demanding reimbursement of expenditure towards the end of the fiscal year.”

The commission has recommended restructuring the National Planning Commission and the Election Commission as part of systemic reform of the budgetary process. The government has formed the Medium Term Expenditure Framework to coordinate the periodic plan and the annual budget, but government agencies hardly adhere to the system. 

The framework has considered determining the suitability of projects proposed in the periodic plans. Similarly, analysing the sectoral need of the proposed projects and allocating adequate budgets for them come under the framework. “There is a need to develop a performance framework that will help integrate the outcomes with the national objectives. In addition, the new system will also require the concerned agencies to create a work plan before implementing the project,” Khanal said. 

The commission has cited the poorly defined separation of recurrent expenditure and capital expenditure for the failure to utilise resources effectively. Currently, the government classifies the budget as per the Government Finance Statistics Manual of the International Monetary Fund.

The manual has put a number of capital expenses under recurrent expenditure, said Suresh Pradhan, former financial comptroller general and a member of the commission. “This has led to the misuse of government funds,” said Pradhan, stressing the need to reclassify the government expenditure pattern.