Recurrent expenditure ‘higher than tax revenue’

- POST REPORT, Kathmandu
Recurrent expenditure ‘higher than tax revenue’

Sep 7, 2014-

The Nepal government’s tax revenue is inadequate to meet its recurrent expenditure despite a surge in collection in recent years, said the Asian Development Bank (ADB) in its latest Macro-Economic Update report.

In the last fiscal year 2013-14, recurrent expenditure exceeded tax collection by

Rs 4 billion.

“The ballooning recurrent expenditure is a matter of concern,” said the ADB. The country’s tax revenue in the last fiscal year was Rs 312.6 billion while recurrent expenditure reached Rs 316.6 billion. The government’s total revenue collection amounted to Rs 354.5 billion, said the report.

In the previous fiscal, recurrent expenditure was almost equal to tax revenue. The government mobilizes internal loans, foreign loans and grants to make up the resource deficit.

The report says that recurrent spending, which usually goes into the salaries and pensions of government employees and social sector-related obligations, has been growing faster than tax revenue for the last three years.

“Rationalization of recurrent expenditure is required to create the fiscal space needed to enlarge allocations for capital expenditure,” said the report.  

“Although capital spending allocations can be enhanced through increased domestic and international borrowing in the short and medium terms, strengthening revenue mobilization and rationalizing recurrent expenditure in the long-term will be needed to reduce the dependence on increased loans.”

According to the report, tax revenue against the gross domestic product (GDP) also rose over the last eight years. In fiscal 2005-06, the tax revenue against the GDP was 8.8 percent which doubled to 16.2 percent in fiscal 2013-14. According to the ADB, the figure is one of the highest in South Asia.

On the other hand, the poor spending pattern of capital expenditure continued in the last fiscal year too. Capital spending reached just 3.3 percent of the GDP, marginally higher than the 3.2 percent posted in the previous fiscal year, said the ADB.

Nepal needs to drastically increase capital spending both in quantum and quality to address the large infrastructure deficit to set the foundation for graduation from LDC to developing country by 2022, said the ADB. The infrastructure deficit has been financially estimated to be 8-12 percent of the GDP annually until 2020.

ADB Country Director for Nepal Kenichi Yokoyama said on Sunday that meeting the target was still possible but that massive efforts would be needed. “There should be political stability and a clear roadmap on capital expenditure and investment in infrastructure.”

Lack of project readiness, in terms of timely preparatory activities such as detailed project design, land acquisition, establishment of project management offices and required personnel, and procurement plans; delays in project approval and budget release; delays in procurement-related processes and the overall weak project planning and implementation capacity are responsible for the low capital spending, said the report.

Even with respect to capital expenditure, land purchases declined 48.2 percent faster than the rate of decline in the previous fiscal indicating the difficulties surrounding land acquisition for infrastructure projects.

The expenditure for civil works increased just 11.2 percent reflecting delays in approval and procurement.

Published: 08-09-2014 09:39

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