The government’s savings has soared to a startling Rs207 billion, as it has failed to channel tax and nontax income towards development activities.

The government’s treasury surplus has been widening lately as revenue collection has remained robust this fiscal year, while expenditure, especially capital expenditure, has been lagging behind, Trilochan Pangeni, head of Public Debt Management Department at the Nepal Rastra Bank, the central bank, told the Post.

The government’s tax and non-tax receipts jumped 81.5 percent in the first four months of the current fiscal year to Rs168 billion due to hike in consumption in the aftermath of the Indian trade blockade. In the same period a year ago, the government’s tax and nontax income stood at Rs92.6 billion.

This surge in revenue collection, however, has not been matched by expenditure.

Since the fiscal year began in mid-July, the government has only spent 22.5 percent of its annual budget of Rs1,048.9 billion, show the data of the Financial Comptroller General Office. What is even dismal is the pace of capital expenditure. So far this fiscal year, the government has utilised only 9.1 percent of the capital budget of Rs312 billion.

“Because of this slackness in capital spending, earnings of the government have remained locked up in the vault,” said Pangeni.

The government’s inability to make timely use of capital budget not only hinders development activities, such as construction of physical infrastructure-which is needed to give impetus to economic growth-but also creates liquidity crunch in the banking sector.

Some of the banks have now started calling on NRB to come to their aid, as they are facing severe cash shortage. These banks say they would not have to make this appeal had the government utilised capital budget on time.

Capital spending generally reduces credit volume at banks because contractors, who have borrowed money to implement various government projects, start repaying the debt. Likewise, payments made by contractors to various parties following release of government funds raise the stock of deposit at banking institutions.

Considering these impacts, many have long been calling on the government to enhance its fund absorptive capacity and overhaul the public financial management system, so that capital spending could go up.

The government should also ramp up capital spending because the country faces a big infrastructure gap.

As per the World Bank, Nepal needs to invest up to US$18 billion in infrastructure projects by 2020 to avoid possible binding constraint on economic growth.

Of the total amount, up to $7 billion should go to the energy sector, up to $5.5 billion to the transport sector, up to $2.6 billion to the water supply and sanitation sector and up to $2.3 billion to irrigation sector.

If the government starts investing in these sectors, it will start crowding-in private investment because public spending works as a catalyst in raising private investment in Nepal.