The government’s balance sheet will show sharp rise in recurrent spending in the next fiscal year due to huge transfer of funds to local bodies, albeit this should not be interpreted as rapid deterioration in fiscal discipline, the Ministry of Finance has said.

The announcement comes a week ahead of the presentation of the budget for 2017-18 in Parliament (on May 29), although the ministry is yet to allocate funds for local bodies.

All the funds transferred to the local bodies are enrolled as grants in the government’s balance sheet. And all forms of grants are considered as recurrent spending.

Since the government has recently decided to empower local bodies by extending them authority to frame annual budgetary programmes and conduct spending on their own, all funds transferred to local bodies in the next fiscal year will be labelled as recurrent spending in the central government’s balance sheet.

“What should be noted is 60 to 70 percent of the grants extended to local bodies will be spent to carry out capital works,” Finance Secretary Shanta Raj Subedi told an interaction organised by the Society of Economic Journalists Nepal on Monday. “Despite this, we cannot refer to those spending as capital expenditure, because grants, as per out accounting system, must be enrolled as recurrent expenditure.”

Hike in recurrent expenditure is generally frowned upon as such spending is considered “unproductive”. A big chunk of recurrent spending includes salary and allowance payment to civil servants, subsidies and grants.

The government has always been criticised for increasing the size of its recurrent budget, while being unable to utilise funds allocated for capital spending.

Government’s capital expenditure includes spending on civil works, and purchase of land, building, furniture, vehicles, plants and machinery, among others. Timely and quality capital spending is a must for a developing country like Nepal which lacks critical physical infrastructure, like hydroelectric projects, transmission lines, irrigation projects, airports and roads. Investment in these areas helps attract private investment, creates jobs and accelerates economic growth.

But Nepal always fails to fully utilise its capital budget. In the last fiscal year, only 76 percent of the budget allocated for capital spending was utilised. This year, this rate is expected to stand at 84 percent.

“Although the rate of capital spending did not pick up this fiscal year, our capital expenditure as of mid-May stood at 3.8 percent of the gross domestic product, which is the highest till date,” Subedi said.

Capital spending, according to Subedi, would have gone up significantly in this fiscal year had the National Reconstruction Authority (NRA) used all the allocated funds.

Almost 26 percent of the capital budget of this fiscal year was allotted to the NRA, the apex body that is overseeing post-earthquake reconstruction works. “But the authority so far has utilised only 4 percent of the funds,” Subedi said.

Government officials expect capital expenditure to go up in the next fiscal year, as various ministries will be given spending authority right after the budget is presented in Parliament on May 29. This means government agencies will have access to capital budget allocated for the next fiscal year one-and-a-half months prior to the commencement of 2017-18.

“But capital expenditure may slow down if provincial and federal elections are held in two phases, as election code of conduct bars capital spending for a 45-day period before every poll is held,” said Subedi, stressing on the need to hold provincial and federal elections in a single phase to ramp up capital spending.

‘Budget won’t include new programmes’

KATHMANDU: Deputy Prime Minister and Finance Minister Krishna Bahadur Mahara has said the budget of the next fiscal year will give continuity to policies and programmes of the current fiscal year, as the Election Commission has barred the government from announcing new plans until the local elections are over.

“The only new thing in the budget will be fiscal transfer to local bodies, so that they can prepare their own budgetary programmes and spend accordingly,” Mahara told an interaction organised by the Society of Economic Journalists Nepal on Monday. “Adequate funds will also be allocated for post-earthquake reconstruction and national pride projects.”

The budget of the next fiscal year will also make minor changes to tax rates and duties, Finance Secretary Shanta Raj Subedi told the Post on the sidelines of the programme. (PR)