Fiscal federalism

Jun 26, 2018-

All three levels of government–federal, provincial and local—have presented their annual budget for the next fiscal year, whose implementation will begin from July 16.The first federal budget of Rs1.31 trillion while the seven provincial governments has announced budget of Rs206.77 billion for the fiscal year 2018-19. Budgets of all three governments have stressed on the development of industry, energy, tourism, and infrastructure, and propose a string of reforms in social and agriculture sectors. While the presentation of budgets by three-tier government is itself a good beginning for fiscal federalism, focus now should be on its effective implementation. With prosperity being the buzz word of the KP Oli government, timely execution of budgetary programmes is a must if the current government wants higher economic growth.  

In the past, successive governments struggled to present the budgets to Parliament on time, mainly due to political wrangling. With constitutional provision of unveiling budget on May 29, it was expected to improve the spending of capital expenditure. However, last two fiscal year’s records show not much improvement has been achieved to improve the sorry state of capital spending. With only three weeks left for the current fiscal year to end, the country’s capital spending stood only at 50.83 percent as of June 24.

This shows there are structural issues that need to be resolved to ramp up the capital expenditure. It is vital to spend resources allocated for major development projects on time to bridge the infrastructure gap, which is seen as a major constraint for Nepal’s economic growth. But successive governments have time and again failed to address this issue as delay and low spending has become a chronic problem.

Finance Minister Yubaraj Khatiwada while presenting the next fiscal year budget has talked about introducing much-needed reform in budget implementation which includes PM-led Project Implementation Directive Committee, amendment of Public Procurement Act and remodelling of mobilisation advances. The budget has also allowed the District Treasury Office to release funds by recognising programmes incorporated in the budget information system as approved schemes. Earlier, the National Planning Commission used to approve detailed programmes after the new fiscal year commenced, delaying the programme launch.

While all these measures are welcome steps, it is not clear how far-reaching these changes would be—especially given the relative roles of the three tiers of government. Although the provincial and the local governments are assigned with primary responsibility for the delivery of basic public services, they are not equipped with adequate resources as bulk of revenues is retained by the federal government. Also, there must be concrete plans to ensure major issues related to development projects ranging from land acquisition to timely release of funds among others.

Given the two-third majority government in place, it is high time that the government acted effectively to resolve these structural hurdles which have hit the country’s growth cycle severely. Oli government has a massive mandate and a great opportunity to redefine the country’s budgetary cycle, but it will not be  excused should it squander the opportunity.

Published: 26-06-2018 07:33

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