Government expenditure in the developing countries plays a crucial role for the development of the infrastructure, creation of jobs, foster liquidity and boost aggregate demand. It is even more important in the context of Nepal since the share of private sector in the infrastructural development is yet to be satisfactory. The constitution of Nepal 2015 has declared Nepal as a socialism oriented economy and the country is currently led by the political party with socialism and communist ideology, although they have welcomed the open market economy in general. Thus, the government spending, especially the capital expenditure is a very important indicator of economic prosperity of the nation.

Capital expenditure of the government is not satisfactory even after the implementation of federalism with the aims of decentralizing power and fostering balanced economic development. Capital expenditure of the fiscal year was Rs. 88.84 billion as the actual to allocated capital spending remained 77 percent on an average from the fiscal year 2011/12 to 2014/15. Capital spending to GDP during the same period was around 4 percent. The size of the government budget has almost doubled so does the recurrent expenditure in the last five years from 2015/16 to 2019/20. But the capital spending of the government remained the average of 66 percent of the allocated budget during the same period. The size of capital spending in terms of GDP remained stable, below 10 percent.

Capital Expenditure Pattern of Nepal Government
Fiscal year 
2015/16
2016/17
2017/18
2018/19
2019/20
Budget (in billion NPR) 
819.47
1048.92
1279 
1315.16 
1532.97  
Actual Current expenditure (in billion NPR )
371.29
518.62
696.92
716.42
786.53
Actual capital expenditure (in billion NPR) 
123.25
208.748
270.71
241.56
191.77 
Actual/ Projected capital spending 
59.01 %
66.91 %
80.8 %
76.9 %
47 %
Capital expenditure to GDP 
5.5%
7.8 %
8.9 %
7 %
5.43 %
Sources: Ministry of Finance: Economic survey, Financial Controller General Office (Daily records), Office of Director General (Annual Report) 

The pattern of capital expenditure remained almost the same before and after federalism although the size of expenditure has increased almost three fold. Capital spending of 2019/20 remained just 47 percent against the expenditure of 77 percent in the previous year. Even the majority of the spending happened in the eleventh hour of the fiscal year to end. Out of 408 billion of allocated budget for capital expenditure for 2019/20, only 52 billion were spent in the first half of fiscal year. The capital expenditure up to 8 months was 96.48 billion. A total of 64 billion was spent in the last month of fiscal year, 33 percent of actual capital expenditure. As per the data by the Financial Comptroller General Office, from the fiscal year 2014/15 to 2018/19 an average of 40 percent of total capital expenditure was made in the last month of fiscal year.

Last hour's rush on expenditure resulted in poor quality of construction works. Different experts have opined the various reasons behind consistently lower capital spending of the government. Programs of the government were largely guided by the political motto rather than the detailed project study. Spending of the national pride projects remained less than 20 percent of the allocated budget as the progress of those pride projects is largely pessimistic. Budget allocated for few projects remained consistently idle as those ambiguous plans show almost no progress even for a decade. Government is yet to provide full shape to the legal framework affecting the implementation of development works. Efficiency of the local government on spending capital budget is even worse due to the delay on delegating authorities from the central government, lack of efficient human capital, expertise and experience.

Government of Nepal has already started to announce the budget one and half month prior to the fiscal year actually starts, but the expenditure is not encouraging. In between the economic turmoil caused by the COVID 19 the government of Nepal for the fiscal year has allocated Rs. 352.91 billion, 23.9 percent of total budget of 1474 billion, for capital expenditure. Thus, careful planning and fiscal discipline is needed to boost the expenditure as well as the quality of work. Necessary laws and policies should be formulated very soon as it is almost five years of enacting a new constitution. Centralization of the authorities is against the spirit of federalism reducing the capacity of spending and monitoring of the projects. The coordination among the different ministries and concerned authorities need to be improved. Experts also have suggested improvements on procurement act and the spending policy of the government. Moreover, the progress of national pride projects is substantially important to boost the capital expenditure and infrastructural development.


Sources of Data