Government navigates fiscal challenges amidst evolving economic landscape

KATHMANDU: In the initial half of Fiscal Year 2023/24, the Government grapples with fiscal constraints, witnessing a significant shortfall of approximately Rs. 79.34 billion between total receipts and expenditures. This marks a notable deterioration from the Rs. 5 billion gap recorded at the end of the first quarter in mid-October last year.

Despite proactive initiatives and directives from Finance Minister Dr. Prakash Sharan Mahat aimed at optimizing budgetary performance, the outcomes have proven less than promising.

Dr. Mahat had allocated a budget of Rs. 1751.31 billion for the current fiscal year, with revenue estimates pegged at Rs. 1422.54 billion. However, the actual revenue falls short, experiencing only a marginal Rs. 19 billion increase from the previous fiscal year (2022/23). Last year, the government achieved only 68 percent of its revenue target, contrasting sharply with the 90 percent success rate in 2021/22.

While a comparative analysis reveals a narrowed gap in the current fiscal year compared to the preceding one, fiscal challenges persist. In the same period last year, the gap between receipts and expenses amounted to Rs. 105.54 billion.

Government income has notably plummeted to 37.34 percent of the total target this year, a stark contrast to 50.39 percent two years ago and 45.66 percent three years ago. Despite consistent government expenditure levels, remaining at 34-36 percent in the first six and a half months of the last three years, challenges in revenue mobilization hinder the financing of crucial development projects.

The dip in revenue, both in tax and non-tax sectors, poses challenges in financing development works, leading to delayed payments to contractors. Prime Minister Pushpa Kaman Dahal Prachanda intervened, instructing the Finance Ministry to expedite the clearance of dues, totaling around Rs. 46.3 billion, as confirmed by the Federation of Contractors Association of Nepal (FCAN).

On a positive note, the utilization of the development budget has seen a slight improvement this year, with 19.12 percent of the allocated Rs. 302 billion capital expenditure already mobilized. This represents an uptick from the 15-16 percent range observed in the past three to four years.

Recent government expenditures include Rs. 57.7 billion for development projects and Rs. 90.4 billion (30 percent of the annual estimate) dedicated to loan servicing.

Economists warn that traditional revenue sources are diminishing, urging the government to explore alternative avenues. They emphasize the growing impact of transformative economic shifts, particularly in the vehicle and human resource markets, driven by technology and Artificial Intelligence (AI).

As per experts, addressing these challenges is imperative to secure fiscal stability in the face of an evolving economic landscape.