Country's gross fixed capital formation low
KATHMANDU:
The country’s gross fixed capital formation (GFCF) as percentage of gross domestic product (GDP) is below the average of least developed countries (LDCs), indicating much of the financial resources are being exhausted on consumption rather than on accumulation of physical assets required to boost production and raise economic growth.
The country’s GFCF averaged 21.2 per cent between 2004 and 2013, as against LDC average of 24 per cent, shows the Asian Development Outlook 2015, which was released here today by the Asian Development Bank (ADB). The GFCF of middle-income nations stands at 29 per cent of GDP.
“The country’s gross fixed capital investment has to be raised to at least 30 per cent from the existing level to support higher economic growth,” says the latest ADB report titled ‘Financing Asia’s Future Growth’.
Nepal’s GFCF has remained dismal because of low allocation of budget for public capital spending, which includes government spending on civil works and purchase of land, building, furniture, vehicles, plants and machinery, among others. Worse, the government fails to fully utilise the allocated funds.
The average planned capital expenditure of the government stood at 5.6 per cent of GDP in the past four years, but actual spending in that period averaged 3.3 per cent of GDP. Capital expenditure is expected to remain weak this fiscal as well, as only 22 per cent of Rs 116.75 billion allocated for the purpose was utilised after eight months into the financial year.
This indicates the government has time and again failed to fully use allocated funds on time, while dozens of crucial projects like second international airport in Nijgadh, Kathmandu-Tarai fast track and several irrigation and hydropower projects are yet to be completed.
“Given Nepal’s huge infrastructure financing needs, budgeted capital spending is insufficient in itself to bridge the infrastructure deficit in critical sectors such as energy, transport, water supply, sanitation, irrigation and telecommunications,” says the ADB report. If the country languishes behind in spending the paltry amount allocated for capital spending, it may never be able to close the infrastructure gap, which is needed for sustainable economic growth.
“Capital spending, therefore, must be accelerated to scale up infrastructure investments and to attract the private investment needed for Nepal to attain higher economic growth that is both sustainable and inclusive,” adds the ADB report.
It is said the country needs capital spending of 8.2 per cent to 11.8 per cent of the GDP per year until 2020 to close the infrastructure gap. Yet, problems like ‘bureaucratic hassles over project approval, lack of project readiness, inherent weaknesses in procurement processes and contractors’ capacity, political interference and frequent staff turnover’ have hampered project implementation.
To tackle these challenges, the government, earlier this year, said it would shorten project approval processes so that projects could be implemented at an earlier date. It has also started the process of amending the Public Procurement Act.
Also, the National Planning Commission and the Ministry of Finance have asked different ministries to conduct pre-feasibility study of projects before incorporating them in the annual budget programme.
This means ministries from now on will have to clearly mention when the project will be implemented, how long it will take to complete the project, challenges in implementation of the project, estimated cost of
the project and how funds would be spent over the years. This provision is expected to make budget formulation process scientific.
Source: THT
