Govt sitting on Rs 78 bn‚ capital spending fails to pick up

KATHMANDU:

The amount of idle cash with the government has more than tripled since the beginning of this fiscal year as income generated from tax sources have not been fully utilised for development activities.

Nepal Rastra Bank is sitting on Rs 77.84 billion as against Rs 22.63 billion recorded in mid-July because of the government’s higher revenue collection this fiscal and mandatory provision to deposit first instalment of income tax by mid-January.

As per the Income Tax Act, 40 per cent of the projected income tax for a year has to be paid by mid-January. This provision led the government’s treasury to bulge from Rs 45.85 billion in mid-December to Rs 77.84 billion in mid-January.

“Collection of such a huge amount of cash is not a bad thing, as it shows the country has adequate financial resources. But the government has not been able to use these funds in a productive manner,” CEO of Sanima Bank Bhuvan Kumar Dahal said.

The government has not been able to make use of excess funds, as capital spending has remained low this fiscal.

The statistics of the Ministry of Finance show capital expenditure standing at Rs 11.46 billion in the first six months of the fiscal. This amount is only 13.5 per cent of the Rs 85.10 billion allocated for capital budget this fiscal.

Ironically, such a low capital spending has been reported when annual budget was introduced on time.

Low capital spending hurts development endeavours of the country, as it shows not much is being invested to construct roads, power transmission lines, irrigation projects and hydropower plants, among others. This ultimately affects growth of the jobs market, as many of the projects that utilise capital budget require large number of human resources during construction phase.

While low capital spending is preventing the government from meeting its development objectives, it has lately started troubling banks as well, as delay in implementation of development projects has lowered demand for loans.

“Usually when development activities pick up, contractors start demanding credit from banks to import equipment and materials,” Dahal said. “Since this is taking place at a relatively slow pace, banks are now flush with cash.”

Commercial banks are sitting on idle cash of around Rs 60 billion, which is generating no income at all. Since banking institutions earn most of the income by selling money bought in the form of deposits from firms and individuals, profit of banks is likely to be hit this fiscal.

Source: THT