Tax revenue is inadequate to meet the country’s recurrent expenditure despite a surge in revenue mobilisation in recent years, according to Asian Development Bank (ADB).
“The ballooning recurrent expenditure is a matter of serious concern,” said the ADB’s Macro-Economic Update report. The tax revenue in the last fiscal year 2013-14 stood at Rs 312.6 billion, while recurrent expenditure touched Rs 316.6 billion – some Rs 4 billion more than the tax revenue. “The government’s total revenue mobilisation stood at Rs 354.5 billion, the report read, adding that the government mobilized domestic borrowing, foreign loans and grants to make up deficit resource.
Likewise, the report further stated that recurrent spending – that is regular salaries and pensions of government employees and social sector-related obligations – has also been growing faster.
It also asked to rationalise recurrent expenditure to create the fiscal space needed to enlarge allocations for capital expenditure. “Although capital spending allocations can be enhanced through increased domestic and international borrowing in the short and medium terms, strengthening revenue mobilisation and rationalising recurrent expenditure in the long-term will be needed to reduce the dependence on increased loans,” it said, adding that tax revenue against the gross domestic product (GDP) also increased over the last eight years. In the fiscal year 2005-06, the tax revenue against the GDP stood at 8.8 per cent that doubled to 16.2 per cent in the last fiscal year 2013-14. “It is one of the highest in South Asia.”
The ADB report also highlighted poor spending of capital expenditure. “In the last fiscal year too capital spending reached just 3.3 per cent of the GDP, marginally higher than the 3.2 per cent a fiscal year ago, the ADB report added, suggesting to drastically hike capital spending both in quantum and quality to address the large infrastructure deficit. “It is very important to lay the foundation for graduation from LDC by 2022.”
The country has to spend around eight per cent to 12 per cent of the GDP annually until 2020 to meet the infrastructure deficit. “The country should also have political stability and a clear roadmap to expedite capital expenditure and investment in infrastructure,” it added.
The report stressed lack of project readiness, in terms of timely preparatory activities like detailed project design, land acquisition, establishment of project management offices and required personnel, and procurement plans; delays in project approval and budget release; delays in procurement-related processes and the overall weak project planning and implementation capacity are responsible for the low capital spending.
The delay in in approval and procurement in civil works has escalated the expenditure cost just 11.2 per cent.