Thukten Zangpo

Despite the increased budget, the government has struggled to make substantial progress in utilising its capital budget during the first quarter (July to September) of the fiscal year 2024-25.

By the end of September, only 7 percent of the total capital budget had been used, equating to just Nu 2.73 billion out of a total budget of Nu 38.96 billion, according to the Ministry of Finance.

Capital expenditure, which funds critical infrastructure projects such as roads, bridges, and public buildings, is vital for economic development, job creation, and improving the quality of life.

The finance ministry attributes the sluggish capital expenditure pattern to a variety of factors.

Climatic constraints in the northern part of the country, with limited construction windows, contribute to erratic expenditure patterns within the fiscal year. Poor planning and execution also contribute significantly to the erratic expenditure.

In contrast, 20 percent or Nu 10.11 billion out of Nu 50.86 billion of the revised current budget was utilised as of September this year.

Current expenditure covers the government’s day-to-day expenses like salaries, administrative costs, and social welfare programmes.

The total expenditure utilisation rate for the first quarter of FY 2024-25 stands at just 14 percent (Nu 12.84 billion), which is a slight dip from the previous fiscal year’s 16 percent for the same period.

As of September, this year, the finance ministry revised the total expenditure, up by 0.75 percent to Nu 89.82 billion as compared to the approved budget estimate of Nu 89.15 billion. Capital and current expenditures accounted for 57 percent and 43 percent, respectively.

With the revised resource estimate of Nu 73.73 billion against the revised total expenditure of Nu 89.82 billion, the fiscal deficit is projected at Nu 16.09 billion or 5.34 percent of GDP for the fiscal year 2024-25.

The finance ministry attributes the fiscal deficit increase due to upward revision of capital expenditure, despite marginal increase in total resources. “As the year-on-year fiscal deficit increases, the likelihood of maintaining a fiscal deficit within 3 percent of GDP becomes increasingly difficult,” the ministry added.

For next fiscal year 2025-26, the fiscal deficit is projected to narrow to 3.61 percent of GDP.

To address these issues, the finance ministry has introduced quarterly fiscal projections to better manage budget utilisation.

According to these projections, the capital budget is expected to accelerate in the coming quarters, with Nu 7 billion expected in the second quarter, Nu 10.47 billion in the third, and Nu 18.75 billion in the fourth.

According to the finance ministry, the total resources in the first quarter of this fiscal year amounted to Nu 15.94 billion.

However, total resources are projected to decrease slightly in the second quarter, and double in the fourth quarter because of anticipated increases in non-tax and external grants as budgetary agencies accelerate activity implementation towards the fiscal year-end.

At the same time, as the tax filing date ends in the third quarter it is also a trend to expect more revenue in the fourth quarter.

The ministry anticipates that the first quarter of the fiscal year 2024-25 will have a fiscal surplus of Nu 3.1 billion, while the remaining quarters are expected to have deficits. The largest deficit of Nu 10.15 billion is projected in the third quarter.

In the fourth quarter, despite higher expenditure, the revenue inflows are projected to be significantly higher making the deficit only about Nu 4 billion.