Kathmandu. The National Natural Resources and Finance Commission has recommended the limit of internal debt that the three tiers of government can raise for the coming fiscal year. While raising internal debt for the coming fiscal year, the federal government will be allowed to raise debt not exceeding five percent of the country’s gross domestic product (GDP) and the provincial and local levels will be allowed to raise debt not exceeding 12 percent of their total revenue including their internal resources and financial transfers.
‘After analyzing the country’s macroeconomic situation, revenue and expenditure estimates, and market ease, the government will be able to raise internal debt not exceeding five percent of the estimated gross domestic product for the fiscal year 2082/83,’ the commission’s recommendation states.
It has been suggested that the government should invest only in areas that create capital by raising internal debt. The Commission recommends raising internal debt only for projects that have an appropriate internal rate of return or net present value based on national policies and plans, projects of national pride, transformational projects, and projects that have received first priority under the medium-term expenditure framework, based on cost-benefit analysis.
Provinces and local levels, however, will be able to raise debt only after completing the prescribed legal process. Earlier, provinces used to show internal debt as a source by bringing in a deficit budget without the permission of the federal government. But the Finance Commission has said that internal debt should be shown as a source only after completing the process.
‘Provincial governments, once the structural and procedural arrangements for internal debt mobilization are completed, will be able to raise internal debt in a manner that does not exceed twelve percent of the sum of the revenue sharing amount received from the government and the revenue amount received from the internal sources of the provincial government in the fiscal year 2082/83,’ the recommendation states. The provinces will also have to use the amount raised from internal debt to create capital and invest it in projects of pride.
It has been arranged that not only the provincial government but also the local levels can raise internal debt. For the upcoming fiscal year, local levels will be able to borrow up to twelve percent of the sum of the revenue sharing amount received from the federal and provincial governments and the revenue amount received from their own internal sources.
‘Invest only in capital-generating projects’
The Finance Commission has recommended that the government borrow only for investment in capital-generating and return-generating projects. The commission has stated that loans should not be raised to meet current expenses.
‘Internal loans should be allocated for projects that create employment opportunities, provide long-term benefits and contribute to capital formation. Current and administrative expenses should be strictly prohibited,’ the commission recommends.
Loans should be invested in profitable projects that have an internal rate of return higher than the cost of capital of the projects. While identifying, developing and selecting serial projects or new projects to be operated by investing in loans, it should be ensured that the principal and interest of the loan investment can be paid from the returns received from the implementation of projects or programs in addition to other subjects. As per the Commission’s recommendation, internal loans can be mobilized for projects that have been prepared for production growth, employment creation, income growth, infrastructure development and capital formation.
Similarly. The Commission has suggested that provincial and local governments should mention internal loans as a source in the budget only after receiving the government’s approval as mentioned in Section 14 of the Intergovernmental Finance Management Act, 2074. But the provinces have been showing internal debt as a budget source of their own free will.
Provinces cannot raise debt without the approval of the federal government, showing budget sources:
The Constitution of Nepal, 2072 BS, has given the provinces and local levels the right to raise internal debt, while only the federal government can raise external debt. As per the provisions of Article 251 of the Constitution, the responsibility and liability of recommending the limit of internal debt that can be raised by all three levels of government lies with the National Natural Resources and Finance Commission. The commission has been recommending the limits of loans that can be raised by the provincial and local governments since the fiscal year 2075/76.
Looking at the recommendations of the Finance Commission, it seems that in the fiscal year 2075/76, the federal government has been suggested to raise internal loans up to five percent of the estimated gross domestic product (GDP) and the provincial and local levels to raise internal loans up to 10 percent of the amount received from their internal revenue and revenue sharing. The limit of loans that can be raised by the provincial and local governments was increased to 12 percent after the fiscal year 2077/78. The Finance Commission has made the same recommendation for the upcoming fiscal year as well. There is a provision that the provincial and local governments can raise internal loans up to 12 percent of the amount received from their revenue and revenue sharing.
With the implementation of federalism, the provincial and local governments have also gained financial rights. Provincial and local governments have the authority to enact laws related to economic rights, prepare policies and plans, formulate annual budgets, implement programs, and even audit and audit them within their jurisdiction. They can also issue deficit budgets in which expenditure exceeds estimated income when estimating their annual budgets.
Although some provincial and local governments have been showing internal debt as a source of their annual budget to meet their deficit budgets, they have not yet been seen collecting and mobilizing internal debt. For example, Gandaki Province has been saying that it will raise internal debt for seven years. Internal debt has also been included in all budget sources of Gandaki Province since the fiscal year 2076/77. Except for Bagmati and Sudurpaschim, all other provincial governments have shown internal debt in their budget sources for some year or the other. But the Public Debt Management Office has stated that no province has been able to raise and utilize internal debt so far.
प्रतिक्रिया दिनुहोस्