Absorptive capacity

Most Nepali people think that we do not have enough resources to support development activities. They believe that our bridges and roads are not being built because we do not have money. Surprisingly, Finance Minister Ram Sharan Mahat has been burdened with Rs 17 billion as reserves, having no clue as to how and where to spend that much money. The mid-term budget review by the Finance Ministry predicts that the country would be able to spend only Rs 97 billion out of appropriated Rs 143 billion, by the end of this fiscal year. The minister sought proposals from government agencies to utilize the swollen reserves, and altogether they showed capability to absorb a mere 2 billion rupees. Interestingly, our government is not in a position to be delighted to have achieved the revenue target set by the budget. This year it is kind of worried about overshooting revenue target because of lack of a capacity to spend it.

Why is Nepal's absorptive capacity so low? Obviously, the bureaucrats would be loathed for their lack of competence to spend money properly. More than competence, it is said that the lack of initiative among the concerned authorities is a bigger impediment. The absorptive capacity is also intrinsically related to infrastructure, skilled labor force, macroeconomic balance and other economic factors. The low absorptive capacity also repels the donors from providing financial assistance to Nepal. In fact, the donors calculate the absorptive capacity of a country and aid-effectiveness before sanctioning new support. As per international practice, absorptive capacity is the ability to use additional aid without pronounced inefficiency of public spending and without induced adverse effects. Unfortunately, in our case we have been losing installments of the sanctioned aid for failing to provide a report of the preceding work.

Lack of initiative on the part of the bureaucrats is definitely the crucial area to be improved to enhance our spending capacity. If any officer is worried that he might be penalized for the work he accomplishes, with the change of the minister or the party in the government, he/she would not take any initiative. Also the infrastructure and skilled labor force are pertinent issues. Our failure in the development of roads, bridges, energy, education etc. have severely hampered our capacity to spend more. Similarly, we do not have enough manpower to execute the projects. Moreover, due to the 11-year long insurgency, there are not even enough unskilled laborers to work in the projects, not to talk about skilled ones. So, the absorptive capacity is not only an economic problem, it is also a political issue. Until and unless our political parties agree on common minimum economic issues, we will always be facing these and other issues as impediments, always forcing us to remain under poverty and deprivation.

Source: The Kathmandu Post, April 27, 2007