New Government Encourages Controversial Budgeting Practices

June 29, Kathmandu – During the ministry-wise discussion of the Appropriation Bill about one and a half weeks ago, Minister of Science, Technology and Innovation Mahavir Pun made a significant revelation in parliament.

According to him, before becoming a minister, he was unaware of the term ‘unclassified’ budget, which refers to a consolidated amount allocated without detailed budget headings. Despite this, he was given over 1 percent of the total budget as an unclassified lump sum for his ministry, without specific programs.

Minister Pun said that the Ministry of Science, Technology and Innovation was allocated NPR 350 million in unclassified budget. This ministry is not entirely new; according to the minister, it has been reestablished seven times. Before the addition of innovation in its name, it operated as a full ministry with an allocated budget and specific programs. This time, the government trusted Pun significantly, allotting the amount as an unclassified budget, giving him freedom over spending.

Governments usually keep some amount as unclassified budget for emergency expenditures. Most allocated budgets are separated into specific, spendable headings.

However, an unclassified budget does not have designated expenditure headings. The Ministry of Finance breaks it down as per requirements, and this practice creates a poor precedent for public finances by allowing large sums for discretionary spending.

Historically, around 5 percent of the total budget is kept unclassified. In the current fiscal year, NPR 7.8 billion was set aside as unclassified budget, which has increased to NPR 9 billion in the upcoming fiscal year. Former secretaries from the Finance Ministry attribute this to politicians requiring their own pocket projects in the budget and insufficient studies leading to the inability to allocate separate headings.

Keeping a large unclassified budget is considered poor budgetary discipline. Another former deputy secretary noted that unclassified budgets’ spending is trackless, with no prepared programs or activities and no unit costs calculated.

Budgets for projects without detailed project reports (DPRs) are kept unclassified. Funds are later released to other ministries from different expenditure headings as needed.

This time, the Ministry of Finance has kept the largest share under an unclassified budget. According to the Expenditure Estimate of the upcoming fiscal year (also known as the ‘Red Book’), the ministry has allocated NPR 9,030,950,000 as unclassified funds across various headings.

This unclassified budget exceeds the revised estimates of the current fiscal year, which projected expenditures of NPR 877,100,000.

The opposition voices in parliament are currently weak. Some members of the ruling party, including MP Badankumar Bhandari, have questioned the transparency of the large unclassified budget allocation.

Finance Minister Dr. Swarnim Wagle did not provide satisfactory responses to questions in parliament. He defended the practice by citing emergencies and the inability to prepare detailed programs for new ministries, leading to the need for large unclassified allocations.

Ministers have assured MPs who raise questions that if any program or expense is missing, they can visit the ministry and it will be addressed. Infrastructure Development Minister Sunil Lamsal reiterated this multiple times, and Finance Minister Wagle also said responses would be provided to MPs.

This suggests that the government is positioned to implement plans with discretionary authority by keeping sufficient funds as unclassified budgets, explained former Vice-Chairman of the National Planning Commission and MP Dr. Pushparaj Kandel. “The Finance Ministry alone is implementing NPR 800 billion worth of budget, with an additional NPR 9 billion in unclassified funds. This trend represents an attempt to spend the budget based on self-interests,” he stated.

Where Does the Unclassified Budget Get Spent?

According to the Red Book, of the unclassified budget allocated by the Finance Ministry, NPR 100 million is estimated for travel expenses of specific individuals. In the current fiscal year, the similar expense was NPR 70 million.

NPR 170 million is allocated for delegation visits and hospitality expenses. A substantial budget of NPR 800 million is reserved for large compensations. NPR 200 million has been set aside for customs refunds.

Under emergency administration, NPR 3.8 billion is allocated, which the ministry can spend at its discretion. NPR 1.879 billion is set aside for disaster relief and rehabilitation.

Development programs have been allocated NPR 1.923 billion, which can also be used at the Finance Ministry’s discretion and added to capital expenditures.

Only NPR 400 million is allocated for implementation of ongoing capital projects. Notably, last year the Finance Ministry kept the Gandaki Economic Triangle project as unclassified, but its budget has not been continued this and next year.

The federal government has institutionalized the practice of holding budget as unclassified and spending at discretion, a trend now also adopted by provincial and local governments. According to the 63rd report by the Office of the Auditor General, local governments have been allocating and spending more than NPR 600 million annually as unclassified budget. The Auditor General has advised discouraging this practice.

Former Vice-Chairman Kandel says that keeping a large unclassified budget raises transparency concerns, as it encourages spending according to vested interests.

Meanwhile, former secretaries of the Finance Ministry argue that unclassified budget allocation does not inherently lead to arbitrary or opaque spending.

“It is preferable to present budget allocation details with headings in parliament. The unclassified budget should be reduced. The tendency to put projects without study into unclassified budget should be minimized. However, expenditure from unclassified budget must follow procedures, and such allocation is not corruption,” one former official said.