PUBLIC EXPENDITURES 11
year based on an indicative budget envelope and guidelines provided by the MOF or the NPC.
In the case of the regular budget, the annual budgetary process starts with the MOF releasing the indicative budget ceiling and working guidelines for budget formulation for each of the line ministries. This takes place in January of each year, about six months ahead of the start of the next fiscal year in July. Each line ministry then forwards the guidelines and the indica- tive budget envelope, together with its own set of directives, to all agencies functioning under it, either at the district level or at the central level. Each of these agencies formulates its respective budget using these guidelines and sends it back to the concerned ministry, where it is further vetted, consoli- dated with the other agency budgets, and forwarded to the MOF for finaliza- tion. Once the MOF receives budgets from all line ministries, interministerial meetings are held to further vet and finalize the national regular budget. The formulation of the development budget is done in a similar fashion, except that the initial budget envelope is formulated and the final vetting is done by the NPC in close consultation with the MOF. Once the regular and development budgets are finalized, they are submitted to the ministerial cabinet for approval, then presented to the Constituent Assembly (formerly to the national parliament) in the form of a budget speech by the minister of finance. Once these budgets are approved, funds are remitted from the central treasury to the concerned agencies through commercial banks, and central ministries authorize agency heads to make the expenditures approved in the budget documents. Finally, all government agencies are required to submit progress reports on budget lines released, funds expended, and tar- gets achieved to the MOF for evaluation.
Although the administrative process for budget formulation, release, and monitoring is fairly well spelled out on paper, this did not necessarily lead to the proper alignment of the annual budgets with the longer-term five-year plans. This was because, in operational terms, the budgetary process and the management of public expenditure during the review period remained a “black box” to a large extent, and overall economic growth, including that of agriculture, remained below targets. The public expenditure review con- ducted by the World Bank in 2000 (World Bank 2000) provides an excellent critique of public expenditure management in Nepal and attributes the gen- eral ineffectiveness of public spending to serious deficiencies in the budget planning, resource allocation, and expenditure management processes. The escalation of the Maoist insurgency and the sharp increase in security-related expenditures toward the end of the review period further derailed public spending.
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