Friday, June 6, 2014

District-wise revenue, expenditure and fiscal space

Kathmandu district contributes about 31% of total revenue but spends about 45% of total expenditure. FCGO notes that some of the development expenditures in other districts have been loaded in Kathmandu district because of difficulties in recording it in other districts—this may inflate the total expenditure figure in Kathmandu district to some extent.

Anyway, district-wise fiscal gap shows that only seven districts had fiscal surplus in FY2012, namely Parsa (Rs 59.2 billion), Lalitpur (Rs 32.2 billion), Rupandehi (Rs 11.5 billion), Morang (Rs 9 billion), Bara (Rs 3.2 billion), Chitawan (Rs 1.7 billion), and Sindhupalchok (Rs 1.5 billion). Parsa contributed about 26% of total revenue, but spent only 1% of total expenditure.

In terms of per capita revenue, Parasa topped the list in FY2012 with Rs103,728, followed by Lalitpur (Rs 86,668), Kathamandu (Rs 41,572), Rupandehi (Rs 18,567), and Morang (Rs 15,123). The lowest per capita revenue was in Bajhang (Rs 164), Achham (Rs 159), Baitadi (Rs 158), Dailekh (Rs 136), and Jajarkot (Rs 124).

In terms of per capita expenditure,  Manang topped the list in FY2012 with Rs 92,205, followed by Kathmandu (Rs 88,940), Mustang (Rs 60,364), Dolpa (Rs 27,889), and Humla (Rs 20,163). The lowest per capita expenditure was in Nawalparasi (Rs 4,498), Siraha (Rs 4,273), Bara (Rs 4,041), Rautahat (Rs 3,472), and Sarlahi (Rs 3,463).

Looking at per capita district budget deficit, the same seven districts having overall surplus also had per capita budget surplus. Per capita budget surplus in Parsa was Rs 98,488, followed by Lalitpur (Rs 68,818), Rupandehi (Rs 13,066), Morang (Rs 9,297), Sindhupalchok (Rs 5,122), Bara (Rs 4,645), and Chitawan (Rs 2,937). Per capita budget deficit was the highest in Manang (Rs 90,683), Mustang (Rs 58,672), Kathmandu (Rs 47,367), Dolpa (Rs 27,302), and Humla (Rs 19,803).

What about the relationship between district-wise per capita fiscal position and poverty rate? The basic idea is that technically districts with more fiscal space are able to spend more on the local development of physical and social infrastructures, thereby stimulating local economic activities and reducing poverty. In general, there seems to be an overall negative relationship, i.e. districts with relatively more fiscal space (in absolute terms, only seven districts had budget surplus) tend to have lower poverty rate. Now, the obvious outlier is Parsa. However, since most of the districts are having budget deficits for a long time, its impact on poverty rate might be lower (the other obvious candidates are remittances, wages, and provision of physical and social infrastructures, including social protection). The logic that relatively better fiscal space will mean lower poverty may not be as straight forward because of the severe constraint to higher absorption capacity and the lack of conducive investment climate, including energy and connectivity.

Though the proportion of expenditure in the remote districts in low, in terms of per capita expenditure (and also per capita district budget deficit), it is pretty high, indicating the high cost of delivering physical and social infrastructures in these regions. This necessitates connectivity, especially road, to reduce such costs and boost economic activities by enhancing competitiveness of niche products. Note that the districts do not have freedom to spend the revenue they mobilize. The districts recommend priority projects, which the NPC evaluates and gives a go-ahead for inclusion in the budget. The district-wise fiscal space argument is just for observation purpose.

Here is an earlier blog post on district-wise GDP and poverty.