Koshi Province Economy in Crisis Due to Unfunded Multi-Year Contracts, Finance Minister Warns

Biratnagar. The financial balance of the Koshi Province government has been severely disrupted by billions in liabilities stemming from arbitrary multi-year contracts awarded by previous administrations without securing the necessary resources. The Koshi Province currently faces outstanding liabilities for multi-year projects amounting to NPR 20.6115 billion, an amount exceeding the province's actual annual capital budget.

During discussions regarding the mid-year budget review for the current fiscal year and preparations for the next fiscal year, Minister for Economic Affairs and Planning, Bidur Kumar Lingthep, stated that the province's financial situation is on the verge of crisis. "We have the capacity to allocate a capital budget of around NPR 15 billion annually, but we have approved multi-year projects worth over NPR 20 billion. This is not good by any measure. I state clearly that this has increased the possibility that the economy of Koshi Province could be endangered or collapse at any moment," Lingthep said.

The provincial government initially allocated a budget of NPR 35.8799 billion for the current fiscal year. Due to weak resource availability and cuts in grants from the federal government, the government was forced to reduce the budget size by nearly 10 percent. According to the revised estimates, the budget size has now been reduced to NPR 32.4564 billion.

"Our expenditure up to the current point in the fiscal year is also low. If we deduct the expenditure transferred to local levels, the capital expenditure is very disappointing. Capital expenditure is also low. That is why we have reduced the budget size through revised estimates," Minister Lingthep informed about the budget status.

He added that since the federal government has also lowered its revenue collection targets, the equalization grant the province receives is expected to be cut by about 9 percent.

Multi-year projects dating back to the fiscal year 2075/076 in Koshi Province have still not been completed. Minister Lingthep described these projects as an 'albatross' around the economy. According to statistics, liabilities exceeding NPR 16.51 billion remain outstanding for road and bridge projects alone.

"There is a liability of NPR 20.61 billion, but this year we could only allocate NPR 2.21 billion for multi-year projects. This gap between liability and budget means the results of the work are not coming on time. We are in this crisis today because of the past tendency to keep adding new projects without closing out (declaring completion) old ones," he added. "Large contracts were awarded in the past without securing source agreements. This is outright financial indiscipline."

He stated that he has directed the Ministries of Physical Infrastructure and Water Supply to prioritize projects nearing completion. "I have told the ministers and secretaries: Give first priority to the projects that will be completed this year. Let's free the province from the burden of those projects by closing out their accounts. It is not good to carry a liability of billions forever," he said.

Minister Lingthep believes that removing the burden of multi-year projects is the first condition for bringing the Koshi Province's economy in the right direction. "The main problem right now is the liabilities from previous years. Until we are free from this debt of NPR 20 billion, the province cannot undertake new and large development works. Someone must bear the blame and complete the incomplete projects. I am currently trying to save the province's economy from collapse, even if it means bearing that blame," he said.

Minister Lingthep also attributed the weak performance in the current fiscal year to political and social events. He mentioned that the 'G2' movement and subsequent protests created an unfavorable working environment for employees and political leadership. "The G2 incident caused a kind of mental strike environment among people. Although it only lasted two days, it had a long-lasting effect as a mental strike. It affected employees, ministers, lawmakers, and journalists alike. Immediately after, elections came, and employees had to be mobilized there. That is why capital expenditure could not increase," he said.

The Minister announced that the government will adhere to discipline in the upcoming budget. The ministry is preparing to ensure that no plan that lacks prior preparation or is not listed in the project bank will be included in the budget from now on. "From now on, only projects costing over NPR 300 million for roads and infrastructure and over NPR 150 million in other sectors will be included in multi-year schemes. Smaller projects will be handed over to the municipalities," he added. "We need to draw a clear line: provinces will handle projects between NPR 2.5 million and NPR 50 million, and municipalities will handle those below NPR 2.5 million. The federal government should also not interfere with projects under NPR 50 million."

Minister Lingthep stated that discussions have begun on identifying new areas for revenue generation, as the province's internal revenue is very weak, making it difficult even to cover operating expenses. Specifically, he argued that the province should collect permits and royalties for climbing mountains below 6,000 meters.

"Currently, the federal government collects royalties for peaks above 6,000 meters. However, Koshi Province has many peaks below 6,000 meters that could become viral. The authority to grant permits and set royalties for climbing these smaller mountains should belong to the province. This will create significant employment in the tourism sector and substantially increase provincial income," he said. "Our internal revenue collection is currently 20 percent lower than last year. The main office was gutted by fire, so work stopped for three to four months. On the other hand, large industries are registered with the federal government, pay VAT there, but damage our roads. We need to amend the revenue act itself to remove such inequality."

Minister Lingthep proposed that the maintenance of roads built by the federal government should be handed over to the province, and the maintenance of roads built by the province should be handed over to local levels. "The federal government builds roads, but when a pothole appears, people here blame the municipality and the province. Nobody knows where the federal office is. Therefore, authority should be transferred so that municipalities handle maintenance up to NPR 5 million and the province handles maintenance up to NPR 50 million," he said.

Minister Lingthep stated that it would be impractical and unethical for the province and local levels to create deficit budgets. "The constitution does not allow us to raise internal debt or receive foreign aid directly. In such a situation, from which source will we cover the deficit? Therefore, we should not increase the budget size by more than 20 percent of our net income," he concluded.