Financial management or budgeting is the operational activity of any type of organisation responsible for obtaining and effectively utilising the funds necessary for efficient operation. But that fact was not realised in Nepal prior to the political changes in 1951.
The facutal change in the general attitude towards the budget came with the introduction of the First Five Year Plan in 1956 though the concept of government budgeting may be regarded as the outcome of advent of democracy in the Kingdom in 1951. During the Rana regime (1847-1951), their main intention was to keep the general masses out of the scenes of country's fiscal position. All types of financial authorities were kept centralised. Officials were registered in central offices and their salary, wages etc. were fixed from the capital by specifying explicitly in a Darbandi authorised by Khadga-Nishana-a sanction affixed with a sword-like stamp depicting the signature of the ruling Prime Minister. A Darbandi was nothing more than a permanent document having the allocation and classification of recurring and non recurring expenditure sanctioned at the time of creating a particular office.
After the down-fall of the century old Rana oligarchy in 1951, the then government tried to introduce a budgetary system in the Nepalese financial administration. Accordingly, the budget was prepared and announced over the Radio Nepal in January 1952 by the then Finance Minister. With the establishment of the Legislative Assembly, the submission of the budget to the House has become a regular practice of the day. While the budgetary system was introduced in 1952, its procedures of collecting information and finalising of draft estimates, however, continued to be based on traditional methods followed in Rana regime. Salaries and wages were paid out without reference to any budget document and all other expenditure was approved on ad hoc basis. Each year a document was compliled by the Ministry of Finance purporting to give estimates of revenue and expenditure for the forthcoming year and this document was referred to as the "budget". However, it was not published until the end of the financial year related to it. Later on, it was submitted to the Cabinet and usually got passed.
The first Constitution of 1959 of the Kingdom of Nepal brought about significant changes regarding the budget presentation, discussion and concurrence of the Assembly. It was regarded as a landmark in the process of democratisation of the public fund. Keeping these arrangements well in order, the Constitution of 1962 also has mentioned the following systems regarding the estimates of revenue and expenditure.
(1) His Majesty shall in respect of every financial year cause to be laid before Rastriya Panchayat (National Assembly) an annual estimate showing, among others, the following items-
(2) The sums required to meet the expenditure to be provided for by an Appropriation Act shall be specified under separate heads in an Appropriation Bill.
The estimate or budget proposal is presented usually in the first week of July every year i.e., about one or two weeks ahead of commencing the next fiscal year.
The third amendment to the Constitution in 1980 has made two further significant additions. They are:
In the recent years of planned economic development, budget is closely interlinked with planning. Close coordination has been established in Nepal between the National Planning Commission and the Ministry of finance. The Commission prepares the frame work for the annual plan, fixes objectives, policies, sectoral strategies and criteria to evaluate plan performance for the year under consideration and makes an evaluation of resources position and fixation of the size of the the total budget (development and regular). The Commission also projects possible constraints and suggests measures for overcoming the shortcomings, appraises the socio-economic feasibility of major projects before they are cleared for incorporation in the annual programme and reviews and approves the annual programmes as prepared by the Ministry of Finance. The latter conducts detailed study and projection of resources position, internal as well as external and draws up detailed programme and budget allocations within the parameters set by the National Planning Commission.
Programme budgeting is undoubtedly a recent development in Napalese government budgetary system during the past decade. It may be explained as a way of allocating financial resources on the basis of works to be performed within the specified period and restricts uneconomic use of all the factors concerned. In Nepal, an important attempt for improving the budgeting system was made in 1968. Innovations made for formulating the programme budgeting were:-
Full control over public fund by the people or in other words by their, representatives is regarded as a basic feature of democratic system. The release of the budgetary amount commences only after passing the Appropriation Bill by the National Assembly followed by the assent on the same by His Majesty the King.
Previously the release of budgeted amount was centralised in Khatmandu in the office of the Financial Comptroller General, a wing of the Ministry of Finance. Now, due to problems mainly owing to the lack of transport and communications which resulted in the delay of reaching money in the districts from Khatmandu and the development and other works getting affected, some change has been made from 1981-82 on phasewise basis regarding the release of budgeted amount. In accordance with this change, Treasuries and Accounts Control Offices are established in all the districts of the Kingdom. These offices are responsible not only for the release of budgeted amount in four-monthly basis but also for rendering revenue and appropriation accounts of the districts concerned. Besides those functions, these offices administer and conduct treasury function and do internal audit.
Thus treasuries and accounts control offices are functioning as financial controllers of all the government offices in the districts. On the basis of past experience regarding the budget execution, this decentralised system of budget execution and treasury control is a landmark for the improvement of the financial administration system as a whole.
Time and again, different types of problems have been experienced in the process of budget formulation, implementation and accounting functions. The newly adopted budget execution system mentioned earlier will certainly help solve the problems of execution and will help expedite the developmental works by making available the budgeted amount as and when needed. However, the problems mentioned below are still existing in budget formulation in Nepal.
Efforts continue to overcome these problems and to improve the efficiency of the budgetary system in the Kingdom.