Managing Finance Efficiently

1. Managing Finance Efficiently A presentation prepared for Advanced Course on Development and Management Nepal Administrative Staff College August 23, 2018

2. What I am going to talk today? • What is Financial Plan of a project • How the budget is prepared • Fiscal Federalism • Managing Resource Efficiently

3. Project What is it? • An act that aims to achieve specific goal in specific time with the use of specific inputs

4. Hierarchy

5. Financial Plan Two major objectives • Availability of sufficient funds • Meeting day to day expenses • Procurement of assets, goods and services • Finance the unforeseen expenses • Manage cash flow • Balance between demand and supply

6. Financial Plan How to prepare • Top down approach • Bases on the project scope • Resource availability • Bottom up approach • Activities planning • Project cost

7. Financial Plan How to prepare • Demand side analysis • What are the ground needs • Consider the external factors – social, economic, environmental • People at center

8. Financial Plan How to prepare • Core and non core cost analysis • Core costs are for the project activities • Non core costs are the indirect costs such as travel, insurance costs, legal advice, audit

9. Financial Plan How to prepare • Identify the risks • Technical and non technical risks • Measures to mitigate

10. Budget preparation Expenditure first • Prioritize the activities • Monthly/quarterly activities to be carried out • Unit cost assessment • Activities level budgeting

11. Budget preparation Resource estimation • Sources identification • Cost sharing and/or co-financing • Value for money consideration

12. Government budget Expenditure • Recurrent – administrative and operating expenditure • Capital – associated with capital formation • Financing – investment (both loans and equity) and debt servicing

13. Government budget Resources • Revenue – tax and non tax • Foreign aid – grants and loans • Internal borrowing – deficit financing

14. Province • Fiscal transfers from Federal consolidated fund • Own source revenue • Foreign grants (with approval from GON) • Internal Borrowing • Loans from GON Fiscal Federalism Financial Resources • Federal • Revenue • Foreign Aid • Internal Borrowing • Local • Fiscal transfers from Federal and provincial consolidated funds • Own source revenue • Internal Borrowing • Loans from GON

15. Forms of Fiscal Transfers Grants • Fiscal equalization – narrowing the gap between expenditure needs and revenue potential • Conditional – implementing the national policies, standards • Complementary – matching the resources • Special – focusing on special needs Revenue Sharing • VAT, Internal Excise and Royalties to be shared

16. Legal Provisions National Natural Resources and Fiscal Commission Act • Criteria for Fiscal Equalization Grants • HDI incorporating Education, health, drinking water • Comparative development of other province and local level • Socio-economic and other discrimination • Infrastructure status and needs • Service to be delivered • Status of revenue and its potential • Expenditure needs • Criteria for revenue sharing • Population and demographic structure • Area • Human Development Index • Expenditure Needs • Efforts on revenue collection • Infrastructure development • Special conditions

17. Modality of fiscal transfers VAT Internal Excise Royalties Federal Divisible fund for Royalties Federal Divisible fund for VAT and Excise Revenue sharing 70% Federal consolidated fund 50% 25% 15% Provincial Divisible fund Royalties Provincial Divisible fund for VAT and Excise 25% 15% Provincial consolidated funds As per formula As per formula Local Divisible fund for Royalties Local Divisible fund for VAT and Excise Local consolidated funds As per formula As per formula

18. Modality of Fiscal Transfers Fiscal Equalization Grants • To be transferred in four installments (on 10th August, 19th October, 16th January and 15th April) Conditional Grants • A quarter of total to be transferred on 17th July • Rest to be transferred on the first day of each trimester as the progress goes

19. Methodology adopted • Indices derived to address the criteria set in NNRFC Act • Infrastructure Index – Connectivity related infrastructures • Discrimination (disparity) Index – Economic, Gender, Environmental and Social discrimination • Under Development Index – Infrastructure and discrimination (disparity) based • Human Development Index – Disaggregated up to provincial and local on the basis of NHDR, 2014 • Human Poverty Index - Disaggregated up to provincial and local on the basis of NHDR, 2014 • Multi Dimensional Poverty Index of NPC • Cost of service delivery index • Studies conducted for expenditure needs, revenue potential and discrimination

20. Use of Indices Revenue Sharing

21. Use of Indices Vehicle tax sharing from province to local • Vehicle tax being the shared rights of both province and local level • Set of criteria used for this purpose • Length of the roads 50% (maintenance of the roads) • Population 45% (pollution, environmental and traffic risks) • Forest and Greeneries 5% (to encourage greeneries, carbon sequestration, minimize environmental risks)

22. Use of Indices Fiscal Equalization Grants

23. Conditional Grants • Bases for conditional grants recommended • Largely projects/programs decomposed as per the jurisdiction of tiers of governments • Projects and/or activities with resources handed over to respective governments • From next year onwards – policy based conditions to be applied

24. Internal Borrowing • Upper limit for • Federal 5% of projected GDP for this FY • Provincial 10% of sum of revenue shared amount and own source revenue • Local 10% of sum of revenue shared amount and own source revenue • However, legal and monetary instruments not yet ready in provinces and locals • Internal borrowing to be made to finance capital formation activities

25. Budget FY 2018/19

26. Some tips for managing finance efficiently • Have a clear procurement plan • Monitor the financial position regularly • Reduce the overhead costs • Maintain the accounts properly • Be proactive in problem solving • Honor time

27. Thank You !