1.16 Government Planning, Budgeting and Accounting System
1.16 Government Planning, Budgeting and Accounting System 📊🏛️
📋 Planning: Concept and Definition
Broadly speaking, planning is the process by which an individual or organization decides in advance for some future course of action. It is associated with formulating programs and projects for attaining particular objectives within a specified period of time. It is a managerial process concerned with setting goals for future direction and determining path and resources to achieve those goals or targets.
Planning is pre-determining future. It is the process of setting goals and choosing actions to achieve goals. It is a road map. In planning, three basic questions are responded:
Where are we now? – Current situation
Where do we want to go? – What do we want to achieve?
How can we get there? – Strategies, policies and programs to achieve the objectives and goals.
Planning is a vital aspect of development management. In the context of national development, it is a form of state intervention to achieve maximum benefits out of the limited resources. A plan is a blueprint that details the methods and tasks that are to be implemented in order to achieve a desired goal. It bridges the gap between the existing situation and the desired situation.
Quotes:
Stephen P. Robbins: "Planning is determining in advance what is to be done, when is to be done, how is to be done and who is to do. It involves determining of both ends and means."
Richard Steers: "Planning is the process by which managers define goals and take necessary steps to ensure that these goals are achieved."
From national perspective, planning includes following major aspects:
Problem or need identification by analyzing entire economic condition of the state.
Formulation of periodic plan.
Formulation of annual development programs and its approval.
Coordination of policies and programs.
🏗️ Features of Development Plan
It is a blueprint defines a country's future direction in terms of development.
It is the framework for mobilizing resources in a disciplined manner for the socio-economic development of the country.
It envisages objectives and targets, defines strategic policies and priorities, arranges resources rationally, frames programs and the implementation strategy, and develops mechanism for control of resources by the state.
Planning is for long term, medium term and short term. However, it is usually carried out for medium term i.e. 4 to 7 years.
The role of the state is dominant in the development planning.
It involves formulating, implementing, monitoring and evaluation of the programs and projects for attaining particular objectives within a specified period of time.
It determines implementation mechanism and responsible bodies.
📑 Classification of Planning
Development planning can be classified on the following basis:
1. On the basis of Ideology:
Capitalistic Planning – Adopted by governments having capitalist ideology.
Socialistic Planning – Adopted by governments having socialist ideology.
Mixed Planning – Blend of the capitalistic and socialistic planning.
2. On the basis of time-frame:
Annual planning (1 year) – e.g., annual budget.
Short-term Planning (2-3 years) – for transition period.
Medium-term Planning (4-7 years).
Long-term/Perspective Planning (10-20 years).
3. On the basis of resources:
Financial Planning – allocation of resources in terms of money.
Physical planning – allocation of resources in terms of physical materials.
4. On the basis of governing system:
Direction Planning – Centre fixes and everyone should follow; people's needs are controlled. Resources are controlled by the state. Generally practiced by socialist countries.
Inducement Planning – Planning by market manipulation; encourage private investment. Generally practiced by capitalist countries.
5. On the basis of Geographical Coverage:
National Planning
Regional/Provincial Planning
Local planning
6. On the basis of Centralization of Authority:
Centralized planning
Decentralized Planning
7. On the basis of Coverage:
Comprehensive Planning – overall plan encompassing every sector. e.g., plan prepared by National Planning Commission.
Sectoral Planning – Specific plan addressing certain sector. e.g., plan prepared by line ministries and departments.
📘 Theoretical Aspects/Basic elements of Plan
Long-term vision: Long-term vision envisages the destination of the country in long run.
Objectives: Objectives of the nation should be determined on the basis of long-term vision.
Goals: On the basis of vision and objectives, goals are determined.
Strategies: To achieve the objectives and goals, strategies are clearly defined.
Programmes/Projects: Projects and programs are formulated for achieving stipulated goals and objectives.
Action plan: Detailed plan of action with activities, resources, time periods, responsibility, etc. need to be prepared for attaining particular objectives and goals.
Implementation: Based on the framework provided by action plan, the formulated plan is carried forward for implementation.
Monitoring and Evaluation: Monitoring and evaluation of the programs and projects is an organized activity, means of solving problems, and verifying accountability, and mechanism to assure the outputs.
🎯 Need for Development Planning / Objectives of Development Planning
Development planning is needed to mobilize resources for development, achieve rapid economic growth, mobilize foreign aid, correct market failures and impose state intervention to meet the needs and demands of people. It is necessary for developing capital, reducing consumption, encouraging saving and investment, promoting employment and alleviating poverty and inequality.
The need and importance of development planning can be highlighted by the following points:
To mobilize the limited resources optimally.
To alleviate/reduce poverty, and reduce unemployment.
To accelerate the pace of development and increase public welfare, to develop the country with regional balance.
To end the economic inequality.
To promote social justice and equity.
To maintain socio-economic stability.
For maximum utilization of foreign aid.
To strengthen institutional capacity for development.
To strengthen market mechanism and to coordinate various sectors of economy.
To achieve self-reliance in economy.
To fulfil the basic needs of people and uplift their living standards.
To prevent market failure and check market imperfections.
🤔 Rationale for Development Planning
The widespread acceptance of planning as a development tool rests on the following arguments:
Market failure argument – State intervention is required to correct market failures.
Rapid growth argument – Planning contributes to rapid economic growth.
Resource constraint argument – As there are limited resources in the developing countries, they should be optimally utilized through development plan.
Foreign aid argument – Planning is needed to mobilize foreign aid.
People's will argument – Development planning ensures people's participation to meet the desires and demands of people.
Social justice argument – Market mechanism alone cannot address social justice and equity.
🔄 Various Aspects of Development Planning
Formulation, implementation, and monitoring and evaluation are the major aspects of development planning.
1. Plan Formulation in Nepal
Provisions/bases for Plan Formulation:
Directive principles and policies of the state.
Manifestoes of the ruling political parties.
Prioritized areas of the Government.
Socio-economic condition of the nation.
Public will, demands and expectations.
Commitments made by the government leaders and ruling parties in the international forum.
Availability of resources: both domestic and foreign.
National income and productivity.
Implementation capability.
Contemporary issues such as climate change, gender issues, SDGs, refugee issues, etc.
Bodies/Agencies involved in Plan Formulation:
Council of Ministers.
National Development Council.
National Planning Commission.
Line ministries and planning cells.
Pressure Group, Interest Groups, Civil Society, etc.
Plan Formulation Process in Nepal:
Preparation of new plan begins with the mid-term review of the on-going plan.
National Development Council (NDC) sets broad plan guidelines, the conceptual framework of perspective and periodic plan.
National Planning Commission develops basis and standard for formulation of programmes and project along with development priorities.
According to the direction and standard of NPC, relevant development offices send the proposed periodic programmes and projects to their respective ministries.
Concerned ministries forward the proposed programmes and projects to NPC.
Detailed discussion is held between the concerned ministries and NPC.
NPC prepares the drafts of the plan after necessary adjustments and prioritization.
Final draft of plan is approved by National Development Council and passed by the Council of Ministers.
2. Plan Implementation in Nepal
No matter how good a plan is formulated, it will be useless unless it is implemented effectively. Concerned Ministries are responsible to implement the approved programmes and projects of development plan.
Plan implementation includes:
Making necessary institutional arrangement.
Establishing linkage between periodic plan and annual programs and budgeting through Medium-Term Expenditure Framework.
Assigning responsibilities to different agencies.
Designing action plan and work schedules.
Providing human resources and logistic support.
Preparing conducive environment and ensuring public participation.
Maintaining overall coordination among different actors.
Maintaining coordination with donor agencies.
Dealing with critical problems using measures such as immediate action plans and rapid response mechanisms.
Supervision and monitoring.
3. Plan Monitoring & Evaluation
Monitoring answers the questions what happened, how and why?
Evaluation answers the question what different does it make?
Monitoring includes:
Measuring and reviewing the progress and performance.
Checking consistency between plan, policies and annual programs.
Checking the linkages between the plan, annual programs and budgeting.
Finding problems faced during implementation.
Dealing with problems and adjusting in the light of current realities.
Evaluation includes both on-going and terminal assessment:
On-going evaluation: Annual or mid-term review.
Terminal/ex-post evaluation: Macro-level assessment of impacts.
Criteria for Evaluation: Effectiveness, Efficiency, Equity, Adequacy, Appropriateness, Responsiveness, Economy, Social Justice.
🏛️ National Planning Commission (NPC)
Introduction
The National Planning Commission (NPC) is the specialized and apex advisory body of the Government of Nepal for formulating a national vision, development policy, periodic plans and sectoral policies for overall development of the nation. It is headed by the Right Honorable Prime Minister.
Functions:
Assesses resource needs, identifies sources of funding, and allocates budget.
Serves as a central agency for monitoring and evaluating development policy, plans and programs.
Serves as an intellectual hub for the exchange of new development ideas.
Organizational Structure
Full-time Vice-Chairman: 1
Members: 6
Member-Secretary: 1 (heads the secretariat)
Ex-officio members: Chief Secretary and Finance Secretary.
Seven functional divisions:
Economic Management
Infrastructure and Production
Monitoring and Evaluation
Research and Inter-Governmental Coordination
Sustainable Development and International Relation
Social Development
Administration
Historical Background
First created in 1956.
Renamed according to the Yojana Mandal Act of 1957.
After Panchayat system (1961), National Planning Council formed.
In 1968, became National Planning Commission (NPC) under PM.
Reconfigured after democracy restoration in 1990.
💰 Government Budgeting
A budget is a blue print of plan of action to be followed during a specified period of time for the purpose of attaining the given objectives. It is an instrument of planning as well as control.
Definition: Budget is a short-term plan expressed in monetary terms, prepared and approved for a definite period of time, usually one year.
Objectives of Budget:
To achieve economic growth, stability and development.
To maintain financial discipline and accountability.
To reduce inequalities and maintain social justice.
To maintain financial control.
To provide information about government income and expenditure to the public.
To generate employment opportunities.
To mobilize internal resources optimally.
To implement plans and programs.
To strengthen national economy.
To improve living standard.
🧾 Features/Qualities of Sound Budget
Clarity and Simplicity
Pervasive/comprehensive
Facilitative
Predictability and realistic
Legitimacy and control mechanism
Priority
Transparency and Accountability
Informative and rational
Flexibility
Time-bound
Objective
📊 Types of Budget
1. On the Basis of revenue and expenditure
a) Balanced Budget
Estimated receipts = Estimated expenditure.
Merits: Ensures financial stability, avoids unnecessary expenditure.
Demerits: Hindrance to economic growth, restricts welfare activities.
b) Deficit Budget
Estimated expenditure > Estimated receipts.
Propounded by J.M. Keynes (1930).
Merits: Accelerates economic growth, enables welfare programs, remedy for deflation.
Demerits: Encourages wasteful expenditure, may cause inflation, financial instability.
Nepal adopted since 2008 BS.
c) Surplus Budget
Estimated receipts > Estimated expenditure.
Adopted in Nepal in FY 2033/34.
Appropriate during inflation; avoided during deflation.
2. On the Basis of Programs
a) Zero-Base Budget (ZBB)
Proposed by Peter A. Phyrr.
Prepared starting from Zero.
Merits: Promotes operational efficiency, effective control, emphasizes results.
Demerits: Time-consuming, costly, emphasizes short-term benefits, centralized.
b) Line-item Budget
Budget appropriated for line items and head.
Emphasizes incrementalism.
Merits: Maintains financial discipline, no ambiguity.
Demerits: Cannot address expanded scopes, focuses on process not results, traditional.
c) Programme Budgeting
Programme selected based on national priority.
Introduced by Hoover commission, USA (1949).
Nepal adopted since FY 2026/27 BS.
Merits: Focuses on output, impacts, alternatives; effective utilization of public expenditure.
Demerits: Centralized decision making, requires money, time, energy.
d) Performance Budgeting
Presents government operations in terms of functions, programmes, activities.
Merits: Accountability, transparency, efficient fiscal management.
Demerits: Only quantitative and financial evaluation; not qualitative.
e) Gender Responsive Budget (GRB)
Examines budgets for contribution to gender equality.
First practiced in Australia (1984).
Nepal institutionalized on 30 August 2005.
Introduced in FY 2007/08.
Categories:
Directly gender responsive – >50% allocation directly benefiting women.
Indirectly gender responsive – 20–50% benefiting women.
Neutral – <20% benefiting women.
GRB in FY 2081/82:
1
Directly
81,59,407
43.86%
2
Indirectly
52,046,952
7.98%
3
Neutral
44,62,395
28.16%
Indicators for assessment:
1
Women Participation in formulation and implementation
20
2
Women Capacity Development
20
3
Women's Share in benefit
20
4
Support in employment and income generating to women
20
5
Quality reform in time consumption & minimization in work to women
20
Total
100
3. On the Basis of Sectoral Expenditure
Recurrent budget: Regular and administrative expenditure.
Capital budget: Capital expenditure in development activities.
Financing budget: Repayment of principal and interest of loan.
⚖️ Legal Provision for Budgeting in Nepal
Constitution:
Federal financial Procedure (Part 10), State (Part 16), Local (Part 19).
Annual estimate presented by Finance Minister before joint sitting of federal parliament on Jestha 15 (Article 119).
Budget needs approval by parliament.
Acts/Rules:
Financial Procedure Act, 2055.
Financial Procedure Rules, 2064.
Budget Formulation Referent issued by Ministry of Finance.
📅 Seventh Federal Budget of Nepal FY 2024/25 (2081/82)
Presented by: Hon'ble Finance Minister Barshah Man Pun on 28 May 2024.
Targets:
Economic growth: 6.0%
Inflation: below 5.5%
Previous FY 2023/24 growth: 3.9% (estimated), inflation (9 months): 4.6%.
Objectives:
Increase production, productivity, and employment.
Raise morale of private sector, attract investment, intensify economic activities.
Develop human resources.
Mobilize resources equitably, reduce inequality and poverty.
Make public service delivery effective.
Priorities:
Economic reform and private sector promotion.
Development of agriculture, energy, IT, tourism, industry, infrastructure.
Development of social sectors (education, health).
Inclusiveness and social security.
Promotion of good governance and public service delivery.
🏆 Major Highlights of Budget FY 2081/82
Total Budget Size: NPR 1,860.30 Billion.
Recurrent expenditure: NPR 1,140.66 billion (61.31%)
Capital expenditure: NPR 367.28 billion (18.94%)
Financial Management: NPR 367.28 billion (19.74%)
Source of Financing:
Revenue
1260.30
67.74%
Foreign Loan
217.67
11.70%
Domestic Loan
330.00
17.73%
Foreign Grant
52.33
2.81%
Budget Deficit: 330 Billion (financed through domestic borrowing).
Key Sectoral Allocations/Initiatives:
🌾 Agriculture:
Decade 2081-91 BS declared as decade of investment in agriculture.
NPR 2.98 billion for Prime Minister Agriculture Modernization Project.
Subsidies in credit, tax, loan waivers for commercialization.
⚡ Energy:
Target: Add 900 MW to national grid.
Increase per capita electricity consumption to 450 units.
Build 6 hydroelectricity projects for self-reliance in dry season.
Tax on EVs increased by avg. 10%.
Budhigandaki and Upper Arun projects for export to Bangladesh.
Allocation to Ministry of Energy: NPR 87.55 billion.
💻 Information Technology:
Decade 2081-91 BS declared as decade of IT.
Target: Employment for 1.5 million, IT service export worth NPR 3 trillion in 10 years.
NPR 590 million for Digital Nepal Framework (DNF) reform.
IT parks, data centers, domestic software promotion, broadband access.
Tax rebate for IT companies on reinvested profit.
🗺️ Tourism:
Target: 1.6 million tourists next year.
Open door services for tourists.
Roadshows in India and China.
Pilgrimage tourism: direct transport from border to Pashupatinath, Swargadwari, Muktinath.
Adventure tourism: paragliding, skydiving, ultralight via unused airports.
Janakpur as wedding hub, Lumbini as birthing hub.
Grants to Province and Local Level:
Equalization grant: Provinces – NPR 60 billion, Local – NPR 88 billion.
Conditional grant: Provinces – NPR 25.84 billion, Local – NPR 208.88 billion.
Complementary grant: Provinces – NPR 6.20 billion, Local – NPR 7.00 billion.
Special grant: Provinces – NPR 4.40 billion, Local – NPR 8.50 billion.
📒 Government Accounting System
Government accounting is the scientific and systematic process of recording, classifying and summarizing the financial transactions of the government, and interpreting and communicating the result thereof.
Definitions:
Audit Act, 2048: "Accounts means the records, ledgers, books, etc. maintained under existing laws showing particulars of transactions."
Oshisami and Dean: "Government accounting is the process of recording, analyzing, classifying, summarizing, communicating, and interpreting financial information about government."
AICPA: "Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events."
Objectives:
Maintain systematic record of financial transactions.
Avoid excess expenditure beyond budget.
Make expenditure according to Acts, rules.
Provide reliable financial information.
Prevent misappropriation.
Facilitate auditing.
Help in preparing financial statements.
Facilitate annual budget preparation.
Safeguard public properties.
📜 Development of Government Accounting in Nepal
1871 BS: 'Laal Dhadda' introduced for revenue and administrative expenses.
1879 BS: 'Moth Dhadda' for land revenue.
1925 BS: 'Kitabkhana' established for employee records.
1936 BS: Syaha Shrestaa Pranali developed by Kharidar Gunawanta.
Used forms: Syaha, Aawarje, Dhapot.
Remained until 2016 BS.
2008 BS: First budget introduced.
2017 BS: Bhuktaani Shrestaa Pranali implemented (failed).
2018 BS: New Accounting System (double-entry bookkeeping) introduced.
2032 BS: Financial Comptroller General Office (FCGO) established.
2038/39 BS: District Treasury Controller Offices (DTCO) established in all districts.
📐 Principle of Accounting (GAAP)
Periodic principle
Principle of dual effect
Principle of monetary measure
Principle of cost
Principle of matching concept
Principle of consistency
Principle of separate entity
Principle of accrual
Principle of realization
📂 Scope/Area of Government Accounting in Nepal
Expenditure Accounting System
Revenue Accounting System
Inventory Accounting System
Project Accounting System
Operational Accounting System
Public Construction Accounting System
✅ Features of Government Accounting in Nepal
Double entry accounting system.
Cash-based accounting (not accrual).
Use of revenue and expenditure account (not profit & loss).
Use of forms prepared by FCGO.
Uniformity in all government offices.
Books maintained for each budget head.
Books closed at fiscal year end.
Provision of internal and external auditing.
Treatment of advance as expenditure.
❌ Weakness/Problems of Government Accounting in Nepal
Cash-based accounting (no accrual).
No depreciation accounting.
Advance treated as expenditure.
IPSAS not fully incorporated.
Inventory accounting based on single-entry.
Unable to reflect real picture of assets/liabilities.
Lack of proper ICT utilization.
🔍 Government Auditing
Auditing is the independent and critical examination of financial records, statements, operations and performances, to check reliability, accuracy and sufficiency.
Audit Act, 2075: Audit shall be performed for all government offices, state, local, wholly-owned organizations by Auditor General.
Key Fundamentals of Auditing:
Based on Constitution, laws, rules, guidelines, agreements, parliamentary decisions, policies.
Article 241 of Constitution: Audit on basis of regularity, frugality, efficiency, effectiveness, justification.
📈 Developments of Government Auditing in Nepal
1828 BS: Kumari Chowk Adda – formal auditing began.
2015 BS: Office of Auditor General as constitutional organ.
2016 BS: Auditor General established as supreme institution.
2018 BS: First Audit Act enacted.
2032 BS: FCGO established.
2038 BS: DTCO established in all districts.
2048 BS: Audit Act, 2048 enacted.
🧾 Types of Auditing
1. Internal Audit
Began from 2018 BS.
Done by employees of organization.
In Nepal, internal audit in public offices done by DTCO under delegated authority from FCGO.
Characteristics:
Objectivity
Clarity
Accuracy
Timeliness
Brevity
2. External/Statutory Audit
Performed by Office of the Auditor General.
Final audit at fiscal year end by independent constitutional body (Auditor General).
Elements of audit (5 Es):
Regulatory – accordance with law & GAAP.
Economy – low input, high output.
Efficiency – minimization of means, maximization of results.
Effectiveness – objectives achieved.
Propriety – rational and social responsibility.
⚖️ Provisions for Government Auditing in Nepal
Constitutional Provision:
Final audit by Auditor General.
Audit on basis of regularity, economy, efficiency, effectiveness, propriety.
Auditor General consulted for appointment of auditor for corporate bodies with >50% government share.
Legal Provisions:
Audit Act, 2075.
Financial Procedure and Fiscal Accountability Act, 2076.
Financial Procedure and Fiscal Accountability Rules, 2077.
Institutional Provisions:
Internal audit in federal offices by DTCO.
Internal audit in local levels by internal audit sections.
Final audit by Auditor General.
Performance audit considering 3E’s (Economy, Efficiency, Effectiveness).
🏢 Financial Comptroller General Office (FCGO)
Main agency for treasury operation under Ministry of Finance.
Headed by Financial Comptroller General (special class officer).
Functions:
Oversee government expenditure against budget.
Track revenue collection.
Prepare consolidated financial statements.
Maintain basic accounts.
Conduct internal audit.
Ensure timely debt repayment.
Manage pension distribution.
Organization:
Field offices in all 77 districts (District Treasury Controller Office – DTCO).
DTCO releases budgets, controls, reports.
🏛️ Office of the Auditor General (OAG)
Established per Constitution of Kingdom of Nepal, 2015.
Aim: Safeguard public resources, audit regularity, economy, efficiency, effectiveness, propriety.
Promotes transparency, accountability, good governance.
Article 241 of Constitution of Nepal, 2072: All Federal and Provincial Government Offices, President, Vice-President, Supreme Court, etc. audited by Auditor General