Govt plans to increase recurrent expenditure to 9.5pc by FY26

The government is set to increase its recurrent expenditure from 8.7 per cent of the Gross Domestic Product (GDP) in the current fiscal year 2023-24 to 9 per cent in 2024-25, with a further rise to 9.5 per cent in 2025-26 (FY26).

This projection marks a notable increase, according to the Finance Division of the Ministry of Finance. Over the past five years, the recurrent expenditure averaged 7.4 per cent of GDP, highlighting a significant upward trend in government spending.

Recurrent expenditure encompasses salaries for government employees, goods and services purchases, subsidies, transfer payments, and interest on both domestic and foreign loans. The government is keen on optimising these expenditures, particularly the pay and allowances for public service, to ensure effective delivery of services.

The adoption of Electronic Fund Transfer (EFT) for all governmental payments, including pensions, has bolstered the efficiency of the payment system, minimising leakages and leading to a decrease in salary and allowance expenditure as a percentage of the total budget from 14.9 per cent in FY 2017-18 to 12.1 per cent by FY 2021-22. This trend is expected to continue, with projected expenditures of 10.6 per cent in 2023-24, and adjustments to 11 per cent and 13 per cent in the subsequent fiscal years.

The 'Medium Term Macroeconomic Policy Statement (2023-24 to 2025-26)' outlines several initiatives aimed at improving the procurement and management of goods and services. These include the e-GP system for public procurement, digitalisation of inventory management, and various e-payment systems, leading to a more efficient management process.

Consequently, the average expenditure on goods and services has seen a decrease, with a projected slight increase to 7.6 per cent by 2025-26, reflecting the government's commitment to fiscal efficiency while addressing growth needs.

The government is also adjusting its focus towards pro-poor growth strategies and rationalisation of subsidies, particularly in energy, by implementing regular price adjustments to reduce subsidy dependence. This strategy aligns with broader economic objectives outlined in the 8th Five-Year Plan, emphasising support for agriculture, export diversification, remittance enhancement, and green technologies.

Moreover, the document highlights efforts to incentivise remittance through banking channels by offering a 2.5 per cent cash incentive and favourable exchange rates for expatriates, underscoring the government's commitment to encouraging financial inflows through formal channels.

Interest payments, a significant portion of recurrent expenditure, are carefully managed through a balanced mix of domestic borrowing and concessional external loans to mitigate interest payment obligations. Despite the challenges posed by fluctuating interest rates, the government's policy shift towards reducing borrowing from NSD instruments is a strategic move to manage this expenditure more effectively.

This comprehensive fiscal strategy, outlined by the government, emphasises efficiency, digital innovation, and targeted support to foster sustainable economic growth and development.