KATHMANDU: In a significant development that could stall numerous infrastructure projects across the country, the Federation of Contractors’ Association of Nepal (FCAN) has announced that its members will not continue work on various construction projects until the government guarantees adequate financial resources. The decision follows concerns over the low budget allocated for ongoing and completed projects in the current fiscal year, leaving contractors with unpaid dues amounting to billions of rupees.
Contractors Demand Payment Assurance
FCAN President Rabi Singh stated that the organization has issued a circular to all its members, urging them to halt construction activities until the government ensures that sufficient funds will be made available. “We have requested member entrepreneurs not to work until the government ensures financial resources to clear our outstanding dues,” Singh said.
The financial strain on contractors became particularly acute after the government released only Rs 15 billion to pay contractors during the final week of the fiscal year 2023/24. Despite this payment, a significant amount—estimated at Rs 20 billion—remains outstanding, leaving contractors in a precarious financial position. The Ministry of Finance (MoF) has acknowledged its inability to clear these dues through budget transfers at the end of the fiscal year, further exacerbating the issue.
Budget Shortfalls and Financial Liabilities
Contractors have criticized the government for what they describe as inadequate and unrealistic budget allocations for development projects. For instance, the government has allocated only Rs 780 million for the ongoing work on the postal highway that spans the Banke, Dang, and Bardiya districts, despite being left with a payment obligation of Rs 1.29 billion for work already completed. To add to the contractors’ frustration, the allocated budget includes Rs 30 million earmarked for administrative expenses, leaving even less for actual project work.
The issue of budget shortfalls is not new. Each year, the government fails to fully utilize the funds allocated for development projects, leading to delays and financial bottlenecks. In the last fiscal year, of the total capital expenditure of Rs 302 billion allocated, the government utilized only Rs 191.71 billion, representing just 63.47% of the earmarked funds. This underutilization further compounds the challenges faced by contractors, who are often left waiting for payment long after their work has been completed.
End-of-Year Budget Transfers: A Recurring Issue
A significant part of the problem stems from the government’s practice of making large budget transfers at the end of each fiscal year, often in the name of paying for infrastructure development projects. In the fiscal year 2023/24, records from the Ministry of Finance show that the government transferred around Rs 25 billion in just two months, from mid-May to mid-July, with Rs 13.96 billion released for development projects during this period.
However, these last-minute budget transfers are often insufficient to meet the full financial obligations owed to contractors, leading to the current standoff. FCAN President Singh has called on the government to provide clarity on how it plans to pay the outstanding dues. “The government should come up with clarity about how it will pay our dues first. As the sufficient amount is not allocated through the budgetary system, it should be clear whether to clear our dues via budget transfers, taking borrowings or any other means,” Singh emphasized.
Government’s Response and Contractors’ Concerns
The Ministry of Finance has responded by stating that it made the necessary arrangements to clear the contractors’ dues in the fourth quarter of the last fiscal year. “It is now solely the responsibility of the line ministries how they work on it,” said MoF spokesperson Uttar Kumar Khatri. However, this response has done little to assuage the concerns of contractors, who are demanding immediate and concrete action from the government to resolve the issue.
The standoff between contractors and the government comes at a time when Nepal’s infrastructure development is crucial for economic growth and national development. With major projects across the country at risk of being delayed or halted entirely, the implications of this impasse could be far-reaching, affecting not only the construction sector but also the broader economy.
The Way Forward: A Call for Government Action
Contractors have made it clear that they will not resume work until their demands are met. The FCAN has urged the government to consider alternative means of funding, such as taking borrowings, to clear the outstanding dues. The current situation has highlighted the need for more efficient budgetary planning and execution, with contractors calling for a more transparent and reliable system for funding development projects.
As the standoff continues, it remains to be seen how the government will respond to the contractors’ demands. The outcome of this situation will be crucial in determining the future of Nepal’s infrastructure development and the overall stability of the construction sector.
In the meantime, the halt in construction work is likely to delay several key projects, with potential knock-on effects for other sectors of the economy. As the fiscal year progresses, the government will need to address these challenges head-on, ensuring that financial resources are adequately allocated and that contractors are paid in a timely manner. Only then can the country’s development projects move forward, contributing to the growth and prosperity of Nepal.