Nepali Times
Economic Sense
More budget blues


In the land of Pashupatinath, we let the Lord of Animals take care of things.

The concept of living in the present and bearing the consequences of this life in the next one makes us fatalistic and tolerant of injustices. It also gives us elastic morals in which anything can be justified.

Take economic policy. We don't have one. Things are allowed to drift from one day to the next, come what may. For the first time in Nepal's modern history, we did away with the budget and substituted it with an advance to the government. The Economic Survey for 2007/2008 hasn't been published yet. So no one knows what our performance was in the past year.

The government's regular expenses are soaring and total revenue collection doesn't match spending. We are borrowing and surviving on grants to meet development expenditure. With inflation going up and up, the government wants more money to subsidise the bureaucracy. Administrative reforms are not planned, which means tax payers will still bear the cost of a bureaucracy that is already bloated and inefficient. The political entities treat the government like a recruitment centre, and add kith and kin to salaried jobs.

It's not just the left parties that want to dole out money on populist largesse. Even right of centre parties want to splurge tax payer's money on handouts. The issue the ideologues ignore is that one can't spend more than one earns. With so many business personalities represented in the Assembly, it will not be surprising if businesses also get tax rebates and subsidies. Allowances for the elderly or cash for legislators will have a long-term bearing, and the compounded effect of such spending can be drastic.

Petroleum subsidies have now added up to Rs 12 billion, and continuing this spending spree will mean losses amounting to five percent of GDP. The money lost on oil subsidies should be what the government should spend on education and health. There are two ways of handling this issue, one is to leave petroleum to the market and
allow people who know the business to run it.

The other is to base the petroleum prices on a fixed rupee tax rather than tax based on a percentage of the price. The government shouldn't be profiting from rising global oil prices at the expense of consumers.

Protectionist Nepali businesses always find ways to convince the government to raise duties, taxes or fees. Every increase in the tax rate benefits the informal trade more than the government. Higher taxes mean more incentive not to pay them. The revenue administration gets its cut, but the government loses out.

What it boils down to is that when the economy is as mismanaged as it is now, we will be even more dependent on foreign aid. The government may get some relief, but aid comes with strings attached, and this will increase foreign interference in our internal affairs.

Nepal will remain a guineapigland for ODA experimentation, junkets, conferences andS seminars at the cost of finally coming to grips with the hard economic realities. If we can rely on Pashupatinath, who needs a budget?

(11 JAN 2013 - 17 JAN 2013)