DAMBER KRISHNA SHRESTHA LOOKING UP TO GOVERNMENT: Children walking to the Mane Danda Primary School in northern Dolakha last week. Friday's budget is expected to set aside money to ensure 100 per cent literacy in two years.

After he became finance minister last month, Baburam Bhattarai asked the visiting Afghan economist Ashraf Ghani: "How can I keep my party happy while at the same time maintain economic stability?"

Ghani gave Bhattarai a written list of things to watch out for. As he prepares to present the budget to parliament on Friday afternoon, Bhattarai will follow the advice of donors to balance the need to push some populist measures with keeping the economy on track.

Bhattarai has said he wants the economy "to leap like a frog and not slither like a snake," and he is satisfied with letting a few large highway and hydropower projects to drive growth for now.

"There isn't enough time to completely overhaul economic policy, the budget will just put some dressing on the old policies," says Bhattarai's budgetary aide, Dipendra Chhetri.

Costly programs like 'revolutionary' land reform, increased urban property tax, pension to women and farmers are to be dropped. Even the allowance for the elderly, widows and handicapped is expected to be limited to the Karnali, and debt forgiveness for small farmers will only apply to the landless.

An ambitious plan to ensure 100 per cent literacy by 2011, is unlikely to happen, and not because of lack of money. "It is just not possible when 11 per cent of the children don't go to school and see no need to," says TU educationist Tirtha Khaniya, "children aren't going to go to school just because you build schools."

However, the Rs 225 billion budget is expected to announce major investment in expanding the network of rural roads in the hope of creating 100,000 jobs in the coming year and providing farmers with access to markets.

Bhattarai has put his sights on revenue generation by controlling smuggling. A recent study showed that only 59 per cent of goods imported from India come through official channels. Just reducing smuggling by 10 per cent is expected to yield up to Rs 20 billion. This won't be easy: the Kodari customs was closed last week by traders after the government tried to stop smuggling.

The biggest challenge will be to ensure industrial security so that foreign investors will come to Nepal. The record so far is not good.