Nepali Times
Too big to fail


The Armed Police Force and the Nepal Police were not paid their salaries last month. Neither were they able to withdraw money for their rations. The five biggest hospitals declared they had run out of funds in October. Several districts failed to pay their schoolteachers last month. If the budget remains pending, noone will pay them next month either. Nor will the government be able to provide allowances to Maoist combatants stationed at various UNMIN camps. Prison authorities have run out of funds to buy food for inmates.

At the time of writing, the Rs 296 billion budget has not been passed. The government is the largest single spender in the country, and the budget accounts for almost 28 per cent of the economy. A pending budget basically means that the economy is running on an empty tank.

The inability of the government to spend is already manifest in signs of a liquidity crunch: money is not moving through private markets. In response, on Sunday, the inter-bank interest rate rose from three per cent to a whopping 10.2 per cent.

But it's not just a matter of injecting money into the economy. Remote areas are dependent on the government for all of their economic activities. During the harvest season, the government usually delivers essential crops to remote areas for the winter months. None of this has happened so far. Exacerbating the problem is the dramatic decline in agricultural production this year because of a 60 per cent decrease in monsoon rain

The government was entitled to spend one-third of the budget in advance. Four months later, most of the ministries have already used up this allowance. Government institutions are now staying afloat by taking loans from each other. The office of the prime minister, for example, had to borrow money from the Ministry of Physical Planning and Works to pay its staff. "We have been told that prison authorities had to borrow from the National Food Corporation to feed inmates," said Finance Minister Surendra Raj Pandey.

Bishambar Pyakurel, Professor of Economics at Tribhuvan University, is categorical. "If the budget fails to pass, we will have a crisis, much more severe than the Maoist war."

But even if the budget is passed quickly, our troubles are not over. The budget was structured on the basis that the country would enjoy a growth rate of seven per cent in the following year. It was an ambitious assumption considering it was five per cent when the Maoists were leading the government.

Even aiming to maintain this rate is not realistic, points out Pyakurel: "With the political stalemate of the last six months, Nepal will be lucky if it has a growth rate of 2.5 per cent."

The budget could be passed by ordinance, effectively bypassing parliament. But this is only a stop-gap measure. The ordinance would need to be ratified in parliament within six months, postponing the political crisis for another day. "Passing a budget through an ordinance basically means waging war with the Maoists," says Pyakurel.

In the past few days, the government has scrambled to find a way to pass the budget. On Tuesday, Finance Minister Pandey said, "We have no alternative but to pass the budget. We are in discussions with the opposition party about it."

But the opposition party is framing this as the government's problem. Maoist leader Baburam Bhattarai accused the government of using the issue of the budget to divert attention from their demands for civilian supremacy. "We have never said we will stop the budget from being passed," he said. "They should have been more responsible and addressed our demands on time."

Merry-go-round, 18 NOV 2009
Pass the buck, Editorial, FROM ISSUE #476 (13 NOV 2009 - 19 NOV 2009)
Budget items, Editorial, FROM ISSUE #459 (10 JULY 2009 - 16 JULY 2009)

(11 JAN 2013 - 17 JAN 2013)