Nepali Times
Its The Economy
Budget discord


After much disagreement over the size and nature of budget for fiscal year 2012-13, Finance Minister Barsha Man Pun finally unveiled through ordinance on Sunday, 'The Bill for Authorising Withdrawal and Expenditure from Consolidated Fund for the Services and Works, 2012'. In plain English, that means a partial budget.

The expected expenditure is approximately Rs 161.24 billion, of which Rs 51.29 billion is earmarked for debt servicing and expense of constitutional bodies. The remaining Rs 109.72 billion is equal to one-third of the revised expenditure estimate of fiscal year 2011-12.

It will be just enough to meet administrative expenses and to finance ongoing development, which should be of the same expenditure sub-heads as of the last fiscal year. The tax structure and revenue collection will be guided by the Finance Act 2010/11, which means they won't change until the full budget is unveiled. Moreover, the government is not allowed to use domestic and foreign loans to finance expenditure during this period. It will have to issue overdrafts as per Nepal Rastra Bank Act 2001 in case revenue collection cannot cover expenditure.

The partial budget does not include new programs except for Rs 3 billion for CA election, Rs 3.69 billion for payment to PLA combatants who chose voluntary retirement, and Rs 3 billion for the establishment of proposed Directorate of Nepal Army. Understandably, the opposition objects to such ad hoc allocations.

Visibly unhappy with the way he was compelled to unveil a partial budget, Pun defended his track record and outlined what he would have done if a full budget were allowed. He mentioned populist programs like 100 days of employment guarantee to unemployed, free education up to 10+2 level for Dalits, allowances to elderly and handicapped, cultural centres, allowance to girls to attend school and universal insurance, among others.

Pun said the macro-economy had performed better during his tenure than previous years, with the economy growing at 4.6 per cent, up from 3.9 per cent last year and 4.3 per cent in 2009/10. Let us be clear that this happened not due to any special effort by the government, but due to favourable monsoons and availability of agriculture inputs, which increased paddy production and pushed agriculture growth rate to 4.9 per cent, the highest in the last four years. While the growth rate in service sector remained unchanged at 3.6 per cent, industry sector grew at just 1.6 per cent, which is lower than 2.9 percent in 2010/11.

All this proves that the major constraints to robust industrial activities were not addressed. In fact, the industrial sector is still crippled by power cuts, lack of affordable raw material and qualified human capital, persistent labour problems coupled with an expensive workforce (Nepal has the highest wage overheads in South Asia), strikes, lack of innovation, and a policy implementation paralysis.

The gross fixed capital formation as a share of GDP was 19.6 per cent, the lowest in the past decade. There is no improvement in cost competitiveness and efficiency of the industrial sector. Due to lack of adequate inventory and production hassles in export-oriented sectors, Nepal could not take advantage of weakening of Nepali rupee against major currencies.

Meanwhile, during the first eleven months of 2011/12, the balance of payments surplus and forex reserves reached a record Rs 113 billion and Rs 427 billion respectively. This wasn't because of any novel government policy and structural change in the way the economy is functioning, but because of high remittance inflows and net transfers. There are still worrying signs in the economy: inflation is still high (government's projection of eight per cent for 2011/12 is a gross underestimation), the trade deficit is widening, industrial woes are persistent, recurrent expenditure is rising, fiscal deficit is increasing, financial sector troubles are not sorted out, and some inefficient state-owned enterprises continue to drain taxpayer's hard-earned money.

The budget provides no relief program for the public, who are hammered by soaring inflation. The troubled industrial sector is also not getting immediate relief. The grand plan for Nepal Investment Year 2012/13 is now out of gear, and development will suffer.

The best the caretaker government can do is ensure good industrial relations, maintain investor confidence and earnestly implement ongoing projects by plugging leakages. Importantly, the primary focus should be on sustaining growth rate given the impending impact of late monsoon and fertiliser scarcity during planting season.

Chandan Sapkota, a researcher at South Asia Watch on Trade, Economics and Environment (SAWTEE), starts a fortnightly column in Nepal Times, It's The Economy. Views expressed in the column are personal.

1. Nirmal

Well, Mr Pun is not an economist, neither he's ideas that could reflect the hallmarks of social democracy through economic policies nor he knows how to copy and paste the neo-liberal policies that the officers who largely sponsor our budget dictate in a country like ours. He was even not taught properly to use the guns --look how many innocent people had been killed during their insurgency-- ! The revolutionary man is happy in his suit and tie. Let him live his days of glory.

Many experts are enthusiastic with the numbers that they say healthy: 4.6% growth rate and per capita income nearly 278$. But seeing how expensive is a life in Nepal I wonder how a common man or woman could survive preserving his/her dignity with such a tight budget that lacks measures of stimulation of people's spending power. The crux of any economy must attend two factors, 1)How to express the balance sheet ideologically 2)regulate the people's income,  in terms of purchasing power.

(11 JAN 2013 - 17 JAN 2013)