– By Indra Adhikari

Finance Minister Dr. Ram Sharan Mahat.

Finance Minister Dr. Ram Sharan Mahat. (File Photo)
As Finance Minister Dr. Ram Sharan Mahat and his team are giving final touches to the annual budget estimates for the year 2006-07 to be presented in the parliament on Wednesday, challenges being faced by them are no less daunting.

In fact, raising and allocating resources for the new fiscal year would be more challenging than leading people’s movement for the present seven-party coalition government which came to the power expressing its commitments to meet the aspirations of the people early this year.

Experts say improving lives of people in the rural areas is the key that can lead Nepal towards economic prosperity in shorter period. Tenth five-year plan (2002-07) set poverty eradication as its top priority. Latest studies say number of people living below poverty has come down to 34 percent of the population now compared to 42 percent some one decade back. But life of the people in the rural areas has not improved equally during this period.

Minster Mahat has announced that the budget for the new fiscal year 2006/7 will give emphasis on rural infrastructure development that have been badly affected due to the decade- long insurgency.

Reports said the new budget is likely to touch Rs 144 billion mark this year.

Former vice chairman of the National Planning Commission (NPC) Dr Shankar Sharma

Former vice chairman of the National Planning Commission (NPC) Dr Shankar Sharma (File Photo)
“The problem is donors can’t be expected to chip in so much money immediately and the sources of revenue are also limited,” said former vice chairman of the National Planning Commission (NPC) Dr Shankar Sharma. “The only alternative for the government then would be to raise internal debt.”

According to Sharma, the government must increase grants to Village Development Committees (VDCs) and District Development Committees (DDCs) to accelerate rural development. “Last year’s budget was prepared taking into account that development activities could not be effective due to conflict. But the situation has changed now. The government must give priority to local development by increasing investment in drinking water projects, rural electrification, in improving the quality of government schools, health posts and complete the community-level projects to support local livelihoods that remained suspended,” he added.

One of the major partners in the coalition government, CPN (UML), has demanded that annual grants for VDCs be increased substantially from Rs 500,000 at present to Rs two million. It was the minority UML government in 1995-96 that had introduced the idea under the much-talked about “Build Your Village Yourself” programme.

Economist Prof. Bishawmbher Pyakuryal (File Photo)

Economist Prof. Bishawmbher Pyakuryal
(File Photo)

A noted economist and president of Nepal Economic Association, Prof. Dr. Bishwambher Pyakuryal says that the priority of the government should be to initiate projects that will have immediate impact over shorter period of time and lay foundation for long term and massive development projects. “International experiences show that development expenditure needs to be increased by up to three times in the post conflict period,” he added.

But the question is: where will the resources come from? The government has to reduce the target of revenue collection by more than Rs 10 billion this year. On the other hand, national debt has been increasing at an alarming rate. According to Prof. Pyakuryal, internal debt is increasing at 5.16 percent and the foreign debt has been increasing at 6.68 percent. But debt servicing has been very low. This has forced the donors to divert the development donation to humanitarian activities, he added.

While preparing to join the interim government, Maoist rebels have said they will not accept the new budget if it discussed about long-term development programmes in the country. “This government is only ad hoc in nature and hence doesn’t have any mandate to announce policies and programmes that could have long term impact,” said Dev Gurung, a member of the Maoist negotiating team and chief of the economic department of the CPN (Maoist).

Country director It will take some time for Nepalis, the state and people together, to define a clear vision of the New Nepal. But, its outline is already visible. It must be focused on three things: peace, social and political inclusiveness, and economic growth. (It) is larger than a budget, it must establish the credibility of the state
-Ken Ohashi, Country director of the World Bank in Nepal
Similarly, the government is not in a position to reduce its day-to-day expenditure. According to Dr Sharma, nearly 20 percent of the increased budget would go on meeting recurrent expenditure. Reduction in the mobilization cost of security forces and cut in the privileges of the royal family would not decrease recurrent expenditure so much, he added.

In an article carried by Nepali Times weekly last week, country director of the World Bank in Nepal, Ken Ohashi, said, “It will take some time for Nepalis, the state and people together, to define a clear vision of the New Nepal. But, its outline is already visible. It must be focused on three things: peace, social and political inclusiveness, and economic growth. (It) is larger than a budget, it must establish the credibility of the state.”

Inheriting national coffers that was widely misused by the royal regime over the past few years, Minister Mahat has a daunting task of bringing the economy back on track and put in on the growth path. But it would also be a moment to outline roadmap for the country’s economic prosperity weeks after the restoration of loktantra (democracy) in the country. nepalnews.com July 11 06