11 July, 1999

Rt. Hon’ble Speaker,

1. After the restoration of multi-party system, I, on behalf of the government of majority Nepali Congress, had the foremost opportunity to present the budget of the fiscal year 1991/92. Today, after eight years, while standing again in this august house, on behalf of the government of majority Nepali Congress, to present the budget of the fiscal year 1999/2OOO, I would like to salute to all democracy friendly sisters and brothers of the, country.
2. Policies and programs initiated by the government of Nepali congress in 1991 in economic, social and administrative. sectors were poised toward building strong and efficient economy. The fact that those reform programs had positive impact in -strengthening the economy was experienced by all. During that period of the Eighth Plan, when there had been speedy reform in revenue mobilization and high economic growth rate, programs related to social services and social welfare were also initiated for the economic prosperity of deprived classes of society. However, due to the political instability of the past four and half years, those policies and programs of economic reform could not be sustained as we expected. Consequently, slackness instead of expansion started to surface in economic activities. The adverse impact of economic slackness has also been felt in our social life.

Review of the Current Economic Situation

3. While preparing the budget of the fiscal year 1999/2OOO, it is necessary to assess where we stand now and what have been pointed out by main economic indicators. Therefore, I would first of all like to have permission to present, in this august house, the brief glimpse of the current economic situation.
4. The growth rate of Gross Domestic Product (GDP) during the Ninth Five Year Plan period has been targeted at 6 percent with growth rate of agriculture sector and non agriculture sector of 4 percent and 7.3 percent respectively. However, during the first two years of tile plan period, overall economic growth rate of only 3.1 percent in average could be achieved with the growth rate of 1.7 percent of agriculture and 4 percent of non agriculture sector. Against the targeted ratio of 17 percent of gross savings and 25 percent of gross investment to GDP during the ninth plan period, it is estimated that such ratios of gross savings and gross investment would be only 1 O.6 percent and 17.3 percent respectively in the current fiscal year.
5. The situation commanding faith of investors in overall economy could not be created due to the unfavorable climate, uncertainties in economic reforms, slackness in internal resource mobilization and increasing fiscal imbalances during the period of last two years. The cost of capital, which is necessary for investment, could not come own as expected. Sluggishness appeared in economic activities due to slowness in the mobilization and utilization of foreign aid. Due to all these reasons, the overcall economic growth rate is expected to be 3.4 percent in the current fiscal year. The growth of agriculture and non-agriculture sector is estimated to be 2.4 percent and 4.1 percent respectively.
6. Against the revenue collection target of RS. 39,479.4 million in the current fiscal year, it is expected, as per revised estimate, that the revenue mobilization in comparison with the previous fiscal year will increase only by 11.9 percent and reach RS. 36,85O.O million. As such, the ratio of revenue to GDP is estimated to be 11 percent, which is not a satisfactory situation in view of internal resource mobilization.
7. During the current fiscal year, a total of RS. 69,693.3 million was allocated. out of which RS. 31,952.2 million was for regular expenditure and RS. 37,741.1 million for development expenditure. The revised estimate is that in the current fiscal year 98.8 percent of the allocated budget for regular expenditure will be spent as internal sources had to be mobilized also for the general election, and for the preparatory works of 11~1 summit of the South Asian Association for Regional Cooperation (SAARC) and Eighth South Asian Games to be held in Nepal. However, development activities could not take momentum due to the political instability, general election, inadequate provision of’ counter part fund for foreign aided projects, lack of timely claim on reimbursement, and difficulties appeared in project management. As a result, it is expected per revised estimate that in the current fiscal year only up to 84 percent of the allocated budget for development expenditure could be spent
8. 0verall monetary indicators have expanded at slower rate as compared to the previous year. During the first 11 months of the previous fiscal year, narrow and broad money supply were increased by 13.5 percent and 17 percent respectively. Whereas, during the same period of the current fiscal year, the growth rate of such monetary expansion have been 13.1 percent and 16.8 percent respectively. During the same period, the credit flow to private sector has risen only by 12.1 percent as compared to 1S.5 percent during the previous year.
9. In foreign trade front, total export during the first 11 months of the current fiscal year has increased by 34.2 percent and reached RS. 33,21O.O million as compared to the previous fiscal year. out of this, export to India increased by SO.8 percent and to other countries by 26.4 percent. During the same period, the export of woolen carpets and garments rose by 1S.7 percent and 37.1 percent respectively. The total import declined by 2.9 percent and amounted to RS. 78,93O.O million. The import from India has increased by 18.8 percent, whereas import from other countries has declined by 12.2 percent. The overall ratio of export to import has been 42.1 percent.
10. As per the latest balance of payments indicators of up to the first eight months of the current fiscal year, there has been after many years a surplus of RS. 330 million in the current account. As a result of such basic change in the current account, there has been a surplus of RS. 9,O9O.O million in the balance of payment during the above period, which led to the foreign exchange reserve of RS. 74,48O.O million by mid-June. on the basis of the tendency of import to-date and prevailing exchange rate, the present level of foreign exchange reserve appears to be adequate to support imports of 11 months equivalent.
11. During the first l 1 months of the current fiscal year, the growth rate of the overall national urban consumer price index has been l 1.8 percent. During the same period of the previous fiscal year, the price index had increased by 7.9 percent. The continuous increase in the price index of food items from the beginning of the current fiscal year has been the main reason for such high increase in the price index in the current year.

Challenges of the Economy

12. As there still exist weaknesses and challenges in policy, structural and institutional aspects of our economy, the overall production and economic growth rate could not remain at high and become sustainable. After the restoration of democracy, numerous efforts relating to policy, structural and institutional reform were initiated in order to make the economy robust. Achievements from those efforts were encouraging. Our ability and achievements have been shattered as the economic reform, policy change, institutional ability and feeling of responsibility could not receive anticipated perpetuity and commitment. The wound of poverty, unemployment and social adversity is recurring. The existence of this situation, even after nine years of the restoration of democracy, is of grave concern and challenge for us. Therefore, I feel it as the main duty of the elected government to place without fear — the economic, social and administrative weaknesses and challenges which are becoming more complex in the country — in front of the nation and people, and to strive sincerely and honestly for their solution.
13. Traditional Agriculture and Law Productivity : The reliable basis of income generation and employment within the short period for Nepal as well as Nepalese people is agriculture. Yet, the agriculture sector which has such potentiality and capability is entangled with the vicious circle of low productivity. Due to lack of irrigation facility, subsistence oriented cultivation, use of old technology, lack of seeds, fertilizer and market etc., the production and growth rate of agriculture sector has remained very low. Income generation and employment opportunities could not increase particularly in rural areas. Likewise, there has not been expected improvement in per capita income due to the high growth rate of population. Thus, the main challenge of our economy is how to commercialize agriculture sector and how to increase production, income generation and employment opportunities in this sector.
14. Slackness in Industrial Commercial Investment: The economic reform program launched after the restoration of democracy by the government of Nepali Congress had been successful among national and foreign investors in generating considerable stimulation toward the competitive character and opportunities of our economy. Frequent changes in government as well as perplexities observed in the continuity of policies in recent years have, though, affected negatively in the country’s environment of industrial and commercial investment. There has been, although, some improvements recently in the export sector, the majority of industries dependent on local raw materials could not become competitive. Due to the lack of development and expansion of physical infrastructure, investment in such sectors like tourism and hydropower which have comparative advantage could not be attracted as expected. Also, industries which are based on our competitive labor force have not received notable share of the market. The private sector has not been able to come forward in self-propelled manner for the industrial and commercial investment due to the assimilated reason of delay, administrative troubles and political instability observed in the process of our institutional, policy and legal reforms.
15. Regeneration of Poverty and Unemployment : Income generation and productive employment opportunities could not increase in the nation due to the low productivity of agricultural sector, sluggishness in industrial investment and rapid growth of population. Moreover, the situation of regenerating poverty and unemployment could arise due to the worsening of government’s commitment and ability in catering basic services such as education, health, drinking water etc. in a coordinated manner down to the village level. Although the efforts of the active civil society in improving rural development and living standard of the poor people is praiseworthy, the danger is surfacing that the majority of poverty alleviation programs and efforts gradually become the ritual of commitment less word and practice.
16. Burdensome Public Corporations: The majority of public corporations which were established — by investing scares resources to the tune of billions of rupees of our poor country, which is troubled by the lack of resources — have now failed to deliver expected services and are suffering from the ailment of standard less production and low productivity. The return on billions of government’s investment in corporation is negligible. The disease of government intervention in corporation’s high level appointment, investment, procurement etc. has been persistent. Professional good governance could not be maintained in public corporations. The minimum cost of goods and services could not be recovered due to the pricing policy of corporations relating to goods and services provided to the people. In other words, corporations are becoming more and more burdensome and unable to shoulder their own burden. Thus, public corporations, on the one hand, seem unable to achieve their commercial purpose and, on the other, the process of privatization of public corporations is moving on slower pace. The burden of these incapable and inactive corporations has, at the end, been added on the shoulder of the poor Nepali people.
17. Sluggish Financial Sector: The entry and establishment of financial institutions after the c restoration of democracy in the country has been encouraging. However, commercial banks, finance companies, insurance companies, share market transactions as well as rural development banks etc. opened with the initiative of the private sector have not been able to play an effective role in the direction of desired investment promotion. In financial institutions, there is the indication that, on the one hand, monetary liquidity is increasing and, on the other hand, investment could not yet be channeled to productive sectors due to high rate of interest. The old and broadly based commercial banks of the country are confronting with the problems of ever increasing bad debts, weak debt recovery system and expanding capital base. Due to the lower rate of interest on savings, in comparison with inflation, the large chunk of capital that could be invested in productive sector is likely to flow to unproductive expenses. The Nepal Rastra Bank, which has the responsibility of monitoring and encouraging commercial transactions as well as ability of commercial banks and financial companies, is also facing the challenge of expanding its monitoring and supervision capacity.

18.Development Project and Foreign Aid: In a country like ours which is unable to fill the necessities of economic development only from internal resources, it is usual to have the necessity and importance of foreign aid. However, it would not be usual to go on losing our ability relating to the acceptance of foreign aid, and being selective and self decisive in the task of utilizing foreign aid. The danger of losing Nepal’s ability in these aspects has increased. Due to the easy accessibility to foreign aid, the concern of the nation toward the difficult and tiresome way and efforts of mobilizing internal resources is becoming weak. Consequently, indication is being seen that foreign aid, instead of supporting our endeavor to mobilize internal resource and private investment, is substituting these aspects. It is becoming serious challenge for the country because of the tendency to search for foreign assistance even for the project that has to be started with the country’s own initiative.

19. While evaluating generally the mobilization and utilization of foreign aid, the hard truth in front of us is that whatever the flow of foreign aid we have received to the sector having direct return, the large amount of the aid proceeds is used in ultra-modern equipment, vehicle, expensive consultant and advisor’s services. Yet, domestically available manpower and institutional capacity has been ignored. While there is goodwill gesture of donor countries and agencies toward Nepal, there has been no solid work and achievement in the direction of enhancing our ability and absorptive capacity. Although, the number of projects implemented under foreign aid is surprisingly rising, there are, however, not many projects which can satisfy the government and donors on the basis of the ratio of return on investment. This stern fact points toward the inherent problems in the selection, composition, and form of foreign aided projects. I have realized that the absence of a clear and transparent policy on the mobilization of foreign aid in our country, where foreign aid is being mobilized since the last 40 years, is in the crux of this problem.
20. Resources and Skills of national and international non-governmental organizations (NGOs), which have been active in the various sectors of poverty alleviation and social services, have not been appropriately coordinated and utilized. There is the duplication in the works of NGOs. There is no consistency of NGOs with the programs and efforts of the government. Proceeds mobilized by NGOs have not been transparent as in the case of proceeds of the government budget, which clearly mentions where and how the amount was spent. The effort of the majority of NGOs is still concentrated in the urban and nearby rural areas. All the resources mobilized by NGOs have not been able to reach to the poor and targeted groups as desired by the nation. Therefore, as the level of foreign cooperation and assistance is important for Nepal, it is becoming equally important for Nepal to pay attention to the quality and composition of foreign aid.
21. Adhoc Selection of Project and Ineffective implementation: Another serious problem of our economy is the increasing number of projects to the unsustainable limit. Due to the overwhelming number of development projects, the limited means and resources of the Government are scattered in an unproductive manner. Due to which, incidents like the increase in the cost of development project, time lag and the lack of expected return are becoming normal instead of exceptions. Because of the reason that the government’s resources are scattered haphazardly, the portion of the government’s contribution becomes lower, which in turn leads to the ineffective implementation of foreign aid and the problems of time lag as well as cost increasing become prevalent. In the name of Adhoc projects, there has been the tendency of bearing administrative expenses of ministry, department, commission, committee etc. from the project. If the investment in development works is not made in accordance with the measuring device of the need, rationale and cost-benefit, it is likely that our development movement will become stagnant and the economy will be further pounded by the debt burden.

22.Diminishing Institutional Capability and Administrative Morale: The lack of coordination among government agencies and unnecessary increase in the numbers and expenses of ministries, departments and offices are becoming challenging to us. The tendency of carrying out works of regular nature and those determined by the government through commissions, committees and task forces is rising. Persons responsible for the government’s policy making and implementation have been themselves in too much want of consulting services. This tendency has pushed away our administrative service from being responsible. The number of personnel And job positions are increasing, while the work incentive of staffs has not increased. Each year, the amount of salary and allowances to be borne by the government is increasing. However, there has been no increment in the net income of personnel. Due to the lack of facility, work incentive and politicization of administration, agencies providing government service to the people are frustrated and have low morale. The increasing attitude of looking at salary as the allowance of attendance and asking additional allowance to perform own regular work shows the existing weakness of our administrative machinery.

23.Corrupt Behavior and Economic Irregularity : Corrupt behavior and economic irregularity is  expanding in every level and area as socio-economic perversion. For the poor and weak people, it has been increasingly difficult to receive services and facilities provided by the government. The shameless situation of paying extra price exists in government offices — which are established with huge expenses – where the general public go to seek the service, facility, right and justice. There is a wide complaint of the people that, with the involvement of policy level also, there has been mis utilization of revenue in the collection of resources and irregularity as well as corruption in expenditure. Without ensuring that our public construction, government purchase, supply, revenue administration and offices providing government service are efficient, transparent, responsible, non-corrupt in delivering service, it is not possible to provide to the people the feeling and experience of good governance.

24.Budget Deficit and Increasing   Imbalance between Revenue and Expenditure: our ability to mobilize revenue has not increased to the level in which the level and speed of our expenditure is increasing. The development expenditure is continuously rising due to our weakness in selecting development projects. While in the front of regular expenditure, there has been serious problem in expenditure management as a result of increasing burden of debt servicing and salary as well as allowances.

25.Our capacity of debt servicing has not increased as anticipated due to the lack of utilizing loan proceeds in a productive manner. Consequently, we are now mobilizing only about 11 percent of GDP as revenue. out of the total revenue, about one fourth is spent on debt servicing. Considerable amount is spent on salary, allowance, pension and government subsidy. Besides, due to the uncontrolled increase in the operating expenses of offices, the situation is that only a small. portion of revenue could be allocated for the development purposes. In order to eliminate the increasing imbalance between the revenue and expenditure, there is no alternative except to provide added emphasis on expenditure management and revenue mobilization. In the context of Nepal preparing to join the World Trade organization (WTO) and making common trade open and liberal among SAARC member countries, it is clear that our comparative dependency on custom revenue will be diminishing. Unless, there is a rapid increment in economic activities, it would not be possible in the short run to mobilize maximum revenue from the income tax. As only the Value Added Tax appear as our reliable source of revenue mobilization in the long run, the slackness appeared in its effective implementation has made our, internal resource mobilization challenging. objectives, Policies and Programs of the Budget.

Rt. Hon’ble Speaker,

26. A collective commitment is indispensable to formulate some policies and programs and execute,those policies and programs to transform our economy from current situation into a vibrant and dynamic one in the context of facing the aforementioned challenges. While formulating the budget for FY 1999/2OOO, I have put promises of the Nepali congress party made to the public as well as objectives and priorities of the Ninth Plan at its centerpiece. Through this budget, I would like to propose the following policies and programs and thereby confirm the beginning of a campaign with the Government commitment in providing continuity to these policies for the next five years to fully achieve the objectives of this budget. objectives:

(a) to alleviate poverty through the modernization of agriculture, rural development, community participation, empowerment of women, creation of employment opportunities, and development of social and economic infrastructure;

(b) to achieve high economic growth rate through better mobilization and prudent sensible use of economic resources;

(c) to build a strong economy by encouraging private sector participation while providing continuity to economic reform programs; and

(d) to ensure good governance by transforming development administration into a service and result oriented system.

Development Policy and Programs

Rt. Hon’ble Speaker,

27. For the next few years, it is imperative to put all our efforts with patience to achieve the above-mentioned objectives. It is also apparent to create an environment whereby these policies and programs are well understood by the general public to ensure their close participation in the campaign for development. In this light, in addition to, paying special attention to institute public ownership of development projects, I have proposed the following policies and programs.

Poverty Alleviation.

28. I overly has been a serious impediment to social change and our development efforts. Major theme of this budget, therefore, is to relieve majority of our rural population entangled in the vicious circle of poverty. Toward this efforts, I have considered villages, the poverty ridden farmer, women who are the symbol of hard labor, and our agriculture sector as the main strides of poverty alleviation program.
29. From the next year, a nationwide poverty reduction campaign called “Bishweshar with the Poor” will be launched targeted to absolutely poor people, who are deprived of minimum basic necessities like cloth, shelter, food, basic health services and education and whose access to land, capital, skills employment opportunities are non existent. In the next fiscal year, about 100 absolute poor families from each parliamentary constituency will be identified totaling about 20,500 families all over the country. Those families would be extended with the loan of up to RS. 30,000 per family at 5 percent interest rate so as to enable them to have an access to integrated facilities of shelter, income generating scheme or livestock asset, educational opportunity and health facility for their,children. The program will contribute to get rid from the vicious circle of poverty of about 2OO,000 absolutely poor families.

30.In the next fiscal year, a “Poverty Alleviation Fund” will be established with the aim of developing resources and enhancing institutional capabilities to directly facilitate the poverty alleviation program. In addition to the execution of local infrastructure like small rural road schemes, irrigation channels that complement production facilities, the fund will be utilized for the growth of markets through cooperatives, conduct training programs, and micro financing. All poverty alleviation related programs would be integrated and coordinated through this Fund.

31. Since last year a ‘Special Area Program’ has been launched in 2S districts. Construction of rural roads, execution of schemes like channels, water tracks and other alternative means of irrigation, erection of micro hydro plants, implementation of agricultural and livestock programs, promotion of herbs and training programs are being carried out under the program. I have set aside the budget for the implementation of this program with full commitment.
32. A Small Farmer and Cooperative Bank will be established in the next fiscal year to benefit small farmers. Different

programs under implementation through Grameen Bikash Bank, Agricultural Development Bank and national and international governmental organizations will be intensified and oriented towards achieving the goal of poverty alleviation. Continuum will be provided to the reform program initiated by the Agriculture Development Bank for raising its investment capability. Accordingly, its stock capital will be raised. Marginal farmers will be benefited by marketing promotion of agricultural produces through cooperatives. Crop insurance scheme will be introduced by conducting studies on that system to protect farmers from the unforeseen havoc of crop losses. Livestock insurance system will be expanded to village level. Pre cooperative and business training will be imparted to farmers by maintaining working level harmony among the Cooperative Department, National Cooperatives Association, and National Cooperatives Development Board. Cooperative marketing system will be developed and promoted to ensure right price as well as market for produces. Terms of, Reference will be worked out to resolve the problem of landless people (Sukumbasi) within the next fiscal year. Programs and projects like Poverty Alleviation Project in Western Terai (PAPWT), Remote Area Development Program (RADP), and Integrated Rural Development Projects will be streamlined in a coordinated manner.

Hon’ble Speaker

33. Currently, some people have displaced themselves from their families and the society as a result of their indulgence in evil path of criminal and terrorist activities. It is but natural to realize and regret their mistakes by many of those whose emotions were possibly flared or caused to be flared at the moment of disappointments concerning their own lives and their uncertain future. I have allocated budget for the rehabilitation program under ‘Ganeshman Peace Campaign’ to provide amnesty and financial assistance for livelihood of those who surrender with their weapons to live the life of law-abiding citizens by giving up the evil path of crime and murder.
34. To honor the International Year of the Elders, I have proposed an increase in the allowance to RS. 15O from RS. 1OO being provided to senior citizens above age of 75, widows and helpless people. However, to ensure transparency of the uses of such fund, names and descriptions of the recipients of allowance and details of expenditures should be made public.
35. Beginning academic session of the next fiscal year, the mechanism of free of cost textbooks distribution of up to grade five will be streamlined. 36. Programs in operation to uplift the socially and economically backward people, like the depressed and ethnic class, will be continued by providing impetus and taking ahead the program aimed at providing debt relief to Kamaiyas (crop sharing laborers).
36. The provision of free education to the children of martyrs of people’s revolution will be continued. An appropriate program will be launched with a target of providing 225,000 scholarships within the next five years for children belonging to weaker economic situation and socially backward section of the society. Scholarships to backward areas, ethnic community, depressed class and handicapped students will be made available to provide them the opportunity of higher studies.
37. The program of providing collateral free loan of up to RS. 2O,000 through the Social Welfare Council for creating employment opportunities to blinds, deaf and handicapped people, will be taken ahead effectively.

Employent Promotion

39. An effective youth training program will be initiated from the next year with an aim to train youths on various skills and profession. Under the program, 18,000 youths (both males and females) will be imparted with self-employment creating vocational training. In addition, they will be encouraged to engage themselves in productive employment by providing them with self-employment exploration allowance for two months.’ Necessary an~angements will be made to provide confessional loans to such trained youths.

4O. An arrangement will be made to involve poor people in small-scale businesses by providing them with the skill oriented and vocational training. As employment and income could be received through such small businesses, investments from Agriculture Development Bank will be directed towards such businesses.

41. His Majesty’s Government will make it mandatory to use labor intensive and environmental friendly techniques particularly on road construction activities costing up to RS. 2.O million in order to promote employment opportunity. A manual for this purpose will be prepared.
42. In the next year, training programs conducted by various line ministries will be streamlined to avoid duplications and make them action oriented. Similarly, successful trainees in the field of agriculture and health will be encouraged by making arrangement of concessional loan to get them self employed.
43. It is firmly believed that employment opportunities for educated youths would be increased within the country as a result of policy reform measures initiated in industry, commerce and tourism sectors, and development of information technology as well. Also, employment opportunities abroad will be enhanced by exploring such potentials, and supported by the provision of appropriate training programs. Necessary arrangements will be made in the government sector to reap maximum benefit from such’ opportunities and also to protect rights and interests of the Nepalese people.

Empowerment of Women and Development

44. The national campaign of poverty eradication cannot be thought of if strength and capacity of women is not utilized in the crusade against the magnitude of poverty and’ social inequality prevalent in the country. Women of this country have been burdened with more than their share of poverty and pain of inequality. From the next year, an income generating program for women (called ‘Jagriti’) will be initiated as a national campaign by bringing women leadership on the forefront with their participation, making women power a medium of economic and social change initiatives. Under the program, groups will be formed comprising 65,400 women of 940 VDCs of the country who will be trained on group education, skill.development, self-employment, public health, and cooperatives. Income generating programs for those women will be launched with the micro-credit facilities through the establishment of institutional relationship with the Agriculture Development Bank. This program is expected to benefit 380,000 women in the next five years.
45. In view of the prevalence of lower women literacy rate in the country each girl students of 18 districts who use feeder hostel facilities, now receive RS. 550 and 650 for accessible and remote districts respectively to encourage them to attend schools. From the next year, these stipends ‘have been raised to RS. 850 and RS. 1,050 respectively.

Financial Sector Reform

46. Development of financial sector and capital market is necessary to provide sustainable support to the economic growth of the country. Despite positive indicators observed in the expansion of financial sector in the past, monitoring and healthy development of this sector is getting increasingly challenging. In view of these facts, extensive financial reform measures will be initiated in the next fiscal year. In this process, a bill will be submitted to the current session of the parliament to amend Nepal Rastra Bank Act for making it propitious and strengthening its existing supervision capacity. Necessary amendments will be made in related Acts for well-managed and healthy growth of banking as well as non-banking financial transactions and to direct, supervise and monitor financial companies including cooperatives.

47.Necessary reform measures will be taken in order to initiate gradual increase of private sector participation in the Rastriya Banijya Bank. Arrangements will be made for the transaction of its shares in the capital markets. In view of the benefits of developing Nepal as an International Financial Center, this august house has already passed the Bill in the previous fiscal year. In the next year, environment for the establishment of such financial center will be created after the completion of necessary infrastructure.

48. Past efforts on reducing the existing higher spread between deposits and lending of commercial banks would be effectively pursued and such difference will not be allowed to widen by more than 5 percent. A strong legal base for loan repayments would be in place after the formulation of a Bill on repayment of loans. Also, a Bill related to Bankrupt agency would be formulated.

49.Past positive gains achieved in the financial sector as a result of liberalization efforts to fulfill growing investment requirements of the country would be sustained and promoted. For this, foreign share-ownership of 50 percent in Joint Venture (JV) banks will be reviewed and that proportion will be raised. Information on conditions and working procedures concerning granting of permission for the operation of the branch of internationally recognized banks would be made public. This measure is expected to enhance competition in the banking sector thereby ensuring better banking services to the public. Moreover, I am confident that this arrangement would contribute to the long term national development of the country by facilitating in fulfilling larger long-term low interest rate investment requirements in the areas of industry, hydropower, tourism, health, infrastructure development and so on.

50. Housing loans will be made available by the Employees Provident Fund (Karmachari Sanchaya Kosh) to civil servants on their group collateral. Loan, would be made available also to housing construction companies on credit guarantee to execute housing development plans.

Industry, Commerce, Tourism and Foreign Exchange

51. The present acceleration gained in the export sector has been a positive aspect of the economy. In order to further consolidate and expand this sector, the list of the exportable commodities will be prepared and potential entrepreneurs will be attracted to invest in these sectors. In order to encourage the export-oriented industries for the diversification and capacity enhancement, concessional loans will be provided to those exporters whose exports have exceeded export level of the previous year. A pre export credit of 3S percent of the total export will be provided as the concessional loans on the basis of the letter of credit.
52. The legal and institutional framework will be developed to enforce the code of conduct for the management and smooth functioning of the entities involved in raising funds from the capital markets. The accounting systems currently adopted by the organized sector will be designed to meet international standards and the security markets will be made more transparent and trustworthy. The necessary legal arrangements will be made in the securities deposit systems for immediate liquidity in the security transactions of the operation and management of transfer of the securities dealings. The preparatory works will be carried out to allow international accounting and auditing firms to operate their activities in Nepal by opening their offices locally.
53. The concessional foreign exchange loan facility will be expanded to include textile industries both newly established

and the one under operation for the importation of the machinery and raw materials necessary for their operation. The industries and the exporters, whose export exceeds US $ 3.O million, will be given a sum of 3 percent of their foreign exchange earnings for the opening up and operation of the liaison office, sales and exhibition premises abroad. The policy arrangements will be made regarding the opening of the liaison offices of the foreign importers of the main Nepalese exportable commodities in Nepal.

54.Completion of ‘Dry Port’ facility under construction is envisaged to simplify export, promotion procedures contribute to the development of the export-oriented industries. Export Promotion Centers will be established near the Dry Port area with the provision of one window financial and administrative facilities to accelerate the process of industrialization.

55.Based on the assessment of the privatization carried out so far, the privatization process will be forwarded with the objectives of fruitful investment, economic upbringings and resource utilization by assessing current privatization process. The costing of the production and services of the public enterprise will be based on the cost price, and by reducing the cost factor, more market friendly and competitive price policy will be adopted. Necessary arrangements will be made for the strengthening of management capability of the public enterprises.

56.Substantial reforms have been carried out in the foreign exchange policy regime in the preceding years. In order to

embark into the full convertibility in the current account of the Nepalese currency new Foreign Exchange Act will be presented in the parliament in the coming fiscal year so that prevailing deficiencies In the procedural arrears could be’ removed. The full convertibility of the current account will become easier to enforce after the implementation of the Act, it is believed.

57.The export credit facility, which is extended in convertible currency to exporters for the limited purpose at 7.5

percent interest rate for the import of the machinery and equipment essential for the capacity increase and raise the production level, will be provided to hotels and travel agencies as well.

58.Arrangements will be made for the removal of procedural hindrances in the export of the petty items of export, allowing exporters to export on bank guarantee rather than letter of credit up to a limit prescribed by Nepal Rastra Bank. The existing facilities is exclusively arranged to allow tourists to carry handicraft products and the carpets worth US $ I thousands without the letter of the credit or advance payment slip. This facility will also be provided to the Nepalese nationals.

59.The duty draw back facilities will be provided to those domestic industries if such industries supply the processed or semi processed raw materials for the export-based industry. Further, by following due process the duty draw back facilities will be provided to those industries, which supply their products to the projects that are entitled to tax waiver. The industries having the interrelation in the marketing of particular products and industries that are using the marketing franchise with big industries will be entitled to entertain the duty draw back facilities if such industries manufacture the branded products and exports those particular products. The revival process of the sick industries will be effectively implemented in the coming fiscal year.

6O.In order to encourage the exporters, the procedure related with the duty refund would be simplified and made transparent. Such refunds on the export of garments, carpets and leather and the products thereof will be fixed at the flat rate.

Computer policy  Software Development

61.The policies related with Information Technology and enactment of the Cyber Laws will be enforced for its development and expansion. Tele center in the five development regions, facilities of the internet and intranet will be extended respectively in those regions. The computer programs for schools and teachers training program will be initiated. Computer education system will be encouraged in the university and schools Likewise, legal and policy framework will be adopted for the simplified software export.

Government Expenditure, Management and Reform in the Budget System

62. With an objective of effective and productive utilization of the foreign aid, a foreign aid policy will be formulated and enforced within the coming fiscal year. For the proper management of the foreign aid, process of incorporating the whole foreign aid amount in the budget will be initiated. I am confident, this step will receive support from all the donor community.
63. A review of existing monitoring system pertaining to policy, procedures, and institutional arrangement will be carried out. Such review is felt necessary to bring uniformity and transparency in facilities extended to such organizations and to ensure the flow of funds into priority sectors so as to enhance productivity through the effective utilization of external resources.
64. Efficiency and austerity measures will be adhered in the management of public expenditure. Unproductive expenditures will be contained through the proper fiscal management. The tendency of scattering the resources will be discouraged and in the mean time due consideration will be given in the prioritization of the developmental expenditure by selecting the new project based on utility, capability, cost benefit and availability of sustainable resources. The same measures will be adopted on the ongoing projects and reevaluation and priority will be ascertained accordingly.
65. With an aim to complete the development and construction works in time thereby providing the return of development to the common people, existing flaws in the budgetary process needs improvement. Therefore, necessary arrangements will be made, with the consent of the House and the political parties, so that the budget for the next fiscal year could be presented during the month of Baisakh so that the budget and program is approved in time and the developmental works commences from 15 July (1Shrawan). Such an arrangement will provide sufficient time to accomplish developmental works in the high hills and in the mean time will eliminate the anomalies arising from the advance expenditure systems.
66. As envisaged in the ninth plan, integrated treasury system will be implemented within 2 years. Consequently,

the existing disbursement centers will be reduced gradually. This will strengthen the responsibility and accountability in the expenditure management system. In order to facilitate the revenue collection, the system of revenue stamps will be introduced for all administrative fees amounting up to a sum of RS. Five hundred.

67. Tile offices that were established under the government, corporation and the committees will be scrutinized from the point of view their appropriateness, efficiency and effectiveness and closed if found inappropriate.
68. By increasing the productive use of movable or immovable property owned or controlled by ministries, departments, offices, committees, commissions, academies, courts, the government will utilize these resources in its optimum capacity. The government will start generating income by selling such properties that are unproductive and obsolete. For this purpose, a high powered committee will be constituted at the district and in the central level.
69. Compulsory auditing system will be introduced for the optimum utilization of the grant provided to the organizations and agencies. Further grants will be extended on the basis of audit findings. Increase in the agriculture Productivity
70. As targeted by the Agriculture Perspective Plan, contributing factors like irrigation, technology (hybrid seeds,

fertilizers, training), agriculture roads, marketing management, rural electrification, that are related to the increase in productivity of agriculture sector will be aligned together and carried ahead. For the immediate benefit of the marginal farmers, emphasis will be given to intensive cropping system. Further thrust will be given on the development of agro-based industries like sericulture, sugarcane, oil seeds, dairy based products and production of other high value crops having comparative advantage as well as geographical suitability for horticulture, fresh vegetable, apples, ranges. For smooth availability of the seed storage facility for some major food grains and cash crops seeds have been ranged. Subsidies in the electricity tariff for the establishments of the cold storage will be provided to the private sectors with an objective of keeping agriculture produces safe at the same time making domestic agriculture produces more competitive.

71. Arrangements have been made for the establishment of a fund as well as the credit facilities from the financial sectors for the erection of the chilling centers belonging to’ cooperative milk producers, milk transport tankers and for the enhancement of milk pasteurization capability. The credit will be made available to group farmers and cooperatives for diversified production of value added products like cheese, milk candy and skimmed milk. Likewise, necessary provision has been made for the development of horticulture, vegetable farming and cattle farming. This programs is expected to contribute for the upliftment of the living standard of the rural communities and help in alleviating poverty.
72. In order to make investigation arrangements of the system of self assessment of tax transparent and efficient, business specific tax returns will be specified and tax audit will be regulated to make it more effective. Investigation of the tax returns will be limited to 15 percent unless otherwise needed. The concerned person will be informed of decision to investigate within a specific date; investigation will be done on the spot by experts speedily and judiciously only when such investigations are deemed warranted on the basis of a determined criteria.
73. Mapping of taxpayers in Kathmandu valley will be carried out in the coming fiscal year to expand the tax base, and comprehensive tax survey programme will be launched. It will be made compulsory for all the doctors, engineers, lawyers, journalists, auditors and other professional will be made compulsory to register with the income tax for operating their businesses. Cooperation of agencies and associations related to industries and trade will be enlisted in matters of income tax certificate, taxpayer survey and collection of tax returns from small tax payers to broaden tax base. Arrangement has also been made for small tax payers to pay the self-assessed tax amount directly in the banks and get the tax payment certificate.
74. With a view to do away with the ambiguities, incompleteness and operational deficiencies observed in the existing income tax system and to make it more simple, effective and transparent in its enunciation’s, a new income tax act will be formulated taking into account the findings of previous studies and contemporary international practices in the coming year and presented to this august House.
75. To identify tax payers under various departments of revenue, simple identity card for each tax payer is deemed necessary. Accordingly, “Kathmandu Tax Payers’ Services Center” will be established in Kathmandu valley to issue a permanent registered number to each tax payer from the next fiscal year and such arrangements will be extended extended gradually to other districts as well. The Pay As You Earn tax system, will be made simple and non-cumbersome.
76. In order to maintain transparency in customs administration and adopt the policies set by World Trade Organization, South Asia Preferential Trade Arrangement and South Asia Free Trade Arrangement, customs tariffs will be reviewed and valuation on the basis of actual transactions value will be put into practice. Particularly, arrangements have been made for regular follow-up of international prices of import goods and monitoring of valuation of such goods accordingly. While reviewing the customs tariff, equal treatment will be accorded to domestic industries to maintain competitiveness, and importance will be given to such factors which will contribute positively to private sector investment, employment opportunity, consumers’ welfare, price level as well as fair business transactions.
77. To curb smuggling and revenue leakage, measures for effective surveillance of border will be put in place and organizational structure of revenue police will be prepared in the coming year. A joint team of Revenue Investigation Department, Department of Tax and Department of Value-Added-Tax will consistently monitor the market price index and other information, trace the revenue leakages and track down the culprits. The Central Monitoring Unit in the ministry of Finance will be made activated more to entertain tax payers’ grievances, control revenue leakage and monitor revenue collections on a regular basis.
78. In view of the grievances against the ad hoc Tariff Board set up each year to advise on revenue policy that the time allowed is too limited resulting in peripheral and in concrete advises without due analysis of the economy on the whole, a permanent Revenue Consultative Board will be formed within the month of Bhadra (17 August to 17 September) by including experts as well.
79. Organization structure of the revenue administration will be further improved on the basis of specialization to make it more service-oriented. Specialized manpower will be developed by imparting extensive training. Reward and punishment system will be installed and duly made operational to boost the work performance. Separate indicators will be developed for the performance evaluation of the revenue cadre with regard to transfer and posting.

Development Administration and Good Governance

85. The public administration prevailing in the country, which is considered to be burdensome, expensive and mis managed, will be transformed into non-burdensome, swift and manageable one. According to the long term target of shaping public administration into an appropriate size and making it credible the policy of not increasing the number of posts, curtailing of the one-third of vacant posts and the adjustment of the existing staff in the new positions will be strictly adhered. The policy of merging of offices, departments and ministries with similar nature jobs or are of unproductive nature will be expedited. In this context, various programmes and administrative units scattered in various ministries will be integrated in the Ministry of Women and Social Welfare.
86. In order to make administrative mechanism more professional, capacity-based, forward looking and flexible, the policy of imparting new knowledge through training and providing ample opportunities for career development throughout the service period will be adopted. The reform programme will focus on creating the institutional mechanism, in which decisions will be guided by the appropriate blending of reward and punishment elements. For control of corruption, an action plan will be prepared and implemented accordingly. The quality of the government decisions will be made effective through physical verification.
87. The austerity programmes and its manual, which was launched from this fiscal year to economize government expenditures and control the misuse of its resources, will be continued. The new financial rules, which has been formulated in an integrated way, will be implemented soon. This will ensure in reducing discretionary power in bidding award enhancing transparency making statements more objective and factual, and time-bound decision making. Transfer of project managers will be duly checked. It is expected that this regulation will improve the situation of financial indiscipline. Social Services

Social Services

88. Arrangements will be made to raise a “Village Education Development Fee” as to be prescribed and collected from the private sector schools operating in the urban areas on the basis of number of student enrolment, source of income and their level. Funds so collected will be distributed to government schools in the rural areas for scholarship, free textbooks to needy students and for the development of physical infrastructure. Similarly, an administrative grant of Rs.10,000, Rs.12,000 and RS. 20,000 per annum will be provided to each primary, lower secondary and secondary schools respectively to meet their manpower needs. Arrangement will be made to lease out government schools to the private sector willing to operate the schools by assuming full responsibility of maintaining physical infrastructure, teachers and students as well. Arrangement to set up National Education Service Commission for regulating teacher recruitment has been made. Similarly, necessary appropriation has been made for the post of additional 600 teachers providing 200 teachers to primary level, secondary level and secondary level school. In addition to it, a quota of 150 new primary schools has been provisioned for the coming fiscal year.
89. Eastern Regional University and Pokhara University will be enabled to develop for higher education in their respective fields. Necessary arrangements will be made to l?and over Mahendra Morang Campus and the post graduate level campus at Biratnagar under the Tribhuvan University to the Eastern Regional University, and Prithivi Narayan Campus at Pokhara to Pokhara University in the coming fiscal year. A clear policy on grants to universities will be worked out and the grants will be distributed accordingly. Grant being provided by University Grant Commission to the private campuses will be continued for their improvement and stability. Necessary steps for the establishment of an, open university will be initiated. Similarly, works to establish University of Agriculture and Forestry will be undertaken.
90. Steps to improve the physical conditions of the district hospitals and to provide the services of the doctors on regular basis will be taken. To provide primary health care facilities at the door steps of the people within 5 years, programmer to mobilize 80 thousand female health volunteers will be initiated in the coming fiscal year. Programmes to provide people’s access to basic health services through sub-health posts in all VDCs in 2 years will also be initiated. To achieve the target of immunizing one hundred percent of children against BCG, DPT, polio and measles, immunization programme will be launched vigorously from this fiscal year. Child health and reproductive health programn1es will be continued to reduce child and maternal mortality rates.
91. In order to overcome the problem of the water scarcity in the Kathmandu valley, implementation of the Melamchi Water Supply Project under the commitments of various donors will be expediated.

Basic and Physical Infrastructure

92. As per the policy of expanding postal services to all the development blocks (Ilakas) and VDCs, the country, 20 Ilaka post offices and 100 additional post offices will be established in the coming fiscal year. Appropriate environment will be created to involve private sector in the development of telecommunication services. Private sector involvement will be attracted towards basic telephone services, mobile telephone services as well as data and information broadcasting services. A total of 73,000 telephone lines will be expanded throughout the country next year.
93. Priority will be given to construct access roads in those districts and district headquarters where the road facility has yet to be reached as well as to the construction of rural roads linking agriculture production and market centers. In the construction of economically and technically feasible roads, priority will be given to the roads located at places of growing economic activities as well as to intra-district and inter-district roads through local community participation. A “Road Maintenance Fund” will be established for the maintenance of the roads.
94. In order to increase the momentum of the transport and other infrastructure works, steps will be taken to mobilize private sector resources to the extent possible under the “Build Operate-Transfer” arrangement. Necessary legal and institutional framework will be prepared for this purpose.
95. In view of the deteriorating transport and environmental degradation of Kathmandu and other parts of the country, private sector will be encouraged to construct outer ring road and expand trolley bus services in Kathmandu valley as well as to operate similar services in Biratnagar-Dharan and Butwal-Bhairahawa sectors. Installation of rope ways and cable cars in mountain and hilly areas will be encouraged wherever feasible.
96. Now, I would like to present the appropriation proposal for the fiscal year 1999/2000.
97. A total of RS 77238.226 million is estimated to be spent in the coming fiscal year. Out of this total expenditure, Rs.35386.332 million has been appropriated for the regular expenditure and RS. 41851.894 million for the development expenditure. As compared to the revised estimate of the current fiscal year, the regular expenditure is higher by ,12.1percent, development expenditure by 32.9 percent and total expenditure is by 22.5 percent.
98. Out of the total appropriation for the regular expenditure head, RS. 400.0 million has been allocated for the upcoming SAARC Summit to be held in Kathmandu, RS. 150.0 million for the SAAF games, RS. 11526.0 million for external and domestic debt servicing, RS. :511.0 million for de-fence, RS. 3324.1 million for police and RS. 6869.6 million for education. Similarly, Rs.1545.1 million has been appropriated for health services, of which RS. 1107.5 million has been allocated for health posts, health centers and primary health centers and sub-health posts. As the year 1999 is being observed as “International Year for the Elders” a sun, of RS. 530.0 million has been allocated for helpless senior citizens, handicapped, disabled and for helpless widows.
99. The system for fair – and – free election is the primary basis for strengthening democracy. As the present government is committed to fair and effective election system, I have made budgetary allocation for the establishment of election offices in 25 districts and for distribution of voters identification card in 41 constituencies, for the coming fiscal year.
100. Now, I would like to highlight the main features of development programs and budget allocation, to this esteemed House.
101. Development expenditure constitutes 54.2 percent of the total expenditure appropriated for the coming fiscal year. Out of this 36.6 percent is in the social services sector, 7.9 percent has been allocated for education, 6.8 percent for health, 6.5 percent for drinking water and 12.2 percent for local development. Out of the total allocation of 62.3 percent in the economic services sector, 14.4 percent has been allocated for transportation, 20.2 percent for electricity and 19.9 percent for agriculture, irrigation, land reform and forestry.
102. Total allocation made for the social services in the coming fiscal year as against the revised estimate of the last fiscal year is an increase of 38.6 percent, constituting and increase of allocation by 71 percent in education, 38.0 percent in health, 47.4 percent in drinking water and 26.6 percent in local development. Similarly, allocation in the Economic Services Sector has been increased by 32.7 percent. Out of the total allocation in economic services, an increase of 35.4 percent in agriculture, 45 percent in irrigation, 42.8 percent in forestry, 24 percent in transportation and 21.5 percent in electricity have been allocated of the coming fiscal year over the revised estimated expenditure of the last fiscal year.
103. Necessary allocation has been made to make women educationally aware and self dependent. acknowledging the positive impacts of Basic Primary Education Project lunched in the past Rs.1293.1 million has been allocated for the development of education sector, in the coming fiscal year. A sum of RS. 262.4 million has been allocated for the improvement of physical infrastructure of the schools.
104. An additional allocation has been earmarked for women education and scholarship for girl students. To give an honour to the martyrs for sacrifice of their lives, budgetary allocation has been made for granting scholarships to their children for higher education. Likewise, scholarship will be provided to the children of suppressed people for higher education. Necessary funds have been earmarked for the establishment of National Teachers Service Commission.
105. In line with the policy of increasing active participation to the development process, raising socio-economic level, enhancing civil awareness and protecting welfare of the untouchables, prajas, aboriginals, depressed, oppressed and abondoned section of the people, an allocation of Rs.32.5 million has been made for this group. This amount is 80.6 percent higher than the current year’s allocation.
106. A sum of RS. 700.0 million has been allocated for the district development committees and RS. 150.0 million for the municipalities. I have appropriated RS. 1960.0 million for village development committees. Arrangements have be,en made to provide RS. 0.5 million for the development activities in the constituencies as against of Rs.0.4 million being provided currently. This amount will be gradually increased in the years to come reaching Rs.1.0 million to each constituency.
107. ln order to meet the short-term and long-term solution to the drinking water shortage in the Kathmandu Valley, RS. 441.4 million has been allocated for the augmented supply of water as well as for the completion of detailed design of the tunnel and for the construction of approach road to the Melamchi drinking water supply project. With a view to meet the shortage of drinking water supply in various parts of the country, distribution of treated water after rainwater collection has already been initiated. Necessary funds have been provisioned for further expanding this programme effectively. Similarly, budgetary allocation has been made for the conservation of major holy rivers of the Kathmandu Valley such as Bagmati and Bisnumati.
108. In line with the government’s policy of connecting all district headquarters of the kingdom by road, speedy implementation of the ongoing road construction works at different districts, particularly Mid Western and Far Western regions, will be expedited. For this purpose, budget allocation has been increased substantially. Rs.129.7 million has been allocated for the construction of 22 bridges along the Kohalpur-Mahakali section of the Mahendra-Rajmarga (East-West Highway), which will be completed in the next fiscal year. Similarly, an increased budget of Rs.90.0 million over the last fiscal year’s allocation has been appropriated for the construction of Mahakali Rajmarga (BaitadiDarchula section) of Far Western region. While increasing the allocation over the actual expenditure of the last fiscal year, RS. 47.5 million has been allocated for Sanfebagar-Mangalsen road, Rs.50.0 million for Jaya Prithivi Bahadur Singha Marga (Khadpe-Bhajang) and Rs.42.5 million for Sanfebagar-Martadi for the coming fiscal year. Likewise, RS. 250.8 million has been appropriated for Karnali Rajmarga (Surkhet -Jumla section), RS 56.0 million for Chhinchu-Jajarkot, and RS. 39.2 million for Rapti Rajmarga (Sallyan-Musikot section) in the next fiscal year. Similarly RS. 50.0 million has been proposed for the gravelling of Tansen-Ridi-Tamghas Section, Rs.10 million for Gorusinghe-Sandhikharka and Rs.15.0 million for Baglung-Beni-Jomsom road construction in the central region.
109. Likewise, Rs.20.0 million has been allocated for the maintenance of the nation’s oldest highway Tribhuvan-Rajpath, and Rs.51.0 million has been appropriated for the construction of a new road Saprubeshi-Rasuwaghadi; which connects Tibet, autonomous region of the People’s Republic of China. Rs.177.5 million has been allocated for tarmacking Kalupande Marga (Malekhu-Dhading section), and Rs.i25.3 million for B.P.Koirala Marga (Banepa-Sindhuli-Bardibash road). The first portion of Dhulikhel – Nepalthok section is under construction and the construction of the second portion of it will be started in the next fiscal year. Necessary funds have been allocated for the construction of roads linking inaccessible hilly districts of the eastern region. Rs.30.1 million has been provisioned for Mechi-Rajmarga (Phidim-Tapalejung), Rs.35.0 million for Sagarmatha Rajmarga (Gaighat-Diktel), Rs.10.0 million for Basantapur Terathum – Aathrai, Rs.22.5 million for Basantapur-Chainpur-Khandbari, Rs.20.0 million for Hile – Leguaghat-Bhojpur and Rs.55.0 million for Katari-Okhaldhunga road, in the next fiscal year. External assistance is also expected for the early completion of these roads in the Eastern Development region. A sum of Rs.185.50 million has been allocated for the maintenance of Kodari Rajmarga. Likewise, substantial amount of budget is appropriated for the construction of various suspension bridges, bridges, rural agriculture roads, district level roads, and postal roads.

l l 0. With a view to make international trade, simple, convenient and cost effective, construction of Dry Port was started last year at Birgung. RS. 732.9 million has been allocated for the Dry Port, which is expected to be completed by the next fiscal year. Necessary arrangements ha`.’e been made for the construction of duty free industrial estate at Birgung. I am confident that this system will bear positive impacts on the international trade front.

111. With a view to make land administration, the most concerned matter of the people and the nation, strong and capable to provide fast, efficient and reliable services to the people in the field of land management, Rs.150.0 million has been earmarked for developing central integrated land information system, proper safety and updating of land revenue records.
112. Necessary resources have been allocated for the rescue, skill development and rehabilitation programs for the victims of girl trafficking, abondoned and helpless women.
113. A sum of Rs.7.5 million has been provisioned for granting subsidies in the electricity bills for the private operators of cold storage. This will help in minimizing the farmers losses, who face stiff price competition at the market due to supply glut of their seasonal produces of similar varieties at a time.
114. In order to put an end of the difficulties faced by the dairy farmers, due to lack of appropriate market access and fair price of their produces, I have appropriated Rs.40.0 million for the establishment of chilling centers through cooperatives, enhancement of processing capacity and for the market management of dairy products.
115. Sufficient allocation of budget has been made for irrigation management transfer project, irrigation sector project, Nepal irrigation sector project, ground water irrigation project, groundwater swallow tubewell, river control projects, Bagmati irrigation, Rajapur irrigation and Sunsari irrigation projects. As compared to the revised estimate of Rs.2831.7 million for the current fiscal year, additional Rs.1274.1 million has been allocated totaling RS. 4105.8 million for this sector in the next fiscal year. ,
116. As the Kaligandaki “A” hydropower project is the leading project in the power sector, a sum of Rs.4924.6 million is appropriated for this project. Adequate budget has been provisioned for the completion of projects such as Modi khola and Ilam puwa khola hydropower projects, which are very close to completing. Transmission line projects such as Chilime-Trishuli, Khimti-Bhaktapur, Sinduwa-Khandbari, Lalpur-Gaddhachauki etc. have been given priority. As compared to the revised estimate of Rs.230.0 million, Rs.310.0 million has been allocated for the implementation of rural electrification projects. Necessary funds have been appropriated for the completion of ongoing Kalikot and Gamgadi small hydropower projects and to prepare. Master Plan for small hydropower projects. Rs.505.0 million has been allocated for the priority implementation of Kulekhani hydropower prevention project.
117. Budgetary allocation has been made for conducting research on and preventing diseases which occurred in the “Sisau farming” planted by the farmers in their cultivable land in 20 districts of Terai region.
118. I have made necessary allocation of budget for providing immediate free treatment to the snake bite patients at the District and Regional hospitals. This arrangement has been made to eradicate the death of snake bite patients particularly in the Terai region due to lack of immediate medical attention and treatment. I hope the burden of keeping advance deposit by the patients even at the death bed will come to an end.
119. His Majesty’s Government had written off housing loans in respect of the earthquake victims in the past, however their land owners title paper were still under the custody of the lender due to lack of budget release in time. I have provisioned necessary budget for this purpose in the coming fiscal year. This will ease the problem faced by the debtors in the past.
120. A sum of RS. 2851.6 million has been allocated for the health services sector in the coming fiscal year. Short-term Direct Observation Treatment programme for the control of tuberculosis, will be further expanded in 75 districts gradually. Rs.269.3 million is appropriated for the supply of medicines and equipment. In the coming fiscal year, twenty health centers, five Ayurvedic health centers and ten Ayurvedic hospitals will be established.
121. Every year huge amount of foreign exchange is being spent in foreign countries for printing check books, postal stamps, revenue stamps and currency paper notes issued by the Nepal Rastra Bank.With a view to print these security items, a sum of RS. 27.5 million has been allocated for the initial work for the establishment of a “Security Press” in Nepal.
122. Necessary amount is appropriated for the welfare programme of child labour in the coming fiscal year in order to improve the deteriorating condition of child labour in Nepal.
123. Rs.2.5 million has been earmarked for the fund established in the memory of national boxing player late Dala Bahadur Rana. This is an initial step taken towards honoring national talented people. In an effort to promote and develop the talents of artists in respect of art ~ music throughout the country, necessary allocation has been made for the establishment of National Arts Development Fund and Music Development Fund. Likewise, necessary budget has been appropriated for the establishment of National Sports Development Fund.
124. Modern equipments and tools will be provided to the projects implemented under the Ministry of Science and Technology in the context of giving momentum to the research and development process in the field of science & technology, in the coming fiscal year. I have allocated Rs.30.0 million for the building construction of Nepal Royal Academy of Science and Technology. RS. 499.5 million has been appropriated for the development of this field.
125. Necessary funds have been allocated for launching various activities in combating pollution in Kathmandu Valley. In order to make population and environment related activities more effective and interesting to people national population programme, environment conservation programme and information, education and awareness related activities will also be continued. For this purpose, RS. 33.6 million has been appropriated in the coming fiscal year.
126. A sum of Rs.197. I million will be spent for the environmental sector assistance program in order to minimize the adverse effects of massive industrialization on ‘tine environment.
127. Out of the total allocation of Rs.77238.226 million for regular and development activities, as mentioned above, Rs.41588.68 will be financed from the existing sources of revenue, RS. 8655.375 million from foreign grant assistance

and Rs.18564.104 million from foreign loans. A sum of RS. 8430.067 million will remain as deficit.

128. Now, I would like to present the revenue proposals.
129. While preparing the tax proposals for FY 1999/2000, I have adopted a strategy for a stable and flexible tax structure with the full-fledged implementation of value added tax (VAT). In this exercise, I have given due consideration to the suggestions received from Hon’ble Members of Parliament, organizations and individuals related to finance, industry and commerce as well as the Tariff Board. Accordingly, I have envisaged a plan to accelerate the revenue yield within 3 years by a comprehensive reform in tax regime whereby the income tax and customs administrations, will play a mutually supportive roles.
130. Now, allow me to present proposals on indirect taxes.
131. In order to ensure a fair and competitive business environment by inducting more taxpayers in the VAT net, I have proposed to reduce and fix the registration exemption threshold to RS. 2 million. I hope that this arrangement will contribute towards full scale implementation of VAT and eliminate the apparent confusion in the business and industrial community as well in the revenue administration.
132. To facilitate the small-scale importers, those who import goods worth RS. 10 thousand at a time and annually up to RS. 200 thousand will be exempted from registration for the purpose of VAT.
133. I have made the present provisions concerning penalties including fines of 100 percent to 200 percent more practical and flexible. I have also proposed waiver of fines to those who pay such arrears on stipulated time.
134. Considering the sick condition of the domestic textile industry and the match industry that uses timber for matchsticks, I have made an arrangement to refund VAT already collected on the basis to be prescribed.
135. I have proposed exemption of VAT on cotton sari, vest (petani), shawl (gamchha) and Lungi used by people at large.
136. To facilitate drugs industry, I have proposed options for them to utilize the benefit of VAT tax at zero rate.
137. In order to solve the current problem of old stock carryovers, deadline of 16 August 1999 has been fixed to declare such stock. Similarly, I have made an arrangement under which the deadline of 16 August 1999 has been fixed for registration under the VAT and those who volunteer to do so by this deadline will be exempted from late registration fine. The registration campaign will be carried out expeditiously during the month of Shrawan (17 July 1999 to 16 August 1999) so that the VAT will be implemented in its full form from the 17 August 1999. Previously registered taxpayers who do not fall under the new threshold of may cancel their registration, if they wish, provided they have cleared their liabilities.
138. With the objective to discourage the use of environmentally harmful polythene bags, I have proposed an excise duty on the production of such bags.
139. I have slightly increased the excise rates on health hazardous tobacco products, liquors and beers.
140. An additional revenue of RS. 1,680.567 million is expected to be realized from the proposed changes made in the VAT, excise rates and administrative strengthening.
141. I have adjusted the customs tariff downward to the extent possible, with the hope that after the effective implementation of VAT, the customs valuation will be more realistic. I believe that the adjustments will increase the responsiveness of revenue yields, facilitate the competitiveness of industry and trade and the supply situation will be firm up. I have reduced the customs duties on cloth, spices, edible oil and other items of consumption to alleviate inflationary pressure.
142. In view of the apparent inconsistency between the present system of valuation of goods by the customs and the provisions under VAT, I have made arrangements to base such valuation fully on transaction value with immediate effect. I have also made provisions that where the transaction value declared by an importer is found untenably under invoiced, such import will either be subjected to payment of 50 percent of the applicable customs amount as penalty or His Majesty’s Government will reserve options to buy or force to buy such import at the amount including invoice price, freight and insurance costs.
143. Considering the possible impact on imports due to transition from the present valuation system to real transaction value, the current customs tariff of 2() percent and 30 percent have been withdrawn and a new tariff of 15 percent and 25 percent have been introduced. Most of the items of imports have been incorporated in the tariff of 5, 10, 15, 25 and 40 percent, while special tariff of 80 and 130 percent on some items of imports have also been fixed.
144. I have proposed a customs duty of 130 percent on jeep, car and van withdrawing present excise and luxury tax imposed on such items.
145. In order to manage properly and eliminate the present anomalies seen in trading practice due to import of items of commercial value under personal effects regulation, amendments to this regulation have been made and the same will be made effective from 17 August 1999.
146. Due to smuggled import of fabrics from abroad, domestic textile industry has not been able to benefit from the existing protection provided through import duty nor has the revenue mobilization enhanced. With a view to correct this situation, I have lowered the tariff and made arrangements to make such imports based on actual value.
147. Bank guarantee facility will be provided to the domestic textile industry for the import of yarn used for the production of fabrics which are to be used by the garment industry. Exports of garment made of such fabric will be exempted from service fee. I hope that this arrangement will contribute to the promotion of textiles industries.
148. Environmental pollution is a fundamental challenge of today. In order to address this challenge, I have tried to reorient the customs regime as well. In this context, the owner of three wheeler is entitled to a rebate of 75 percent of applicable customs duty on import of 10 to 15 seater micro bus to be used as public transport provided also that he cancels the registration of his existing petrol or diesel driven vehicle or takes it out of valley in the coming fiscal year. Likewise, I have made arrangement to provide a rebate of 10 percent on customs duty on importation of vehicles with built in Euro-1 system. In addition, I have also increased the rate of additional tariff imposed on old and used vehicle.
149. In order to further facilitate the export, the existing limit of bank guarantee of 9 months to export finished products, out of the raw material imported under a bank guarantee has been increased to 12 months.
150. I have fixed the customs duty of 5 percent to dairy industries importing packaging material, except of plastics, with its name printed on it..
151. Unauthorized export and import is a serious problem of customs administration. To increase revenue, it is imperative to control it. Therefore, with the control of unauthorized export and import, I have high hopes that customs revenue will go up significantly. Accordingly, imports through customs points have been made attractive by reducing the tariff as necessary. The successful implementation of VAT would also discourage smuggling in export and import. In addition, special administrative steps will also be put in place to curb smuggling.
152. For the unhindered passage of container or truck once checked and sealed by the customs office to the final destination within the country, arrangement has been made under which no other agency can open such sealed vehicles for any kind of investigation than the Revenue Investigation Department.
153. An additional revenue of RS. 320 million is expected from the changes in the customs tariff and related administrative strengthening.
154. Now, let me present the proposals on direct taxes.
155. With the objective of providing further relief to some extent to low income individual and family, the existing income tax exemption limit of RS. 40 thousand and RS. 50 thousand respectively have been replaced by RS. 50 thousand and RS. 60 thousand.
156. I have reduced the additional tax (surcharge) of 10 percent levied as adhock measure to 5 percent. This will reduce the tax burden on the taxpayer.
157. With a view to encourage the registration in VAT, advance tax collection arrangement in respect of those who register in VAT will not be implemented during importation. Likewise, payments of internal supply, hotel and sightseeing bookings, advertising and printing, private vehicles hire will not be subject to advance tax collection.
158. I propose to increase the present ceiling of transaction value of RS. 700 thousand to RS. 800 thousand applicable to small taxpayers. Likewise, an arrangement has been made to assess the income tax of small taxpayers, for the first year, by the Income Tax Assessment Committee. For the next fiscal year, he will be given tax clearance certificate as and when he pays 10 percent additional amounts on previous fiscal year’s tax amount.
159. If a taxpayer pays an income tax at 0.5 percent of the old stock declared for the purpose of VAT, he will be given tax clearance certificate deeming it as a final payment of income tax.
160. To regulate properly the investigation process of tax returns filed under the self assessment, such returns are to be selected within 4 months whether it needs further investigation or not, the taxpayer has to be notified of such selection within stipulated time and not more than 15 percent of such returns, in general, would be investigated.
161. Keeping in view the impact on the transaction of real estates, I have proposed a reduction in the present level of registration charges on the transaction of real estates with a view to stimulate economic activities.
162. With the above mentioned changes in the direct taxes and reforms, it is estimated that an additional revenue of RS. 302.5 million will be mobilized in addition to RS. 27 million from the proposed reforms and changes made in rates of transport vehicle tax.
163. In order to promote tourism, a general single entry visa will be issued initially for a stay of 2 months on payment of US dollars 30. Extension of each additional month will be subject to additional payment of US dollars 50. For foreign investor multi-entry visa for a period of 5 years will be granted on payment of US dollars 250, on recommendation of Ministry of Industry. If such visa is required for only a year, US dollars 100 will be charged.
164. The present system of permit for trekking in Sagarmatha, Annapurna and Langtang has been withdrawn requiring only the National Parks and Wildlife Conservation Office to record details of foreigners trekking in these areas. Similarly, permit requirement for rafting in the specified rivers through a licensed water rafting agency has been withdrawn.
165. An additional revenue of RS. 600 million is estimated to be mobilized from the changes and reforms made in non-tax revenue.
166. Except the changes made in the rates of direct and indirect taxes, other existing rates will remain unchanged. The administrative reforms and changes made in the rates of tax and non-tax revenue is expected to yield additional revenue of RS. 2,936.7 million. Thus, there will be a deficit of RS. 5,500 million towards meeting the budgeted expenditure.
167. As per the details of expenditure I have mentioned above, the deficit will be met through internal borrowing of RS. 3,300 million from the banking sector and RS. 2,200 million from the non banking sector.
168. The priorities given in the coming fiscal year for the improvement in revenue efforts in totality, improvement in financial sector and macro economic stability and the disciplines combined are expected to provide a positive impact on the economy. From the programs for women empowerment, poverty alleviation, enhancement of employment opportunity and the steps to be taken for guaranteeing good governance will contribute positively towards enhancing social welfare and administrative capacity. Stimulation of the private sector investment and economic activities, Letter management of public expenditure, increase in economic and social activities of the rural communities on one hand and on the other hand, the gradual increase in the agriculture and non-agriculture sector including export sector performances, improved effectiveness of external resources uses as well as the economic reform process on the whole, the Gross Domestic Product is expected to increase by about 6.5 percent during the next fiscal year. In order to contain the inflation to 7 percent, money supply is expected to rise by 13 percent. The ratio of revenue to GDP is expected to reach 11.7 percent in the coming fiscal year.
169. Actual income and expenditure for the fiscal year 1997/98, revised estimates of income and expenditures for the fiscal year 1998/99 and estimates of income and expenditure for the fiscal year l 999/00 have been presented in the annexes.
170. A brief description of Technical Assistance made available to His Majesty’s Government by friendly countries and donor agencies as well as by NGOs have also been presented separately.
171. I would like to express gratitude to Hon’ble Members of Parliament, organizations and distinguished individuals and intellectuals from various walks of life, the Ambassadors and representatives of donor agencies who have provided their advice and suggestions in the preparation of this budget. On behalf of His Majesty’s Government, I would like to take this opportunity to thank friendly countries and donor agencies for their continued support in the economic and social development of Nepal.
172. Finally, I have expected to receive cooperation from all quarters for the successful implementation of this budget for FY 1999/00.