Less than two weeks before the end of the current fiscal year, the Ministry of Finance is still without a minister. Even a month after his appointment, Prime Minister Sher Bahadur Deuba has been unable to expand his cabinet. This delay has been the most unfortunate for the financial sector. For the new finance minister, there is no option than to hit the road running. Amid spiraling regular expenditure and contracted development expenditure, the new budget need to give a new thrust to rescue the economy out of the current slowdown
By SANJAYA DHAKAL
As the political parties are still trying to finalize their common program and the Prime Minister Deuba is yet to expand his three-member cabinet (till the writing of this article on Tuesday afternoon), there is uncertainty about what thrust the new budget, which has to be announced within mid-July, will take.
In the absence of a full-fledged finance minister – PM Deuba has kept the finance portfolio with himself – the exercise of preparing a budget has resembled a bus trying to move with empty front seat.
Whoever holds the rein of the Finance Ministry, he/she will have limited time and option to re-orient the budget. More importantly, the new Deuba government has failed to show the sense of urgency to tackle the economic problems faced by the country by not inducting a finance minister soon.
Typically, a budget preparation involves weeks, if not months, of homework and exercise by a bevy of bureaucrats, experts under the political guidance of ministers. But this year, the mandarins at the Finance Ministry and the National Planning Commission (NPC) are working without the guidance.
Likewise, the reports about the Common Minimum Program (CMP) being formulated by the political parties like the ruling Nepali Congress (Democratic) and the Unified Marxist Leninist (UML) lack comprehensive programs on economy. Apart from mentioning poverty alleviation, their programs are silent on the nitty gritty of rescuing the economy out of the current morass.
Derailed Development
The budget for the fiscal year 2003/2004 had targeted to make development expenditure worth Rs 41 billion.
Out of the total budget of Rs 102.4 billion, over Rs 60 billion had been allocated for regular expenditure and over Rs 41 billion for development expenditure.
Experts and analysts have come forth with varying figures over the exact amount the government could spend in development. But all agree that it decreased sharply and dangerously.
A recent estimate (by the Ministry of Finance) stated that the volume of development expenditure has been very poor. The government could spend only Rs 13. 93 billion as development expenditure till the first 11 months of the fiscal year. This figure is less by almost half when compared to the budget target.
Big investment projects like middle-Marsyangdi hydroelectric project and Melamchi Drinking Water projects suffered from hitches during this year. In both the cases, insecurity was one of the major obstacles for the smooth operation of the project. Investment in rural infrastructure – excepting the roads being constructed with the help of army in the mid-west – was almost non-existent.
The rural service-delivery suffered and the government was compelled to organize mobile camps to provide health, education and other administrative services. The budget had proposed over Rs 5 billion for the road and transport sector. Out of this amount, the budget had set aside Rs 1.36 billion for the road development in the mid west and the far west region – a whopping 214 percent increase from the previous year. The impact of this budget support is yet to be assessed.
According to officials, the situation of insecurity was largely responsible for the decrease. “But we are exploring alternative means for carrying out development programs. The government has already started handing over schools and health posts to the community. If this model succeeds, than the development projects, too, could be carried out in similar manner,” said a senior official at the Ministry.
Political leaders of both the ruling NC (D) and the UML agree that the decrease in development expenditure could derail the nation’s economy. Dr. Naryan Khadka of NC (D) and Bharat Mohan Adhikary of UML – both well-known economists in their respective parties – concur that the number one priority of the new budget should be to increase effective development expenditure. “New avenues must be explored to carry out development, which cannot be kept in a limbo,” said Adhikary.
Dr. Bishwambher Pyakuryal, a noted economist and president of Nepal Economic Association (NEA), goes a step further suggesting that the government might need to enter into partnership with NGOs, donors as well as the Maoist representatives to ensure smooth development program. “The government should cash in the announcement by the Maoists that they will no longer destroy infrastructures,” Dr. Pyakuryal said.
Rosy Revenue
Despite the raging conflict, one thing that the government can be proud of is the growth in revenue collection.
The government has collected revenue worth Rs 51.81 billion within mid-June (the first 11 months) in the current fiscal year – a figure that is 13.6 percent more compared to the same period last year. Since the month of June/July is important in terms of revenue collection, the government expects that this year’s revenue collection would exceed the target. The budget for the current fiscal year had aimed to collect Rs 60 billion as revenue.
According to the Ministry of Finance, out of the total revenue, Rs 41.78 billion was collected through different taxes – 14.6 percent more than last year. Likewise, Rs 10.2 billion was collected from non-tax revenue source – 9.8 percent more that last year.
The budget estimate of achieving 4.5 percent growth rate, too, is going to be almost achieved. Unfortunately, such macro-economic stability is not reflected in the rural Nepalese households, who still suffer from deprivation, famine and so on.
Dr. Pyakuryal, while taking note of the satisfactory revenue collection, adds a caveat that this is not a sustainable growth. “Majority of revenue collection is made through custom duties, which we need to do away with in the days ahead as we have chartered into the free-trade territory like WTO,” he said.
Priorities And Goals
As the overriding priority before the country is restoration of peace, the budget, too, cannot remain aloof from this reality. Besides, many targets of the budget cannot be met in the state of continued conflict.
“Peace and polls should be the priority of the economic program of the government,” said Dr. Narayan Khadka.
Another important priority of this budget is going to be the utilization of development expenditure. In the absence of development, the country is sliding further into the crisis.
“This is no time to sit idle. Even if the conflict does not end, development should not suffer. We must find ways to carry out development,” said Adhikary.
According to Adhikary, the budget should introduce targeted programs to uplift the Dalits, women, deprived community and so on. “In fact, we can involve the community in the local development efforts. Say for example, the government should bear 50 percent of the cost of building irrigation canal and ask the local community to bear the rest in terms of free labor and so on. Such initiatives will go a long way if effectively carried out,” he said.
Amid wide-ranging difficulties, the budget will need to strike a balance as well as send a strong and positive message to the people in general. As the government is poised to take all party shape, the budget will also have to address the competing as well as conflicting interest. Naturally, the budget will have an uphill task of pacifying variety of opinion-holders, business community, farmers, traders, civil servants and so on.