— Dr. Bishwambher Pyakuryal

Dr. Bishwambher Pyakuryal is a well-known professor of economics at the Central Department of Economics, Tribhuwan University. President of Nepal Economic Association (NEA), Dr. Pyakuryal spoke with SANJAYA DHAKAL on the issues relating to the present economic situation and the forthcoming budget. Excerpts:

On the eve of the budget for the new fiscal year 2004/05, how do you evaluate the implementation of the 2003/04 budget?

The current budget could not be implemented properly. One reason for that is the spiraling non-budgetary expenses. The government has spent huge amount in titles that were not included in the budget. Security expenses have sky-rocketed. Military recruitment has increased, which will also result in more of such expenses in the coming days. We can anticipate there has been off-budget military expenditure. This will make it difficult to target inflation. Without knowing the nature of the money flow, how come the central bank can bring about monetary policy. And without fully comprehending this sort of non-budgetary and off-budget flow of money, how can the framers of the upcoming budget estimate the requirements and resource allocation?

What will be the impact of the decrease in development expenditure?

In the current budget, we witnessed sharp increase in regular expenditure whereas the development expenditure could not exceed more than 35 percent. In the absence of government investment in social sector and infrastructure, our growth cannot be sustainable. The macro-economic stability only supports urban sector. This trend will also result in further increase in unemployment and deterioration in education and health sector. Besides, there is alarming trend of budget deficit. This deficit has to be filled by internal and external borrowing. The government has already crossed its legal limit in making internal borrowings. The external borrowings – most of them – are conditional, which means that they are tied up with the Rate of Return. Without investment, the return cannot be high. As a result, there will be very little likelihood of disbursement of funds in accordance with the commitments. Whatever expectation you have for external borrowing to meet the fiscal deficit is not going to be fulfilled. We also should stop from using fiscal deficit as a regular instrument. Every year, the budget has deficit of around Rs 10-12 billion. We should have two goals- one, that we should retain minimum growth and two, provide basic service to the people. Otherwise, there might even be starvation deaths. When there was high growth in West Bengal (India), there was also famine there. Therefore, higher growth, if not enjoyed by grassroots people, could be meaningless. Unfortunately, we are witnessing that due to insecurity, the domestic markets are disintegrating.

How can the development expenditure be met in current situation?

It is not possible to achieve effective development expenditure through existing machinery. It would require some sort of partnership of local governments, NGOs as well as Maoist representatives. The government needs to adopt flexibility to materialize this partnership, which can ensure service delivery to poor people and help achieve minimum level of investment in infrastructure, health and education. The Maoists, too, have come out with their code of conduct stating that they would not attack infrastructures. So, I see a possibility of such partnership if the government exhibits flexibility and cashes in their code of conduct.

How would you explain the likely collection of revenue as per the target?

The government has subtly increased its non-tax revenue. It has increased certain duties and royalties, which has not affected people considerably. The reforms in customs have also resulted in this growth. The problem is that the government has not been able to widen the VAT net or increase compliance. As a result, the whole of our budgetary exercise is being carried out within a given number of around Rs 100 billion. Moreover, since Nepal has already become member of WTO, customs will become unsustainable source for revenue in the days ahead as we have to embrace free-trade regime.

What should be the priorities of the new budget?

I want to emphasize that the new budget should not be populist in nature. Although slogans and special programs to help victims of conflict, Dalits, indigenous people and so on sound good, they may not be healthy for the country’s economy. In the absence of a well-defined and proper system/machinery to distribute such funds to the targeted group, only announcing programs will not suffice. There is no guarantee that such programs will help the targeted group. The number one priority of the country today is peace. Therefore, I think the upcoming budget should – remaining within given numbers – try to decrease regular expenditure and increase development expenditure; deliver basic service to the people and retain minimum level of growth. That apart, the budget should also have programs that would resettle the displaced person and provide them with income-generating skills and access to credit.

Less than two weeks remain before the new budget has to be brought out. And still there is no clear picture of who is going to become the Finance Minister. Can any individual re-orient the budget to his/her party’s policies in such a short notice?

Re-orientation does not require much time. First, the government partners should make a clear minimum understanding on what they intend to do. Of course, the challenge is big. Any new individual who becomes Finance Minister will have to again work within the same given number. The only thing he can do is make few changes and introduce few programs, which does not take much time.

The current government is poised to take the shape of all party one including representatives from left, right and center. How do you think will be the budget prepared by such government?

The parties are talking about common program. I believe that they should have focused common program. Otherwise, each of the parties have their own brand of ideology and program. In fact, I, for one, do not have much faith in such unfocussed common programs.