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ECONOMY Overtaken By Uncertainty
Although Finance Minister Dr. Ram Sharan Mahat, a seasoned economist, attempted to shift the focus of this year’s budget towards rural areas by pumping resources into the VDCs and allocating budget for rural infrastructures, clouds of political uncertainty threaten to unravel his efforts. At a time when there are talks about replacing the current government, parliament and even constitution by interim ones, it is hard to believe that Dr. Mahat’s budget will actually be implemented. Besides the negative reaction by the Maoists, who increasingly seem to establish dominating role in any decision-making in the days to come, does not augur well for the budget implementation
By SANJAYA DHAKAL
The developments in the political field in the past two weeks suggest that the country may have to forget its brief stability soon. With the constitution soon to be replaced by interim one, the current government and the parliament could face the axe. For a country that had seen 13 governments in 12 years of democratic exercise, this may not seem anything new. However, this time the stakes seem a lot higher and consequences far striking.
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Dr. Mahat : Bouquets and brickbats |
The gathering clouds of political uncertainty are certain to have terrifying impact on the economy that is just trying to come out of the decade-long conflict-torn phase. It is, therefore, not surprising that one of the most frequent criticism hurled at Finance Minister after he presented the budget for the fiscal year 2006/07 was that he would not be able to implement it.
Apart from usual economic hindrances, the budget faces difficult political terrain. And by failing to hold consultations with the Maoists before he formulated the budget, Dr. Mahat has made his job that much more difficult to carry out. Talking to a reporter, the Maoist number two Dr. Baburam Bhattarai recently said that the budget ‘smelt of Panchayat era.’
“There is nothing in the budget that suggests that the country has undergone a big political change. This budget will be scrapped and a new and progressive one will be introduced once the interim government is formed including us,” said Dr. Bhattarai. “We have nothing to do with this budget. We do not support it,” he added.
With these few words, the Maoists have indicated that they would not be supportive of the budget and/or economic policies pursued by this government. Consequently, it means that Dr. Mahat will have to quickly rethink his options. Since he had formulated a budget that has given central priority to rural areas, it would be a farce if he claims he can implement those programs without taking the Maoists – who still hold sway over the rural areas – into confidence or at least winning their indifference.
For instance, Dr. Mahat has doubled the direct annual grant to Village Development Committees (VDCs) to Rs 1 million from this year. How can he ensure that these resources will be fully and properly utilized for development this year when last year, the VDCs were able to spend merely 20 percent of the resources they were allocated?
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Rural areas : Priority of the budget |
And, in case, the resources allocated for development purposes are not spent adequately, Dr. Mahat will fail in his another plan – to make the economy grow by 5 percent up from around 2 percent last fiscal year.
“This budget, by its outlook, can be said as pro-poor and pro-growth. But it may not be implemented in the absence of minimum understanding with conflicting party,” said Professor Dr. Bishwambher Pyakuryal, president of Nepal Economic Association.
However, the Finance Minister appears confident of its implementation. “I am confident that the implementation of this budget shall definitely make some contribution towards building foundation for new inclusive Nepal through equitable economy, by materializing the people’s aspirations expressed through the People’s Movement,” he said.
Budget Aim
During his budget speech, Dr. Mahat laid biggest emphasis on the consolidation of democracy and peace. He stated that the budget was aimed at doing so.
“The national debate today has surely centered on determining the future political system and process to achieve sustainable peace. This does not mean that the issue of economic development should be pushed to back burner. Democracy cannot flourish on the foundation of a weak economy. The economy is in crisis for over half a decade. It is looking for a new momentum. The economic activities, suspended during the period of conflict, insecurity and absence of peoples’ representatives, are waiting to pick up. The rural area seeks new opportunities for employment and income generation. Crisis-ridden industrial, trading and tourism sector is yearning for industrial peace and investment climate. Damaged and destroyed physical infrastructures are in need of reconstruction,” Dr. Mahat announced.
Correspondingly, he has allocated resources to spur growth. By decreasing security expenditure, Dr. Mahat has tried to open the avenue for increasing development expenditure.
This, according to him, would go a long way in pushing the economic growth rate of the country. For the past couple of years, Nepal has witnessed around 2 percent of economic growth – which, in absolute per capita terms, could mean negative growth if it is compared with the population growth rate of 2.3 percent.
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Destroyed infrastructure : Reconstruction effort imperative |
The budget aims to attain 5 percent of growth in the coming fiscal year. The FM expects the non-agriculture sector to grow by 6 percent, agriculture sector by 3.5 percent and hence the total economy by 5 percent. The budget expects the inflation will be 6 percent.
The rapid economic growth is imperative for Nepal to address its most vital problem – that of alleviating poverty. Without adequate growth, millions of people cannot be pulled out from grinding poverty. At present, per capita income of average Nepali is just around $ 300. According to Sultan Hafeez Rahman, country director of Asian Development Bank Nepal Resident Mission, Nepal can achieve $875 per capita income in 15 years if it can grow at 7 percent. Likewise, if it can grow at 8 percent, per capita income can grow to $845 in 13 years (2018) and to $858 in 12 years if it can grow at 9 percent. At present, the cut-off point for middle-income countries is $ 805 per capita. Therefore, faster growth is essential for uplifting the country from least-developed and low-income status to developing and middle-income status.
Budget Numbers
The finance minister last week unveiled Rs 143.91 billion budget for the fiscal year 2006/07 at the House of Representatives.
In what is seen as the maiden budget by the democratic government after the successful April movement, Dr. Mahat has given top priority to rural development. The budget introduces a number of programs aimed at helping rural areas. It has increased direct grant to Village Development Committees (VDCs) from Rs 500,000 to Rs 1 million a year. The government will have to spend Rs 4 billion on this alone. The budget announces special programs to provide relief to socially and economically backward community, Dalit, indigenous, nationalities, families of martyrs and women. Students of these communities have been provided with scholarships. Senior citizen allowance and widow allowance have been increased.
For Karnali, the budget announces “Light Program” aiming to distribute 31,000 solar lights. Around 24,000 students of the zone would be provided free education. In Karnali zone, for one member of every family that is totally unemployed, the budget announces program to provide 100 days worth of unemployment allowance at the rate of Rs 50.
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Dr. Bhattarai : Budget not acceptable to the maoists |
Likewise, in a move to appease civil servants, the budget has provided 10 percent dearness allowance – which will increase the liability by Rs 2 billion.
This budget has slashed palace expenditure by up to 70 percent. The palace has been allocated Rs 219.7 million budget. The government has allocated Rs 1.25 billion for the purpose of holding elections to constituent assembly. Likewise, the budget to the Defense Ministry has been reduced slightly to Rs 10.36 billion from Rs 12.14 billion last year. The budget to Home Ministry, too, has been decreased from Rs 8.78 billion a year ago to Rs 7.84 billion. Budget for development has been increased substantially.
The budget has allocated Rs 1.1 billion for reconstruction of destroyed infrastructures. It has announced development of 309-MW strong Tamakosi hydropower project. It has set aside Rs 7.71 billion for road construction; Rs 6.19 billion for drinking water projects; Rs 9.3 billion for health; Rs 3.96 billion for agriculture; Rs 8.41 billion for electrification; and Rs 4 billion for irrigation. The biggest share of the budget has been allocated for education at Rs 22.77 billion, which is around 16 percent of the total budget. Although this amount is high compared with Rs 21 billion budget for education last year, it still falls short of government promise to allocate at least 17 percent of budget to education.
Total capital expenditure has been set at Rs 44.97 billion while the recurrent expenditure has been set at Rs 83.79 billion. Around Rs 15.16 billion has been allocated for loan and interest repayment. The budget expects to raise Rs 85.37 billion revenue. It hopes to generate foreign grants of Rs 23.72 billion and foreign loan of Rs 16.9 billion. The budget states that it would generate the remaining Rs 17.9 billion as internal loans.
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