Package Of Promises
In his package full of promises, Finance Minister Dr. Ram Sharan Mahat has vowed to check economic ills, push GDP growth, hold Constituent Assembly elections and proceed with reforms. In an uncharacteristically huge budget, Dr. Mahat has made ambitious targets of revenue collection and expenditures. At Rs 168.99 billion, it is bigger than the current fiscal year's budget by one-third. At a time when the security problem in Terai region – the economic artery of Nepal – is burgeoning, it could be a strange naiveté of experienced finance minister to estimate 5 percent GDP growth. One thing, however, has earned him praise from the private sector – he has been able to, by and large, place the economy firmly on track of liberalization and reforms despite the apparent pressures by extremist constituents of the ruling alliance
By SANJAYA DHAKAL
The budget for the fiscal year 2007/08 was keenly awaited not because budgets every year are keenly awaited but because this year the budget would belong to the eight party government, which includes Maoists who follow the policy of radical communists and have called for 'total economic restructuring.'
Defending the budget at the parliament this week, Finance Minister Dr. Ram Sharan Mahat claimed that it was a document of understanding among eight parties.
Notwithstanding the rhetorical volley of criticisms by MPs of Maoists and other parties, the budget, according to FM Dr. Mahat, is the economic understanding among the eight parties. This, he said, will catapult "economic agenda to the center-stage."
As such, Dr. Mahat – despite bringing out an over-ambitious estimation of incomes and expenditures – did draw praise from economists and private sector for sticking with reforms.
"We are happy that a budget by eight party government has proceeded with reforms and liberalization," said Binod Chaudhary, industrialist and president of Confederation of Nepalese Industries (CNI).
In highlighting the challenges he faced in preparing and hurdles he is likely to face in implementing the budget, Dr. Mahat said that problems long suppressed and put aside since centuries are now unfolding one by one. "Challenges that the new generation needs to confront are piling up. Demands for the right to development are becoming increasingly vocal. With the democracy restored, villages are competing to claim for more and more infrastructure development such as schools, health services irrigation, motorable roads and electricity for a quickly visible economic prosperity," he said.
Dr. Mahat added that a well-developed Nepal can be built only if "we can transform people's growing awareness and aspirations for their rights into a creative energy and unleash each Nepali's potential to an optimal extent. If we fail to move towards economic development utilizing the open moment with enormous potential and pursuing a positive
disciplined and all-inclusive attitude and commitment, we will risk falling from the height of freedom, self-respect and political feat that were so hardly won by the sacrifice of the countless of martyrs, and end up with despair, dejection and deprivation instead."
Budget Figures
Dr. Mahat presented the budget totaling Rs 168.99 billion on Thursday (July 12) for the fiscal year 2007/08. He has predicted 5 percent growth of GDP in the coming fiscal year and inflation rate at 5 percent.
In his second budget since April movement of 2006 and first one of eight parties, the FM has allocated Rs 98.17 billion for recurrent expenditure; Rs 55.26 billion for capital expenditure; and Rs 15.56 billion for servicing the payment of principle/interest of loans.
It gives high priority to the Constituent Assembly elections, for which it has allocated Rs 3.5 billion including security expenses.
The budget has been divided into general expenditure of Rs. 93.74 billion and development expenditure of Rs 75.25 billion. The government aims to manage Rs 99.60 billion from current source of revenue, Rs 27.47 billion from foreign grants, and around Rs 17.37 billion from foreign loan.
There is a huge estimated budget deficit at around Rs 24.56 billion. The budget is higher by 17.4 percent as compared to total allocation of Fiscal Year 2006/07 and 28.2 higher than the revised estimate of the same period.
In the security front, the budget has allocated Rs 9.59 billion for the police and Rs 10.89 billion for the army.
In a good news to government employees and bad news to opponents of soaring unproductive expenditures, the budget announced 27 percent salary hike for government employees including 10 percent allowance provided last year. Retired civil servants above 75 years will get additional 10 percent raise in their pension. The Rs 1 million annual grant to VDCs has been given continuity in the new Fiscal Year.
In education sector, the budget has allocated Rs 28.39 billion while Rs 12.18 billion has been allocated for the health sector. The Local Development Ministry has received substantial amount of budget (Rs 13.08 billion) for the Fiscal Year 2007/08. For the Peace Trust Fund the government has set aside Rs 1 billion, part of which will be spend on management of the Maoist army.
Similarly, Rs 9.34 billion has been allocated for road development while Rs 2.13 billion will be spent on expansion of communication services. The government has allocated Rs 5.82 billion for the agriculture sector apart from Rs 3.99 billion for irrigation projects.
In the budget, the FM has vowed to develop 5000 MW of electricity in next five years. The budget has allocated Rs 7.65 billion for hydropower development. Likewise, Rs 1.71 billion has been earmarked for Poverty Alleviation Fund, to be spent chiefly on income generation projects in rural areas. Dr Mahat claimed that women would directly benefit from involvement in development and economic projects worth Rs 19.9 billion in the new Fiscal Year. Likewise, Rs 1.8 billion has been set aside for the reconstruction of infrastructures destroyed during the conflict.
As in the past, this year's budget has also promised setting up Industrial Security Force and has vowed to bring in laws to ban bandhs in highways.
Royal Rumble
One of the most contentious aspects of this year's budget was the allocation of resources to the royal palace. When he made the budget speech in the parliament, Dr. Mahat remained silent on the issue of budget allocation to the palace.
The following day, he clarified through a press conference that Rs 12 5 million has been set aside for the royal palace. He said Rs 80 million had been allocated for the palace employees to be spent through the Ministry of General Administration. He said the King and the royal family would get Rs 25 million as allowances and Rs 20 million for repair and maintenance of the palace.
As he subsequently faced scathing criticisms of surreptitiously allocating budget to the palace, Dr. Mahat clarified that he did so because many parties did not want to allocate budget to the palace directly.
"Since the King's status is not mentioned in the interim constitution, the government did not allocate budget to him in separate heading like in the past," he added.
The budget also mentions to implement earlier decision to nationalize the properties of the royal palace.
Political Response
The response of the parties and leaders to the budget was not at all different than in the past. Maoist MPs roundly criticized the budget for failing to reflect the spirit of "People's Movement and People's War" and for failing to prioritize agriculture. "Even police have received more budget than agriculture sector," said Maoist MP Janardan Sharma.
Senior UML leader and ex finance minister Bharat Mohan Adhikary also castigated the budget for not paying attention to agriculture and cooperative sector.
On the other hand, economists have cautiously welcomed the budget. Dr. Shankar Sharma, former vice chairman of National Planning Commission (NPC), praised the finance minister for giving continuity to economic reforms and many other past programs. "The size of the budget is indeed too large. But he could not help it given the need to spend on unproductive sectors such as elections, camp management, and pay hike," he said.
Industrialist Rajendra Khetan, who is also the President of Young Entrepreneurs Council, thinks the budget is half-baked. "There is a need for clear vision on what the government intends to do. For instance the budget has mentioned about the Investment Board with executive powers, which sounds familiar as we already have Investment Promotion Board (IPB)."
Khetan added that he welcomes new and positive ideas like provision of Export House. "Like our economy earlier was called remittance economy the budget has envisioned it could be a Power Economy by exploiting the vast hydro power. But the labor issue is not made clear in the budget. Similar is the issue of economic diplomacy. What we proposed was using of resource collected from granting Certificate of Origin to support economic diplomacy. Furthermore, in the financial sector reform, the measures to recover loan do not seem to be priority. The resolution on industrial unrest is also not clear."
Private sector organizations such as FNCCI, CNI, tourism entrepreneurs and so on have also largely welcomed the budget for its private sector-friendly direction. They have welcomed the new provision promising to allow them to invest in foreign countries under certain conditions.
GDP GROWTH RATE AT 2.5%: ECONOMIC SURVEY
The Economic Survey of fiscal year 2006/07 released by the Ministry of Finance a day before it unveiled the budget for 2007/08 gave a dismal picture putting the GDP growth rate at 2.5 percent.
The Survey pointed out that despite poor show by agriculture, there were some improvements in social sector.
The Economic Survey 2007 has attributed the slow GDP growth mainly to poor agriculture sector which is projected to grow at a mere 0.65 percent. In the last fiscal year, it had grown by 1.1 percent. The dismal performance of the sector is due to poor paddy production, which dropped by over 12 percent. As a result, contribution of agriculture in the GDP has dropped to 36.1 percent this year from 36.8 percent a year ago.
On the other hand, the share of non-agriculture sector in the GDP has also dropped to 3.6 percent this year compared to 4.6 percent growth in 2005-06. The reason for the low contribution of this sector is attributed to a 'difficult investment climate' and weak law and order situation as well as frequent strikes and transportation problems.
Sectors such as the real estate, commercial services, transportation, communication, education, tourism and industrial have registered growth, while agriculture, construction and health had a negative growth this year.
In the social sector, 7,567 new schools have been built, pushing up the total number of schools to 42,110 this year from 34,543 a year ago. The number of students and teachers have also gone up. The number of health care units, including hospitals and health posts, has increased to 6,944 as of mid-March 2007 from 6,796 in July last year. The number of trained health workers rose to 9,1744 from 90,849 during the period. During the fiscal 2006-07, 312 km of new roads have been constructed, whereas it was only 18 km last year. Of the total built road this year, 174 km has been blacktopped. However, the registration of new vehicles has increased by 11 percent during the same period, making 33 vehicles per km of roads.
The survey forecast that per capita GDP income would grow by 8.85 per cent to Rs 27,209 this year, an increase from Rs 24,996 last year. An average income of a Nepali is estimated at $383, up from $350 a year ago.
The total foreign trade dropped by 2.6 percent to Rs 154.68 billion. The total foreign debt rose by 6.9 percent to Rs 234.8 billion, while the domestic loan increased by 10.16 percent to Rs 102.3 billion. This means that in the population of 240 million Nepalis, each citizen will have to bear Rs 14,000 loan.
