Seeking Succor
As the election for the Constituent Assembly (CA) approaches, the government is scurrying around searching for funds. As internal resources are not going to be enough, the authorities are casting their glance towards donors. But even the donors do not seem to be in upbeat mood, given the history of election postponements. In the run up to the consultation with donors on February 21 and 22, the government held a pre-consultation meeting this week in the capital. Attended by representatives of donor agencies and concerned stakeholders, thematic discussions were held on key subjects like infrastructure development, peace process and foreign aid policy. Officials have said that the pre-consultation meeting will help them assess the need and prepare themselves for the upcoming meet with the donors. The consultation meeting was held at a time when the government had publicly acknowledged that it is facing cash crunch in the face of rising expenditures
By SANJAYA DHAKAL
On January 16, the Finance Minister Dr. Ram Sharan Mahat made a fervent appeal in front of the representatives of key donor agencies and diplomatic missions based in Kathmandu.
" Nepal perhaps never felt the greater need for external financial assistance than what is being felt, at present. And, I think, this is perhaps the most important time that our development partners can come forward with generous support," the Finance Minister had told the donors.
Despite such requests, the government, however, could not get enough commitments from the donors – perhaps an indication of donors' increasing frustration with the prolonging transition and instability.
The government had requested the donors to provide US$ 47.8 million (over Rs 3 billion). But, as Finance Secretary Bidyadhar Mallik, revealed, they have only given commitment to provide around US$ 30 million (less than Rs 2 billion).
According to the Finance Minister, the Nepal Peace Trust Fund (NPTF), which was created to mobilize international resources for facilitating the peace process, at present, has "far too limited resources to meet our current and imminent requirements, which as per the current estimates stand at about 5.04 billion Nepalese Rupees (equivalent to USD 81.3 million). NPTF currently has external commitments available to the tune of USD 17.4 million. The shortfall, therefore, after government's own commitment is about 47.8 USD million."
Donors In Dilemma
"Earlier, all donors were very excited to put their resources to help in election activities. But after they were postponed twice and the donors could not spend their allocated resources, they have been disappointed," said Secretary Mallik.
Amid this environment, the Ministry of Finance held pre-consultation meeting with donors and stakeholders beginning Friday (February 1) ahead of key conference with donors, which will be held on February 21 and 22 in the capital.
"We are holding thematic discussions on different subjects with the representatives of donors and other stakeholders such as media, NGOs etc," said Mallik.
He said that the government will be putting forth its agenda including three-year interim plan, peace process, reconstruction and development during these pre consultation and consultation meetings with development partners.
As per the schedule, the government held thematic discussion on Infrastructure Development (Roads and Water Resources) on Friday. On Sunday, similar discussions were held on Economic Update and Reforms and Foreign Aid Policy. Likewise, on Monday, discussions were held on Social Sector and Evolving Peace Process.
"The synthesis of these discussions would be taken up in the February 21 and 22 Donors Consultation Meeting," said Secretary Mallik, adding that these conferences are not pledging conferences.
"We plan to hold Nepal Development Forum meeting in autumn of 2008 where we would be appealing for financial aid from the donors and development partners. We think we will need their assistance worth $ 1 billion every year for coming five to eight years," Mallik said.
Added Burden
The government is feeling additional financial burden since the signing of 23-point agreement among the seven political parties.
Even as the pact cleared the deck for holding election in April, it also created a number of new fiscal liabilities to the beleaguered government.
"(The Agreement) commits to addressing the promises made during the signing of the Comprehensive Peace Accord over two years ago. The issues that currently warrant immediate attention, among others, are the payment to the verified combatants and their reintegration and readjustment, repatriation of discharged combatants, rehabilitation of internally displaced persons (IDPs), managing the cantonments, relief and rehabilitation of the victims of the conflict, and rebuilding of infrastructure. Added to that, formation of the commissions and committees as committed in the Agreement will also create further financial burden," said Minister Dr. Mahat.
The minister added that the Election Commission (EC), too, has come up with an expenditure estimate that is far above what was budgeted earlier this fiscal year. "It appears that there is hardly any room for applying austerity measure in proposed election expenditures if we intend to be holding free and fair elections, which we, of course, certainly do. Allied to the election is reinforcing of the security measures. We cannot contemplate any compromises on election security as this only can ensure free and fair election and this is the only one opportunity that Nepali people will ever be getting to participate in CA election," he said.
At present, the government still needs to give around Rs 1.4 billion to the EC. The increase in the allowance of officials also resulted in additional burden. "This time, the total expenses for the election would be above Rs 6 billion including the expenses in security enhancement," said a government official.
Cash Crunch
In recent weeks, the government has faced a new challenge in managing the macroeconomic stability. The commercial banks have reported serious liquidity crunch.
The liquidity crunch in the market means that the government will not be in a position to engage in domestic borrowing to fund its activities. "This clearly signals to us that this is not the right time for government to think about additional borrowing from the market for government spending. To be precise, there is very limited scope for government to raise the domestic borrowing limit this year without further aggravating macroeconomic stability," the minister admitted.
Then, there is the nagging problem of continued subsidy in petroleum products. In the face of violent protests, the government had to rollback the price hike two weeks ago.
The government is preparing to present a supplementary budget to the parliament. "However, our options are limited. Revenue growth has been satisfactory thus far, in keeping with our expectations, but hardly sufficient to meet mounting expenditures, specially the new additional needs. It would not be fair to think of any additional taxes at this juncture when fledgling manufacturing, export and tourism sectors are struggling hard to find a recovery," Dr. Mahat said.
On the macroeconomic front, the Ministry of Finance expects the overall economic growth rate to improve this year as the agricultural GDP has been projected to attain higher growth. The revenue, it says, is growing healthily at 26 percent.
"The shortfall in export and the consequent rise in the trade deficit has remained one of the major problem areas. The balance of payments position for the past few months has turned negative, indicating weak investment environment in the country. The inflationary expectation remains somewhat high, mainly due to the effects of the petroleum price adjustments and the price rise in the food items. Despite our efforts to make the fiscal situation sound and sustainable, the treasury position portrays mixed signals on account of sudden jumps in the recurrent expenditures arising from the additional liability in the management of country's political transition, among others," states its press statement.
While many say the country is in the political crossroads, the upheavals in the economic field suggest that the nation could, very well, be also in the economic crossroads.
