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VOL. 27, NO. 44, July18 , 2008 (Shrawan 03 2065 B.S.)
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Positive Perspective
Presenting the Economic Survey report, the Finance Minister paints a rosy picture of the macro-economic situation
By SANJAYA DHAKAL
While he made presentations on the achievement of economy last week, Finance Minister Dr. Ram Sharan Mahat had one big message.
I am leaving behind the economy with sound indicators based on which the new government can catapult the transformation – he seemed to say.
"Though there are huge challenges for the next government to meet the aspirations of the people, tame inflation, check intimidation and threats against the business community, provide security for investment and push the plummeting exports up, the present macro-economic indicators are looking bright," he added.
He stated that the economic growth rate of 5.6 percent achieved this Fiscal Year at the basic price is the record high over the past eight years.
The latest Economic Survey suggests that the agriculture sector registered a growth rate of 5.65 percent, which is the highest since Fiscal Year 2050/51. Similarly, the growth rate of 5.57 percent in non-agriculture sector is also the highest achieved since Fiscal Year 2056/57.
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Accordingly, savings and investment rates have also increased, with the ratio of Gross Domestic Savings to the Gross Domestic Product standing at 11.5 percent against 9.7 percent in the last Fiscal Year. Such a ratio of Gross National Savings has reached 32 percent up from 28 percent a year ago. Similarly, total investment in relation to GDP went up to 32 percent from 28 percent a year ago.
The government report says that the expansion of economic activities, reforms undertaken in the tax system, encouraging compliance by taxpayers and strengthening of the revenue administration have all contributed to the mobilization and collection of revenue at a significant level. As per the revised estimate, revenue mobilization at the end of the current Fiscal Year is expected to increase by 22 percent with a collection of around Rs.107 billion against a target of Rs. 103.66 billion. The ratio of revenue to Gross Domestic Product will thus reach 13 percent with the revenue growth rate 22 percent this year, making one of the highest since Fiscal Year 1993/94.
"Mobilization of foreign aid, a major source of financing development projects, remained encouraging during this Fiscal Year. Agreements totaling the amount of Rs. 57.6 billion have been concluded to date compared to the agreements totaling Rs. 37.2 billion at the end of the last Fiscal Year, pointing thus to the marked increase by 54.1 percent."
The report published by the Ministry of Finance points out that the total outstanding public debt--both domestic and external-- has decreased significantly. Till mid-February 2008, it stood at Rs. 324 billion, whereas it had totaled Rs. 329 billion at the end of Fiscal Year 2005/06. Ratio of the total public debt to the Gross Domestic Product at the end of Fiscal Year 2006/07 decreased to 44.1 percent from that of 50.3 percent at the end of earlier Fiscal Year. Showing a further decline, such a ratio is estimated to come around 40 percent at the end of the current Fiscal Year. Ratio of outstanding foreign debt to GDP is around 26.3 percent.
As usual, the remittance earnings have been a major saving grace for the economy. "In the first 10 months of the current Fiscal Year, the remittances received from the Nepalese working abroad has increased by 35.3 percent and reached Rs. 109 billion compared to the similar period of the last Fiscal Year. Likewise, during the same period, income from the tourism sector has increased by 83.2 percent and reached over Rs. 15 billion. Despite the sharp rise in commodity trade deficit due to the slackness in export and surge in import, the current account of the external sector has remained steadily positive. Accordingly, the balance of payment surplus has reached Rs. 20 billion in May 2008, compared to Rs. 7 billion in May 2007. As a result, the foreign exchange reserve is Rs. 197 billion in May 2008, which is sufficient to import goods for 10 months and half."
The major challenge remained the spiraling rate of inflation, which at the latest estimate has reached 11 percent on year-on-year basis on the eleventh month of the fiscal year 2007/08.
The price hike in petroleum products, food and other commodities in the international market has naturally impacted the price situation in Nepal. "The average annual inflation rate has reached 7.1 percent in June 2008, compared to 7.8 percent and 6.7 percent, respectively, in June 2006 and June 2007. Taken on point to point basis, the annual increase in inflation has reached 11 percent in June this year, compared to 4.5 percent in June 2007 and 9.1 percent in June 2006. The current trend of inflation has certainly posed us a challenge of ensuring price stability in the country."
The Government has had to invest Rs. 6.67 billion (in 2007/08) for meeting the recurring losses of Nepal Oil Corporation which has been caused by failure to adjust the local price of petroleum products in line with rising international prices. Similarly, the Government had to bear the additional cost of Rs. 5 billion because of the repeated expenses for the Constituent Assembly elections, increased spending for peace and security, discharging the liability created due to financial compensation, implementation of the 23-point understanding, increased relief costs, and accumulated financial liabilities passed on by the previous Governments. "Despite this, we have been able to keep the rising expenditure within the budgetary limit through a careful and prudent budget management," said Dr. Mahat.
According to the report, total public expenditure for the current Fiscal Year was budgeted at Rs. 169 billion. However, the revised estimate shows that such expenditure will stand at Rs. 162.6 billion with the recurrent expenditure of Rs. 95.63 billion, capital expenditure of Rs. 52.31 billion, and principal payment to Rs. 14. 7 billion. It is estimated that the recurrent expenditure and capital expenditure will increase by 24 percent and 31.6 percent respectively this Fiscal Year compared to the last Fiscal Year.
"We have been able to maintain fiscal balance due to increased mobilization of non-borrowing instruments. The share of grant in total foreign aid has increased and reached 66.7 percent. The ratio of fiscal deficit of the government to Gross Domestic Product has stood at 3.9 percent as in the last Fiscal Year which falls well within the approved limit of 4.25 percent as targeted by the Three Year Interim Plan," said Dr. Mahat.
Meanwhile, even though the government did not bring a full-fledged budget, the Nepal Rastra Bank (NRB) is preparing to bring out a full-fledged monetary policy within a week or two.
"By law, we have to bring the monetary policy. We can adjust it once a new full-fledged budget comes out," said Krishna Bahadur Manandhar, acting governor of the central bank.
He, however, conceded that in the absence of budget, the monetary policy will lack the guidelines to hinge on when bringing out policies. The monetary policy this year assumes greater significance as it is coming amid spiraling rate of inflation.
