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| Kathmandu, Wednesday July 17, 2002 Shrawan 01, 2059. |
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B for the budget, D for the
critics
By KEN OHASHI
Since the FY 02/03 budget was announced on July
8, many have criticized it for a "sharp cut" in development expenditures.
How could Nepal get out of the current economic slump by cutting public investment? Is
this government really committed to poverty reduction? I think these criticisms do not
really inform the public, nor do they contribute to a constructive policy debate.
First of all, was the development budget cut
sharply? It is far from clear. Yes, the proposed development expenditures of Rs 39 billion
is much lower than the original FY 02/03 budget allocation of Rs 51 billion. But, the
actual development expenditures for FY 01/02 turned out to be only around Rs 33 billion.
So, where is the cut?
Those who are familiar with the budget of His
Majesty’s Government (HMG) all know that the development budget figures have been
always wishful figures. (See the comparison of the budget figure and the actual spending
below.) I have been told that high development budgets served some political objectives.
It has never been clear to me whom such inflated figures are meant to please. Surely the
public is not so gullible to be fooled by perpetually unrealistic spending plans. At any
rate, unless this year’s figure is also inflated to similar degrees, it makes little
sense to compare the new figure of Rs 39 billion with the Rs 51 billion that proved
meaningless. There are indications that this year’s development budget, which reduced
the number of projects by 175, is more realistic. It has been reported that as the budget
was being finalized many of Prime Minister Deuba’s cabinet colleagues bitterly
complained that with such an austere development budget, they could not win the elections.
(To his credit, the Prime Minister is said to have retorted that there must be different
ways to fight elections.)
The criticism of the "cut" in the
development budget is hollow in more fundamental ways. First, is there any evidence that
increasing development expenditures would accelerate the process of development? Empirical
evidence on Nepal does not support such a link. Given the very weak administration of many
development projects and rampant corruption and waste, this is not surprising. The problem
in Nepal is not in the quantity of development spending, but rather its quality. Critics
have not helped to focus the budget debate on this core issue.
Second, it is fine to criticize the government
for cutting the development budget, but unless the critics are willing to offer an
alternative, they do not contribute to policy debate. We all know that the available
resources are limited. So, increasing development expenditures will necessarily mean
cutting something else. What would the critics of this budget propose to cut? Security
expenditures? The number of teachers, health workers, or other civil servants? Easy cuts
have been already made. Any further cuts will be painful. But, unless they are willing to
specify where such pains should fall, insisting on more development expenditures will not
be helpful.
So, do I like this budget? I had wished for a
more stringent budget, because I worry that the revenue projections are on the optimistic
side, and that the regular expenditures may turn out to be higher. But, I recognized that
the budget formulators faced intense political pressures. As in the past, it is likely
that there will not be enough money to fund all development expenditures adequately. In
the past, the Ministry of Finance managed this by controlling the "release" of
budget. In other words, what one saw in the budget was not really what was actually
allocated to each program or project. This year again, the MOF will have to do the same
thing. It is premature, though, to write off this budget as business as usual. There has
been an important innovation in this "release" process.
The FY 02/03 budget has classified a small
number of development projects as priority (or "P1") projects. They are to get
funding before lesser priority projects are funded. The 100 or so P1 projects will amount
to only about Rs 1 7 billion. This is much more consistent with a realistic budget
ceiling. If this approach is implemented properly, the limited development budget will be
focused much more effectively on high priority projects. I think this is a realistic way
to deal with a difficult and uncertain budget situation, in the face of intense resistance
to dropping low priority projects.
The FY 02/03 Budget also includes some reform
measures that address the quality issue. It reaffirms the HMG commitment to beginning the
process of handing over public primary schools to community management, along with block
grants equivalent to the existing school budgets. Of the target of 1000 schools to be
handed over in FY 02/03, the first batch of at least 100 is to be handed over by end of
August. It also reaffirms the HMG commitment to handing over at least 20 sub-health posts
each in 10 districts to communities by October. These measures should begin to improve the
quality of two essential services.
So, I would give the FY 02/03 Budget a grade of
B. With effective implementation of what has been proposed, however, this Budget can end
the year with a higher grade of A.
(The author is the World Bank Country
Director for Nepal. The views expressed in this article are his personal and do not
necessarily reflect those of the World Bank Group)
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