Economic health and new budget

By DR Govinda Bahadur Thapa

Nepal at present has been confronting two challenges, namely, providing resources for the security and rescuing the economy from bankruptcy. Now the issue of growth has become irrelevant. In the light of the security situation, providing resources to the security agencies has now been the issue of prime concern. Since the responsibilities of bringing back peace and harmony in the country has been handed over to the army, the government cannot say no for the resources to these agencies. However, the situation of the economy is such that it has lost the capacity to generate any more revenue. Because the economy itself has been sick due to security reasons on the one hand, and insensitivity and inaction on the part of the government on the other. The situation has gone to such an extent that the government has to spend scarce revenue to save the economy instead of extracting from it. All the major sectors of the economy have been squeezed. The bank credit to the private sector and the time deposit has been positive just by 4.8 percent and 0.6 percent respectively during the first eight months of the current fiscal year. Net foreign asset also has recorded a negative growth rate of 4.4 percent this year. Revenue mobilisation has remained positive by just 3 percent during this period compared with the target of 21.5 percent. Development expenditure has declined by as much as 15.5 percent this year. Similarly, exports to the dollar and Euro area has declined by 38.9 percent. The imports from the same area have also declined by 13.5 percent. The exports of readymade garments, the number one export product of the country, has declined by as much as 41.8 percent and the export of woollen carpets has also declined by 25.2 percent. The pashmina exports has declined by 74.2 percent compared with the increase by 166.7 percent during the same period last year. Exports of other important items like pulses, tanned skin etc have also declined this year.

The Central Bureau of Statistics (CBS) has recently come out with the industrial production index of the first half of this year, which shows the decline by 3 percent. The situation of the tourism sector is still more serious. All the hotels, airlines, tours and travel agencies, surface transport etc have been seriously affected. This declining trend of the economy has not only affected the banking sector but has also worsened unemployment and poverty problems in the country. The productivity of the agriculture sector has not improved. The economic activities in the rural areas have been dried out due to government’s indifferent attitude towards the rural areas. The investment of the government as well as of the private sector have concentrated in the major urban areas and that also only in the capital. As a result, major cities of the country have been unmanageable on the one hand and the rural areas have been losing economic opportunities on the other hand. This has further worsened inequality of income distribution in the country. Defective economic policy should be immediately corrected to reverse the current economic situation.

Any sensible government introduces tax cut and investment enhancing programme in such a situation in order to stimulate the economy. But here in Nepal the government revised tax rates upward in order to mobilise additional revenue. The governments facing such situation spend more to invigorate the economy. But here the government has cut development expenditure and that too of the local bodies to save the resources. This further worsens the unemployment and poverty situation particularly in the rural areas. The government hiked the tax rates to raise additional revenues at a time when the economy was already on the downturn and was demanding the government’s support. However, the government chose to further penalise the economy. From this, neither the government could mobilise any worth mentioning amount of revenue nor could protect the economy. The most surprising aspect of the situation is that the government has not exhibited any interest in curtailing its unproductive and consumption expenditure. The government is of jumbo size and the ministers are making foreign trips as if nothing has happened in the country. Even the Finance Minister does not spell out even a single word about the need for squeezing the unproductive and consumption expenditure. The government has been prepared to drastically cut the development expenditure, but not the unproductive expenditures. This shows that the government has been extremely insensitive towards the crisis the country is facing.

Instead of cutting down the budgets allocated for the local bodies, the government should have increased the budget for them so that they could defy trouble-makers more effectively. The government should have provided more budgets to the rural areas from where the revolt had erupted. Such resources could create additional employment opportunities in the rural areas and the life of the rural people could have better to some extent. Similarly, the government could have mobilised even more revenues from such sectors which are least or not affected at all like private schools and colleges, private nursing homes and hospitals, hundi operators, commission agents etc. More resources could have been saved by curtailing the unproductive expenses on foreign trips, fuel, purchase of vehicles etc and by managing the expenditure more efficiently. The government should have revised the customs duties upward on the luxury items, leaving the consumer items, industrial raw materials, chemicals and machineries.

There is no doubt that the size of the budget is likely to be smaller next year than that of the current year. However, substantial reduction will be on development budget than on the recurrent one. Because the demand for resources from the security agencies has gone significantly up and debt servicing is also likely to go up equally significantly. In respect of the development expenditure, the government might think that there is no harm in estimating larger development expenditure. The actual expenditure will fall short of the target as usual. Bu the government should make realistic development budget, instead of an unnatural one.

Nepal has not been utilising foreign assistance, as it should have. Donors have been generous enough towards Nepal in providing financial as well as technical assistance for a long time. However, it has been the laxity on our part that we have not reaped the benefit from it. Nepal could not rely on foreign aid policy for long. And it went on accepting any sort of foreign assistance of any size, in any activity and in any condition without caring for its outcome. This tendency has made Nepal excessively dependent upon foreign aid. It seems that we have been using the foreign aid as the substitute of the internal revenues. Therefore, our revenue efforts have been so dismal in comparison to other South Asian countries. It has also made our development effort very costly. Therefore, we should thoroughly review the process of aid utilisation. And we should be able to take maximum benefits of foreign assistance that we receive from our generous donors. In such a difficult situation, foreign assistance can be most helpful provided we utilise it judiciously.

Therefore, first of all, the government should thoroughly review the macroeconomic policy being followed since the last 12 years. Because the present situation of the country is the direct outcome of this unbalanced and one sided economic policy followed by the government during this period. This policy totally ignored the rural area and agricultural sector where 85 percent of the total population of the country reside. The expansion and deepening of the poverty and unemployment in the country in general and in the rural areas in particular is the direct result of this policy. This policy sky-rocketed the prices of items of the basic needs and the services and completely withdrew the subsidies being provided to the agricultural sector, which is being given even in developed countries. This policy privatised the public enterprises which threw thousands of workers out of job. And this policy made the rich people still richer and the poor people further poorer. Five percent of the total active work force of the country are fully unemployed and 47 percent are underemployed. The population living below the absolute poverty line is ballooning day after day. Therefore, the impact of this policy upon the Nepalese economy should be thoroughly reviewed and a policy package suitable to the country’s situation should be adopted. This, however, does not mean that we should do away with the liberal economic policy. The result of this policy in respect of promoting growth and reducing price is beyond challenge. Therefore, it is argued that first of all the country itself should gather some strength before jumping into the ring for competition.

Prospect of e-governance

E-governance or digital governance or electronic governance can be understood as a knowledge networking for better governance. It needs wide use of information and communications technology to have an effective and speedy link between the citizens and government in a transparent manner. Development of a nation and its citizen depends upon its government. It would be only possible if educated society is permitted to participate in the activities of the government through the knowledge network. It is used mainly to reinforce democracy and encourage the people or the citizens to interact with the government.

Before thinking about its implementation, it’s better to know factors/variables needed to start the project. Factors like setting up prerequisite i.e infrastructure, development of educated society, recognition of willing and capable people by the government and creation of an effective network. The whole concept is developed around a core idea of informative transparency and creative feedback from its benefactors.

We should study, analyse and develop parameters involved in it. We have to study the existing models involved and its applications. These models which exhibit several variations dependent on the local situation and the nature of the governance conducted should be observed and try a few of these. The existing government system must be considered, and come out with a model that’s best fit to further improve governance in Nepal. We would also have to be updated with latest technology involved and improvise on ways and steps involved to materialise this vision.

We know there’s a new concept coming up. There is a doubt whether we are ready for the change. Or is the government ready to reframe its working style? This needs to be properly studied first.

Even if the public and the government is ready for change there is going to be a difficulty in collecting data from many departments, and then comes the problem of disseminating it to the citizens. The government, thus, would not only be confined to disseminating information like government laws and legislation, names, contact addresses, e-mails, fax numbers of local, regional, national and international government officials online, corruption related data, research studies, enquiry reports, critical, environmental information, national and international treaties, scholarship schemes and job vacancies etc. But will also be rendering services such as electronic balloting for elections, online applications for jobs, scholarships, business tenders, payment of bills and for the conduction of public debates/opinion polls on issues of wider concern before the formulation of policies and legislative frameworks. And there’s more: performing of governance functions online such as revenue collection, filing of taxes, governmental procurement, payment transfers etc.

It is a well acknowledged fact that access to information plays a critical role in setting up a governance/control mechanism. This process is founded on the extraction and accumulation of information and using it to the effect, which creates hierarchical structures on which power gets unequally distributed. The skew in the distribution of the power is proportional to the critical information residing at each hierarchal level.

The government should choose e-governance or electronic governance to deliver government services and information to the public, using electronic means. The use of IT in government offices facilitates the process of disseminating information to the public and other agencies, and the performance of government administrative services.

To achieve this task here in Nepal, we should create exclusive club of states, capital, districts and villages, embracing IT in administration. Members of the club should be literate with interest in participating in government activities. They should have a patriotic thinking. People should make themselves aware of current happenings to bring about empowerment.

The greatest impact of e-governance will undoubtedly be in the rural sector where the majority of our citizens reside. But the question arises regarding the value of IT for rural development. It is a moral dilemma for decision makers and multilateral funding institutions, whether to utilise the limited sources for rural development for the development of IT or to use it for other basic needs such as hospitals, schools and dispensaries. Clearly there is a grave concern about possible wasted, poorly utilised or otherwise unspent resources in IT application for rural development. The reason for this healthy skepticism arises in this context of sustainability, projects that work well enough as long as they are in the pilot stage and managed by the agency, chosen to implement the project. We, therefore, need to adopt a new strategy that will ensure we invest adequately in education and training for the sustainability of the project and good returns.

The target would only be achieved if certain operation strategies are structured to translate and execute the objectives. This would involve both development of suitable organisational structures and appropriate operational links. The government’s recognition for this project as a national project plays a vital role in its actual implementation. Operational links to the project team can be attained by an interaction of project team and its user group, consisting of industries, eminent members with an interest in the related subject (the User Expert Group), and among steering groups comprising department/ministries and business experts. But how is this possible? It is the most common and toughest question.

We should survey the landscape of technical opportunities. IT divisions should be created. Web sites of every department should be launched, offices should be provided with personal computers, e-mails, internet access and a good networking system.

The rapid growth of ICT (information and communications technology), resources available and initiation from certain sectors promises a good future for e-governance in Nepal. Certain sectors like NTC, NRB, NTB etc have launched static web pages. Kanchanpur and Bharatpur District Development Committees have already started a pilot project linking its VDCs to DDCs, and private sectors like Jobsnepal, Nepalnews have made good initiatives.

But the drawback lies in the users and their lack of awareness of the potential of the available resources. The information that floats around us needs to be understood in a better way and every individual should try to provide inputs according to his/her viewpoint, and convey it to the concerned authorities. And they should know how to use electronic means for an effective interaction between the government and the citizens. After the emergence of pro-active knowledge societies, government will then have no choice but to constantly improvise the system to bring greater efficiency, accountability and transparency in their functioning.

Then only we can be confident in implementing this terminology which would ultimately bring about full participation of the individuals in government affairs. And this would lead to individual empowerment, there by upgrading/uplifting the people’s socio-economical status. It is not the whole system of e-governance that we have to evaluate. It is the users and their potentials that have to be considered for a better system and functionality. It takes more than just a few men of vision for such a system, we need to bring along competent people and wait for their active participation. Then only will the saying-- it is not the leaders who govern us but it is we who let the leaders govern us -- ring true.

(Based on the paper presented by Sushil, Muskan, Niraj, Samyak and Anjula who are the students of Kathmandu University)