Cover - Feature

The budget for fiscal year 2002/3 is due anytime from now. As per indications and the prevailing economic and political development of the country, the forthcoming budget is going to be a unique one. Budgetary allocation for defence and security is bound to suffer at the expense of development budget.

According to reliable sources, the total amount in the budget for fiscal year of 2002/3 is likely to be around 95 billion rupees out of which Rs. 41 billion may be allocated for development whereas 54 billion rupees might go for general expenses.

According to Finance Minister Dr. Ram Saran Mahat, the budget will be now released on the basis of performance of the particular project or office quarterly per annum. "If the progress report of the first quarter of the year (first three months) is not satisfactory, the government will freeze the budget to be released for the next three months" has warned Dr M ahat.

"Similarly some codes will be introduced which will categorically prohibit some of the acts of the government offices and ministers," has said Mahat, adding that the mostly misuse fund- the Financial Aid, Donation and Prize Fund will not receive a single coin now. Foreign visits by ministers and government officials will be lowered to a fix limit. No any new plans will be introduced in the budget.

Moreover, Dr Mahat has stated that if the current national security condition could not be improved, the nation would be unable to bear even ordinary expenditure next year.

Noteworthy, although the government had tried to obtain Rs. 2.25 billion through internal loan, it succeeded to receive only Rs. 420 million. As a consequence, it was quite difficult to mobilize loan through non-government banking sector. The government had targeted to increase the national revenue by about 20 percent, but till now it has not been able to increase it by more than 4.5 percent. If the security situation could not be improved, the nation would face deficit revenue by Rs. 5 to 6 billion in the next fiscal year.

Noted economist Professor Dr. Madan Kumar Dahal is of the opinion that the government should reduce income tax ceiling from existing 15 and 25 percent to 10 and 15 percent.

Dahal’s suggestions while making forthcoming budget is on limiting government’s expenditures, hike in social spending from 37 to 45 percent, empower locals in development activities, among others.

The government has to create 3 million jobs to eradicate poverty in the country. To achieve this goal, rapid industrialization is needed, suggests Prof. Dahal.

The budget, instead of distributing to all sectors, will be prioritized and hence concentrated to fixed sectors to achieve practical goals, says Dr Shankar Sharma, member, National Planning Commission.

When the state fails to maintain general expenditure through national revenue, the development process is handicapped. As a result, the country would not be able to take in the confidence of foreign donors.

However, there is still more to worry. Despite assurances from foreign donor agencies to fund Nepal’s budgetary programs, the running fiscal year 2001/2 budget could not receive the expected and committed aid from donors, which has severely affected the entire budgetary allocation, as a result many donor-funded development projects hung in limbo this year.

It is learnt that in view of the above circumstances, the loans from some of the donor agencies are not included in the upcoming budget since they did not provide loans and grants to the country’s expectations and that in turn affect many development projects of the country.

About 25 billion rupees out of Rs. 50 billion allocated for development expenses in current year’s fiscal budget has been in surplus since the country could not spend the entire allocated amount in development projects.

Meanwhile, lawmakers of both the Houses of parliament have heavily came down on the government for its plan to further curtail development budget and swell up general expenses in the forthcoming fiscal year’s annual budget.

MPs also have demanded ten times rise in the annual budget being allocated to each of them, to be amplified from one million to 10 million rupees for an individual MP.

Lawmakers opinion that the state needs an independent monetary policy, investment-oriented budgetary programs and low interest rate to be fixed by the central bank.

Amid criticisms from the MPs, the government vowed that it would introduce some new provisions that allow more regulations, low abuse and hence efficient and effective use of budget in the forthcoming budget.

The primary need today is to establish peace and security in the country. This can not be done only on the basis of weapons. People have to be won away from the insurgency by programs to give them a sense of belonging, opening up opportunity of earning their livelihood and giving them real voice in the process of governance.

Major challenges for the current fiscal year in the context of the above review may be summarized in the following points:

* Improving fiscal governance – improving the efficiency of the public spending while increasing its equity impact.

* Resource mobilization and expenditure restructuring to meet both security development needs, particularly towards poverty eradication.

* Infusing the private sector.

* Reorienting the sector program to make them more equitable towards various disadvantaged groups of population and women-ensuring social sensitivity towards women, and other disadvantaged groups of the population.

* Policies to promote manufacturing sector with adequate backward linkages employment for the nationals – increase implementing capacity for labor laws – tax concessions only for training and employing Nepalese national etc.

* Have adequate employment promoting policies and programs, particularly training, infrastructure building, market development for agricultural and agro-based manufacturing etc. Consolidate micro-credit programs as already declared, open the trust fund to other areas.

* Streamline and regulate the financial system to reduce misuse of resources and promote productive investment.

Improving fiscal governance: In the light of the above discussions, improving fiscal governance must first of all mean a move towards equitable growth and poverty reduction as also eliminating all misuse and pilferage of public resources. The process must encompass issues such as devolution of power to local-self government, effective local participation and ownership, formulation of effective programs and improvement in the capacity of the program implementing agencies, efficiency of services delivered and effectiveness of the monitoring and evaluation system. Partisan political consideration on the allocation of resource must be eliminated.

Transfer of decision-making powers, resources and management of the development activities related directly to people’s lives at the local level to the local self-government is a necessary condition for a participatory and decentralized development and hence for pro-people orientation of public spending.

So far, the efficiency of local development grant of the central government to DDCs and VDCs has also remained low from the perspective of poverty reduction. Notwithstanding the level of spending made at the central, district or the VDC level, delivery of services has been inefficient and people’s perception about the basic services provided by the central and local governments has remained poor. A survey of 1005 households in 15 districts covering the three ecological regions reveals that (see NHDR, 2001). This is primarily because local technical and management capacity building through transfer of local-level central bureaucracy has received very low priority so far. Detailed procedures and guidelines about the projects to be financed and the allocation criteria or cost benefit analysis. There is little awareness of the need for targeting funds to the poor or deprived sections of the population and resource allocations are not linked to community needs as budget is equally divided among VDCs and often among wards also within the VDC. Local people or users must be involved in the programs\project from the very beginning of its formulation, design, and costing, to implementation and maintenance. It also requires a strong monitoring and supervisory mechanism at all levels. It also calls for immediate transfer of local technical bureaucracy to local governments.

Public/community private partnership, if appropriately designed, can foster access to infrastructure for poor people and increasing local participation and accountability in management of education and health systems can increase efficiency to a great extent. Community involvement in planning and managing local infrastructure services can greatly enhance ownership and sustainability; and involving beneficiaries in decision-making is the starting point in creating local ownership of infrastructure projects, Requiring beneficiaries to share in the cost of project can also improve ownership. Balancing a bottom-up identification of projects with carefully selected supply side inputs will enhance the prospects for sustainable social and infrastructure service for the poor. Several examples have indicated decentralization can be a powerful instrument to effective delivery of public goods and services.

The local-government has to be entrusted with necessary authority and responsibility, resource and technical support to formulate, implement, supervise, and local level development projects.

Emphasizing resources mobilization at the central level for smaller development activities would spare some resources for basic social services at the central level. The government needs speeding up fiscal decentralization and empowering local government and other communities to undertake small development projects on their own strength. Devolution of authority to impose local development tax, collection of property tax, vehicle tax, and land and property registration tax to the local authorities, and evolution of cost sharing schemes between the central government and the local governments in development projects would relieve the central government of the responsibility for petty projects and help in additional resource mobilization. This would also enhance participation in and ownership of development projects resulting in better output.

The practice of distributing money through various channels such as prime-minister, home-minister and various other channels, which are not audited, must be stopped. Similarly money, allocated to be spent under the supervision of the elected representatives, must be regulated and audited, to make their spending transparent and poverty oriented, Not only that, the number of ministers and their advisors must be reduced. People can hardly be expected to cooperate in mobilizing or contributing their hard-earned resources to the public fund when they see extensive misuse of public funds or even direct graft.

Strengthening monitoring and evaluation system is a must for establishing accountability and ensuring the efficiency of pro poor spending programs. This calls for enhancing monitoring and evaluation capacity at the NPC, in the line ministries and also at the DDC level. Controlling corruption and leakage at all the levels of governance is equally important for ensuring the benefit of public resources to the poor. Strengthening institutional capacity for carrying out development activities at all levels of the government through civil service reform would help ensure delivery of public services to the poor more efficiently.

Reorientation of the bureaucracy towards equitable development is also urgently needed. NPC and MOF often redesign policies and approaches to development in collaboration with donors. No concerted efforts are made to explain the implications of such policies and approaches for sector-level planning and programming and the sectoral bureaucracy reformulates its programs without making any substantive change in its design and content. This results in a situation that policies and approaches are changed very often, but the results on ground change very little. This is a major cause of failure of past anti-poverty programs.

Meeting the security needs while maintaining the flow of resources to social and infrastructure: First of all it should be noted that Nepal’s military is used most of the time to assist the police for maintenance of internal security. Hence sources of its increased needs are similar to those of police. Expenditure on internal policing can be reduced in the long-run only with enhancement of civil liberty and democratization, improved social bondage, economic equality, and political stability. And, this has to be attained through a process of restructuring to economy, the society and also the polity. To meet the current challenge of peace and security, therefore, it is equally necessary to restructuring the budget towards promoting more equitable and participatory development in the country.

This can be achieved through better fiscal governance, broadening the tax base and its proper implementation intra and inter-sector restructuring of the budget in favor of agriculture, rural infrastructure, basic social services, specific anti poverty programs and environment, and devolution of power and programs to local governments. This restructuring, however, should be strictly reviewed in a perspective of poverty reduction in the context of Nepalese reality rather than on the basis of received wisdom. For example the issue of privatization of education can hardly be decided entirely on the ground of efficiency at the school level. It must be examined in the context of long-term and short-term efficiency of the whole education system to meet the criteria of educational achievements as also equity. Similarly withdrawal of subsidies extended to small irrigation, bio-gas, transport subsidy to food for remote areas, livestock insurance, despite their significant productive as well as distributive effect definitely had a negative impact on the state of agriculture as also poverty. Such decisions should be reviewed in the light Nepal’s rudimentary rural infrastructure resulting in high cost agriculture and free flow of Indian highly subsidized agricultural commodities into the country. Agriculture is subsidized world over. Our review of subsidies should be based on the consideration of resource availability and its long-term economic efficiency rather than on donor insistence. If we are focused and honest in our endeavors donors can be convinced.

Economic services consumed two-fifth of the budget during the 1990s. Of this, public sector expenditures on agriculture and irrigation, rural road and communication, and rural electrification can be justified from the perspective of income generation and poverty reduction. However, there are some activities that can bow be undertaken by the private sector. If the private sector could be attracted to invest in electricity generation alone, much public resources could be released for other rural infrastructure as also for the social sector. Thus moving towards people centered budget calls for attracting private sector, including foreign direct investment, to commercially viable infrastructure projects and state to concentrate on social sector and rural infrastructure, focusing budgetary resources towards the human priority areas.

Transfers of various types have been provided in the budget consuming a significant chunk of the resources raised by the government. A large portion of the transfer go for supporting university education, central hospitals, media/communications, and operation of public enterprises of lesser importance from the view point of direct impact on poverty. The size of current transfer, which was 14 percent of the total expenditure in 2000, increased further to 16 percent in 2001/2 budget. Such a high current transfer can be streamlined by running higher education and big hospitals on the cost recovery basis. However, such rationalization should carried out only after a through poor students, women and students from dalits and other disadvantaged communities.

Consolidation of district offices of line ministries and devolution of certain functions to the local-self government and the community groups is a must. Particularly, planning and management of basic services along with resources and resource raising powers and related centrally managed local bureaucracy must be transferred to the local-self government speedily. Such process should not be made prolonged on the pretense of lack of technical capacity at the local level. Functions should be transferred along with the supporting technical staff. Education, health, agriculture, public works limited within one VDC or DDC are prime candidates for such transfer.

Further many sub-urban VDCs have large incomes. They do not need central grants for their regular activities. As a longer term initiative government should explore the possibilities of using such funds for larger scale investment in collaboration with them, e.g. roads, irrigation, storage, private-community joint venture processing factories etc.

The dialogue opened recently with bilateral and multilateral agencies for minimizing direct handling of development projects and programs by them should be broadened to include rescheduling debt repayment or converting loan into grant or debt write off.

Presently, foreign aid is directed to a very wide range of activities ranging from economic infrastructure like transportation, communication to social expenditure like education, health, drinking water, family planning etc. Further disbursement is lower. In this context, there has to be consolidation and reorientation of foreign aid in favor of rural infrastructure and priority social sector along with restructuring domestic resources towards this direction. Moreover the modalities of aid financing must be changed so as to involve the stakeholders directly in its management along with central and local government authorities. Current debate of either or in this respect is not productive at all. For example the BPEP could have been designed to include the central, local and school authorities and the local community in its management. Most of the health projects are centrally managed vertically and have lowest disbursement rate while local groups starve for necessary medicine. Even medicines are centrally allocated to health posts without ascertaining their local needs. One health assistance recently complaining that he did not know what to do with the extra aspirin while he lacked de-worming medicine. Grants to communities for necessary medicine would be a better alternative for efficient management of the resources.

Technical aid coming in the form of service of technician/consultant, training and seminar abroad, and consultancy services has to be streamlined. They eat up too much resource not only in terms of aid funds but also in terms of time cost of the officials. The high officials in many ministries seem to be spending most of their time on these activities rather than managing their own programs. There must a limit on how much time they can spend on such activities.

Infusing the private sector. The most important problem the private sector is facing is that of security and unending banda. Therefore government should focus on ensuring security rather than tinker with specific facilities and concessions.

Reorienting the sector programs: Improving fiscal governance also implies to make the budgeting process more gender and poverty sensitive. A system of gender and poverty auditing must be instituted in all ministries and at MOF so that all macro economic as also the allocation policies are reviewed in a gender and poverty perspective. Since most macro economic policies have differential impact on men and women and one various groups of population, they must be examined from equity and gender perspective, so that appropriate measures can be adopted to minimize the adverse impact of such policies. A clear example is privatization of education and health. In the past the objectives of gender equity and poverty eradication have remained only in paper because the sectors-level authorities have mostly ignored these goals unless forced by the donors or convinced by the efficiency needs. Since our current overriding goal is eradication of poverty, and this can not be achieved by ignoring the equity aspect, it is imperative that all macro or economic policies have to pass through poverty and gender auditing.

Employment and poverty programs: Micro-Credit and social sector spending of the government alone would not ensure effective service of public goods to the poor. Empirical research shows that households with higher education levels have higher returns to irrigation, with the largest benefit going to the poor and rural electrification has increased the returns to education while access to better rural road also have higher primary school enrollment (WB, 2001). Then delivery of social services in the rural and poverty-stricken areas has to be supported by infrastructure development and creation of income earning opportunities.

Preceding review also reveals that export promotion or export led growth in Nepal will not automatically lead to increase in employment and wages of the Nepalese workers and hence reduce poverty. To ensure this Nepal has to implements its labor law on migrant labor honestly and provide technical training on a massive scale to the rural poor or close the border for labor movement. Alternatively if the neighboring states of India develop faster than Nepal labor inflow to Nepal might decline. Closing the border is rather impractical in the context of the globalizing world and the history of Nepal-India relations. Prospects for faster growth of neighboring states of India is also grim. Only remaining alternatives left are specific job-tied training to the poor on a massive scale, enforcement of labor laws and concentrated investment in infrastructure in remote areas, which should be an integral part of good governance.

The micro-credit programs conducted by the government under various modalities have really to be consolidated under the umbrella of the proposed Poverty Fund and made accessible to the poorer sections of the population. Consolidation does not imply uniform modalities of operation except for fund management. It is a general finding that the hard core poor, the poorest 20 percent of the income decline are mostly left out of these programs. They also lack education to take advantaged casts and ethnicity. Land reform to provide minimum land to such population and pubic-private sector partnership to train and employ them in organized sector jobs as also for a massive investment in rural infrastructure are the only way to generate employment for them fast. The training programs must be massive, localized and focused to specific job openings. The current modality of scattered training mostly focused on limited traditional skills such as sewing and knitting for women or in computer skills is not going to make dent into the hard core poverty problem.

Consolidation of the government sponsored micro-credit programs under various channels must also be consolidated into district level poverty fund and opened to infrastructure building at the community and VDC and the district levels as well. Currently the district level trust fund, established under the PDDP/LGP program, is open to groups in the VDP areas only. On the other hand groups, particularly, women’s groups formed under various other programs have little scope to grow economically. Extensive social mobilization in the last 10-15 years under various programs and local initiatives, particularly since the advent of democracy, have resulted multiple saving-credit groups in the villages and towns participated mostly be women of the middle income households. They have created their own funds to meet their small credit needs.

The major issue that should concern the government now is to increase the productivity of their investment. This will also generate employment for the rural poor. There are three kinds of problems, that of skill, inadequacy of available funds for better investment and that of market. There is a real lack of initiative in this field. To be viable the small rural enterprises must have both backward and forward linkages. This is also necessary to promote agriculture, which suffers from lack of competitiveness of its products with imported products. One fails to understand why our hotels have to serve imported caned juice or pickle, while we abound in oranges or exotic pickles. We also import toothpick and swabs for ear cleaning, which could be manufactured easily in Nepal. Similarly the cleaning business in the urban areas could generate large benefit for the poor. But the traditional caste has been almost completely displaced from this job by a lack of training, adequate water and credit for modernization. Therefore market exploration and matching training should be the top priority of the government for promoting agriculture as also small-scale agro-based manufacturing.

Currently tourism has a very high material import content. All avenues must be explored to increase its domestic content. Storage facilities for agricultural products are still very inadequate. Still Nepalese products go to India to be stored and then later on imported at higher prices. All these problems have been discussed many times before but some how we seem to be bogged down in trying to exploit the mirage of the large Indian market for import based products with little forward or backward linkages in the community.

Speaker Compares Parliament and a Deserted Mother

How does a mother feel when her children stop looking after her and plainly stay away from her in issue that she needs to be informed or consulted?

This is not an excerpt from some heart rendering family drama but a parallel drawn between the parliament and a uncared for mother by none other than the versatile Speaker of the House of representatives Tara Nath Ranabhat himself.

"The parliament is the mother of government, she is not to be boycotted or bypassed by her own offspring," Ranabhat said speaking in melancholic tone in front some four dozen lawmakers of different parties and representatives of the government at an interaction program.

"The government did not thought it necessary to inform the parliament on severe economic crisis speaking our motherland for a quite some time now. However, it just kept on saying she (the nation) was ok," the emotionally charged Speaker added, wearing a dejected look.

Finance Minister Dr. Ram Sharan Mahat had admitted that the nation was heading towards an economic bankruptcy if the current downward spiral of national economic status was not checkered.

"The practice of undermining each other among the organs of the constitution is on the vogue, "We have become a bunch of wicked, wicked and wicked boys playing for vested interests," he said of the tussle between the legislative, the executive and the judiciary.

Much to the bemusement of the gathering, the Speaker himself in chorus with other lawmakers also grunted at the government’s non-transparent’ attitudes with regards to obtaining and using the aids.

"I, the chief of the Lower House, was informed on the falling state of the national economy through newspapers. Now, you can easily guess the plight of the common man in remote areas of the nation," Speaker Ranabhat lamented.

He expressed his "extreme unhappiness" as the parliament was being converted into a "stage to perform cheap political dramas".

Meanwhile, Speaker Ranabhat warned the Finance Ministry and The National Planning Commission (NPC) not to befool the nation and the people with a proxy budget and unrealistic annual programs.

"What will you tell the destitute waiting hopefully for a little of relief when most portion of budget is planned to allocate for security measures?" asked Ranabhat, looking wearily at the lawmakers who appeared as gloomy as himself.

He was referring to the government plan to drastically curtain the development budget in the forthcoming budget to meet the soaring security expenses.

Speaker Ranabhat also stressed on proportionate allocation of budget in all geographical regions of the Kingdom. "Allocation of budget on pressure of big shots should be strictly prohibited," he said, pointing at the underlying rot.

(Courtesy: Space Time Today)