Development expenditure could suffer in new budget

-Dr. Bishwambher Payakuryal

Dr. Bishwambher Pyakuryal is a professor of economics at the Central Department of Economics, Tribhuvan University. He has done his Masters in Economics and International Affairs and Ph.D. in Economics. Dr. Pyakuryal has also completed Post-doctoral research in economic liberaliation from the University of Maryland at College Park, USA. He is also a scholar-in-residence for the Rockfeller Foundation in Italy. Worked as a consultant to organization like World Bank, UNDP, UN/ESCAP UNCTAD and University of Maryland, Dr. Pyakuryal is one of the most prominent economists of Nepal. He has authored, co-edited six books and has more than 100 feature articles, technical papers and seminar papers to his credit. He talked to The Independent on various economic issues pertaining to the forthcoming budget. Excerpts:

Q. Government’s policy and program were announced last week. What is your opinion?
A. Whatever policies and programs have been announced last week were in relation with what the government had proposed broadly at Nepal Development Forum. In that sense, it is justified. But there are some missing links in it. There has to be some kind of linkages between government’s ongoing 9th Plan,  major thematic issues that were presented at Nepal Development Forum, government’s overall policy and the budgetary allocation for the Fiscal Year 2000/2001. According to the commitment made at the NDF, the government must address eight broader areas including private sector development, financial sector reform, decentralization, aid effectiveness, etc. More precisely, according to the Finance Minister those policies can also be categorized into four types into immediate, short, medium and long term. What this indicates is that there are about seven programs, which the government must undertake immediately among the programs that were presented in Paris.

After that there are 26 short-term programs to be undertaken within 12 months. As such, this is going to be a big challenge for the government. On the one hand, the government presented Nepal’s broader priority sector reform in Paris and on the other hand, it is also committed to carry out programs under 6, 12 and 24-month and also beyond 2-year basis. If we are to make a check list, we must see whether the Finance Minister is going to allocate resources in the forthcoming budget for the kind of activities that have been identified under these criteria.

Till now all the donors have always been complaining that there is no strong and positive relationship between priority identification on one hand and budgetary allocation on the other hand. So this is also an interesting part to see in the forthcoming budget.

Q. Besides them, what challenges do you seen in Nepal’s economy in relation to the forthcoming budget?
A. Firstly, we identify number of priority sectors, but unfortunately we lack to address them from the point of view of resource allocation. In the last year’s budget also almost 50 percent of the programs failed due to that reason. This year’s situation could be more alarming because different tax concessions were made in the anticipation that the collection from VAT would help. But in VAT alone, we are lagging behind by almost 3.3 billion rupees from our targeted revenue generation.

In the last 50 years the government had met only 33.14 percent of our national expenditure from external resources. What it really indicates is that almost two third of resource requirement were fulfilled by the country’s own resources. But there are some distinct characteristics being developed in our economy. By the year 2002 most of our loans are going to be matured. So, the government should also start addressing the debt servicing. Till now we have given only about one third of regular expenditure for this purpose. But what will happen from 2002 onward, when most of the foreign loans are going to be matured. The government must generate resources. Otherwise we will be blacklisted.

Next is, Maoist insurgency problem, which was started in four districts first and now spread to more than 55 districts. The government has expressed its commitment to reform police force and National Investigation Department to provide sense of security to the people. Thus there is no way that the government can do away without spending a sizable amount in maintaining law and order. But this expenditure should not be made at the cost of development expenditure. Though Nepal had been generating almost 40 percent of development expenditure from its own resources, the trend is declining. Presently, less than 18 percent is being met by Nepal’s own resources. Thus, there is an increasing trend towards external assistance.

These three distinct characteristics in Nepal’s economy suggest bleak future. On top of that, after restoration of democracy, statistics show that almost 100,000 people are joining the club of under poverty every year. That means, almost one million people have joined the under poverty group in the past nine years of democracy.

Q. What is your view regarding the effectiveness of poverty alleviation program like “Bisheswar with the Poor”?
A. Generally, pro-poor program are always good. Regarding, the most hyped “Bisheswar with the Poor,” no body has been able to see its impact yet. But, in Nepal, most of such integrated rural development program has failed due to overlapping of programs and lack of resource allocation. This particular program also came by overlapping with others. To give continuity to this program, it’s impact should be studied first.

Q. The government seems to increase expenditure on security purpose. In the given condition, how can the government balance its expenditure on security and development?
A. When we scrutinize the present economic scenario, it is almost definite that development expenditure will suffer in the forthcoming budget. Though it is very difficult, the government should take loan for social sector reform. However, the government should first identify the areas and develop definite program for that. It should also initiate strict regulation for revenue generation. Corruption must be controlled and unwanted expenses, overhead cost reduction should be undertaken.

Q. Are you satisfied with the provision made in the government’s policy and program to address the Maoist insurgency problem?
A. The government has announced to carry out special development project for employment generation to address this problem. It has also plans to raise agricultural productivity where it provide transport subsidy for food grains. But the problem is that agriculture productivity can not be raised immediately. The government has awfully delayed in doing this thing.

This problem can not be solved by increasing the number of police and army posts in affected areas. Neither can it be solved by increasing expenditure on secuirty measures. Increasing expenditure on secuirty  is in fact ridiculous. The government should carry out employment generating and other relief programs in war footing at the Maoist affected area. I may sound crazy but to maintain law and order in Nepal and to bring back Maoists to the mainstream, the government must generate hope among people that this country is going to be developed and they are going to have their share.

Q. What can be done to increase foreign investment to Nepal?
A. Firstly, we should develop our priority area and make provision accordingly for foreign direct investment. But on top of that, two more things are important. For foreign direct investment, we must have congenial environment. After restoration of democracy, Industrial Policy 1992, Trade Policy 1992, Foreign Investment Enterprise Act, etc. were developed. But they are not self explanatory in themselves. Next is, we should not expect of foreign direct investment to Nepal because of the size of our market here. If anybody is interested in investing here, then it is not by our market but by the Indian market. So, it is really important for us to penetrate into Indian market. We should also see the impact of India’s budgetary provision and economic activities because it make tremendous impact on us.