NATIONAL 1 (Spotlight Weekly)]

A Balancing Act

'Cut your coat according to the cloth' is perhaps the best mantra for the Finance Minister

By BHAGIRATH YOGI

Dr. Mahat : Tight rope walking

The most important person while formulating a budget is the Prime Minister," said P. Chidambaram, a former Indian Finance Minister. He should know the best. For Finance Minister Dr. Ram Sharan Mahat, knowing the mind and winning the confidence of Premier Girija Prasad Koirala may not have been that difficult. But how well would he be able to perform acrobatics while formulating the annual budget for the year 2001/02 remains to be seen.

Preparing a budget in a resource-poor country like Nepal is a thankless job. With a widening gap between the regular and development expenditure and rising expenses for internal security, the need for high revenue mobilization emerges as a most challenging one. The whopping increase in salaries of the government employees-- up to 100 percent for junior level-- in this year's budget has also contributed to steep rise in the regular expenditure.

The government has plans to collect Rs 52.98 billion as revenue this year. But in the first ten months of this fiscal year, only Rs 37.32 billion has been collected. "The situation of the government budget is in the doldrums this year," said former finance minister and UML leader Bharat Mohan Adhikari. "If the present trend are any indication, the revenue shortfall may reach up to Rs five billion."

Officials too agree that there may be substantial revenue shortfall this year even if it is less than the Rs 5 billion mark. They point toward three-day general strike called by the main opposition, UML and national mourning in the aftermath of the Narayanhity killings in the past month as major obstacles in collecting revenue.

The main opposition party, in its turn, blames the policies adopted by the Nepali Congress government "for pushing the country's economy close to bankruptcy."

"The liberal, economic policies adopted by the Congress government are mainly responsible for putting the national economy in the doldrums. We are not dead against the policy of open market economy but such a policy should also take into account of poor, rural farmers and working class," said Adhikari. "The forthcoming annual budget should be realistic, announce massive reforms in the policy matters and implementation," he said. The main opposition party also demanded that subsidies in irrigation, fertilizer and loans should be continued.

On the part of the government, cutting down unnecessary expenditure has come as the main challenge. According to reports, officials are mulling at cutting down more than 100 development projects in then next budget. Of nearly 700 projects currently being implemented, officials are planning to cut down those projects that have failed to give adequate return on the investment.

"Though some new projects may also be announced in the budget, most of the existing development projects will be streamlined in the budget," said Dr. Shanker Sharma, member of the National Planning Commission. "Besides announcing new policies, the focus of the forthcoming budget would be in bringing out all targeted programs for poverty reduction under the same umbrella, sort out problems being faced by industry, businesses and tourism, continue to fiscal and financial reforms, promote capacity building up of decentralization program and delegate functions to local bodies, among others," he added.

While it is generally estimated that the size of the budget could touch the Rs 100 billion mark (up from Rs 91 billion-plus budget this year), experts say there is still room to check the deflation of the budget. "We are allocating considerable amounts of scarce resources on the projects largely motivated by political considerations without any economic justification," said Dr. Badri Prasad Shrestha, a senior economist and former member of NPC. "Generally, one sees no correlation between the increased security expenditure and improvement in the law and order situation. It will be wise, therefore, to keep the budget for those heads at the current level, and rationalize it for more effective utilization of the allocated funds.

Though there have been seen some improvements in the problems like frequent transfer of project personnel over the past few years, judicious use of available resources is one of the most challenging area. As nearly two-thirds of the development budget has to be financed through foreign aid, mobilizing it in a proper way remains an equally important challenge for the Finance Ministry. Whether Finance Minister, with all his expertise and experiences, becomes able to give a new direction to the economy and kick start the second generation of reforms in the country remains to be seen.