National 5 (Spotlight Weekly)

Walking A Tightrope

In the first quarterly review of the budget, finance minister sounds mixed signals

By SANJAYA DHAKAL

Since the day – July 17 – finance minister Dr. Prakash Chandra Lohani presented the budget for the fiscal year 2003/04, a lot of water has flown through Bagmati river. A month after he unveiled the budget whose success he himself said hinged on the prospects of peace, the latter was shattered after the rebels walked out of the negotiations.

Dr. Lohani : Uphill task

So, how does he review the first quarter of the budget? Addressing a press meet at the Finance Ministry on December 1, Dr. Lohani said that the country cannot achieve growth rates that are essential to alleviate poverty unless the situation of insecurity ends.

So, where does this leave the country’s economy, then? Because of handsomely growing remittances, sheer luck and favorable weather, the fundamentals of the economy are still holding together, say the experts.

Dr. Lohani concedes that the estimated growth rate of 4.5 percent cannot be achieved unless the budget programs can be implemented at the local level – which is not possible at a time like this.

“Although the situation of the last four months was difficult, the fundamental economic indicators are still largely positive,” he said. Dr. Lohani, analyzing the performance, said that in the first four months of the current fiscal year the government spent Rs 19.15 billion. To meet this expenditure revenue amount of Rs 15.99 billion could be mobilized and Rs 2.13 billion could be raised from other sources while the remaining amount was withdrawn as overdraft. He said that the government has been successful in following the legal provision that the overdraft should not exceed 5 percent of the revenue of the previous year.

Meanwhile, the government estimates that thanks to the favorable monsoon, the agricultural production for this year has increased triggering positive impact on the overall economic growth rate. The agricultural production constitutes 40 percent of the total GDP of the country. According to the estimates by the Ministry for Agriculture and Cooperatives, the production of three major crops rice paddy, maize and millets have increased by 7.8, 1.33 and 0.18 percent respectively this year compared to last year.

Another shot in the arm could be the decision by the International Monetary Fund (IMF) to include Nepal in the Poverty Reduction Growth Fund (PRGF) and the World Bank’s approval of Nepal’s Poverty Reduction Support Credit (PRSC). These multi-million dollar pat-in-the-back has encouraged the government. “This government should not construe the World Bank’s and IMF’s assistance as being their stamp of approval to this illegitimate government,” Dr. Ram Sharan Mahat, former minister, had reacted after the decision. He said that although the fundamental indicators are still good, the persistent deterioration (of political instability) could derail the national economy.

Dr. Lohani has said that compared to the same period previous year, the security expenses have not increased. “The government will not provide additional security expenditure if it feels that it would severely pressurize the government finances,” he said.

In the last four months, the development expenses increased by 22 percent to reach Rs 2.34 billion, compared to the same period previous fiscal year. The revenue growth rate stands at handsome 14 percent, which is more than the targeted annual growth rate of 10 percent, finance minister said.

The finance minister said that the recent decision by the World Bank and International Monetary Fund will help it to mobilize external resources. Dr. Lohani, however, said that inflation is high at 5.2 percent.

The finance minister also said that Nepal was preparing hold the Nepal Development Forum (NDF) meeting sometime in April next year.