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COVER STORY |
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COVER STORY |
BUDGET 2003 Amid a plethora of comments and responses, most of them politically tinted, the experts and politicians have shred the Budget 2003 to its last bit of clothing and continue to engage in fine hair-splitting to prove their point -- its political and legal futility. However, the bottom-line remains clear -- the nation has to have a budget and it has to continue its economic programs and reforms despite the obvious questions regarding the credibility, accountability and longevity of the current government. A mixture of pro-reforms and conservative programs, the most serious challenge of the Budget 2003 does not lie in economics but in politics. By saying that the success of the budget hinges on prospects of peace, however, the Finance Minister Dr. Prakash Chandra Lohani has exposed the weakness that could ultimately undo his whole efforts. With no Plan B in sight, whether Dr. Lohani will be able to deliver remains 102.4 billion rupees question By SANJAYA DHAKAL When Dr. Prakash Chandra Lohani addressed a bevy of media-persons at the crowded hall at the Information Department on July 18 -- a day after he presented the Budget for the fiscal year 2003/04 -- he was surprisingly relaxed. Flanked to his either side by the countryís top planners, Dr. Lohani managed to get his point across the overwhelmingly aggressive bunch. His vast experience -- in both politics and economy of the country -- could have played a determining role in the way he deftly handled some pretty incisive pondering from the press-wallahs and TV-wallahs. Even before Finance Minister Dr. Prakash Chandra Lohani opened his briefcase in front of the audience, which was conspicuous by the absence of members of dissolved parliament, experts and politicians seemed ready to cut him into pieces. And they did -- some with economic knife but most with political knife.
Dr. Prakash Chandra Lohani is the second-time incumbent at the Bagdurbar, having had warmed the seat once in the mid-1980s as minister in the erstwhile Panchayat system. While he had only the Phulchowki hilltop to summit then, he has to climb the whole of Mount Everest this season as one compares the political difficulties the country is in at present. With politics gone awry, Dr. Lohani has the most challenging task of convincing how his government is accountable and to whom. Besides, the longevity of his tenure is a big question mark. But despite the awesome challenges, Dr. Lohani came out with a tightly balanced budget estimates that seem to have as much programs to please the political parties as the businessmen. With a bit of populism and reformism thrown in, Dr. Lohani has come up with a heady mixture. But whether too much ingredients spoil the broth, remains to be seen. The Budget Highlights Finance Minister Dr. Prakash Chandra Lohani unveiled Rs 102.4 billion budget estimates for the fiscal year 2060/61 (2003/2004) "Our country never had to face such a large number of problems like now and there never was such a pressing need for urgency to tackle all these problems together like now. The challenges before us are, no doubt, difficult, but they are not impossible to overcome," Dr. Lohani said at the outset. The budget was presented in form of ordinance. Out of the total budget, over Rs 60 billion has been allocated for regular expenditure and over Rs 41 billion for development expenditure. The budget heavily relies on the expectation that peace will prevail in the country and expects the economic growth rate to touch 4.5 percent. "In fact, we think that if everything goes well, our economy could grow by as much as six percent because right now it is in a state of suppression and is waiting to boom," said Dr. Shankar Sharma, vice chairman of the National Planning Commission (NPC). With the objective of aligning it with the Tenth Plan, the budget has set aside almost 72 percent of the development budget to implement the priority number one of the Medium Term Expenditure Framework (MTEF). Likewise, 23 percent of the development budget is apportioned for the number two priority. "The major feature of the budget is that it is closely linked with the Tenth Plan and the MTEF. This feature alone will make it possible for any other government -- in case there is further instability and this government is replaced -- to implement it," said Dr. Sharma. Dr. Lohaniís budget expects to mobilize around Rs 62 billion from revenue. The budget is relying on more than Rs 15 billion as foreign grants. To meet the deficit of around Rs 24 billion, the government will seek more than Rs 12 billion as foreign loans and over Rs 11 billion as internal borrowings. Almost 24 percent of the budget will be used for debt servicing and 52 percent for paying salaries. "The projection of revenue is grossly inflated. I do not believe that the government has the strength to collect that much of revenue," said Bharat Mohan Adhikary, former finance minister and leader of Unified Marxist Leninist (UML). Other experts, too, have said that the revenue projections cannot be met. "But since this government will not be able to spend all of the amount set aside for development expenses, it may make no difference even if it cannot mobilize the stated amount of revenue," said Dr. Minendra Rijal, an economist and former member of NPC. The finance minister, however, said that he has been quite ëconservativeí while making the revenue projections. "In the fiscal year 2059/60, the government collected Rs 55 billion as revenue and in the fiscal year 2058/59, the government collected Rs 50 billion as revenue. When we have projected the economic growth of 4.5 percent, it is quite possible for us to collect around Rs 62 billion this time." Distribution Of Resources Arguably, one of the most positive aspects of this budget is the apparent shift of attention of the government towards rural areas and underprivileged citizens. The budget has proposed over Rs 5 billion for the road and transport sector. Out of this, Dr. Lohani has set aside Rs 1.36 billion for the road development in the mid west and the far west region -- a whopping 214 percent increase from the last year. The budget for these two under-developed regions alone totals Rs 6.46 billion -- a rise by 34.3 percent compared to last year. The budget also proposes new programs to address the concerns of victims of terror. Such victims and underprivileged Dalits can avail of the government services to get foreign employment opportunity. The government will make arrangements so that these people will not have to pay hefty amount beforehand to get a seat from manpower agencies. They can pay in monthly installments by deducting certain amount from their salaries. "The budget should have a lot more program to undertake efforts for reconstruction and rehabilitation. This is grossly inadequate," said Dr. Bishwombher Pyakuryal, a renowned economist and president of Nepal Economic Association. In agriculture, the budget has given incentive to produce wool -- an essential raw materials for carpet making, tea farmers and dairy developers, among others. It proposes private-government partnership for the establishment of sheep-farming company to produce quality wool. Similarly, it promises to hand over the ownership and management of processing plants of dairy corporation to the Milk Producersí Cooperatives. It does away with the interest on loan taken by tea farmers to provide relief to the farmers who are currently reeling under market pressure. Likewise, Dr. Lohani has proposed some new programs like reservations in education to address the concerns of women, Dalits and underprivileged sections of society. The budget allocates Rs 15.46 billion for education. The health sector has bagged Rs 5.2 billion of the budget pie. This budget has slashed the security expenses by Rs 580.5 million compared to previous year. But it has increased miscellaneous budget of the Finance Ministry to meet the supplementary budget in emergency need. Over Rs 14.23 billion have been allocated to defense this year. The government has set aside Rs 1.7 billion for holding elections. Reforms Initiatives Dr. Lohani has laid emphasis on the "public private partnership for the social and economic transformation of the country". The budget focuses heavily on economic reforms. It stated that the government would introduce fiscal transparency laws and speed up privatization efforts. The national flag carrier Royal Nepal Airlines Corporation (RNAC) will be split into separate domestic and international entities before being handed over to private sector through the mobilization of domestic capital market. Dr. Lohani has proposed a number of incentives to lure tourists. He has waived the visa fee for tourists from SAARC countries and China. The government expects to lure 200,000 tourists from this region alone. The budget also proposes to waive visa fee to those tourists who come to stay in Nepal for less than three days. Likewise, those tourists who stay here for 15 days or more and return back within that fiscal year, too, will be waived the visa fee. The budget also proposes to hand over protected areas -- except Royal Chitawan National Park, Royal Bardiya National Park, Royal Shuklaphanta Wildlife Reserve, Sagarmatha National Park and Langtang National Park -- to private management on certain conditions. The National Insurance Company will be privatized by handing over 50 percent of its share to public through capital market. Likewise, private participation will be increased in the import of petroleum products. Finance Minister has promised a number of legal provisions like fiscal transparency act, Build Own Operate Transfer (BOOT) act, special economic zones, police service commission, asset management act, competition act, foreign employment bank, road development board, among others within the fiscal year. On another front, Dr. Lohani has made some significant announcement regarding the public funding of elections. While allocating required amount for elections, Dr. Lohani said that each political parties, recognized as national parties at the Election Commission, will receive election fund from the state at the rate of Rs 20 per vote -- based on the number of votes the parties secure at previous general elections. He has also proposed that business houses can donate up to Rs 5 million as donation to political party but only two months before the election date and only after making it public. Such donation can be deducted for tax. "I have introduced this concept of state funding of elections to ensure transparency. Political parties are at their weakest moment during election time when they are compelled to make backroom dealings to get money that is required to contest the polls. This new proposal, I am confident, has made them happy," said Dr. Lohani. "I believe this provision will make future polls more fair." "There are some positive reform programs in this budget but there are doubts whether this government will get to implement them at all," said Dr. Pyakuryal. Political Legitimacy The budget was trounced most in the political ring. Leaders of the political parties came down hard on Dr. Lohaniís estimates. They have raised the question of accountability of the present government and criticized that the budget was a mixture of politics and economics. They even criticized the proposal for poll funding. "Before the government decided to distribute poll funds from the state coffer, it had to seek the permission of the taxpayers," said Dr. Ram Sharan Mahat, former finance minister and leader of Nepali Congress. "Where is this government accountable to? How can it present budget in the first place?" asked Dr. Mahat. Concurs Dr. Narayan Khadka, former vice chairman of NPC (see encounter). "This government has no mandate to announce so many programs. At best, it could have presented just an estimate of income and expenditure," he said. Bharat Mohan Adhikary, of the UML, likened the budget to ëlollipopí. The third meeting of the members of the dissolved House of Representatives held early this week "unanimously rejected" the budget throwing cold water over Dr. Lohaniís efforts. Dr. Lohani is pretty aware that without the support of political parties, he has little chance of implementing many of his programs. Furthermore, as the local bodies, too, are devoid of elected representatives, his job is that much difficult. "Whether myself or anybody else becomes finance minister amid this kinds of political instability, he/she will have to present budget just like I did. It is strange to see the level of unhappiness expressed by the political parties. They criticized the budget as populist because I have set aside fund for holding election. Had I not set aside the amount, they would have been the first ones to criticize me for neglecting election and prolonging the life of the government. They are allowing me neither to sit down nor to stand up," quipped the finance minister. "We have to be clear that in whatever circumstances, we have to forge ahead with basic economic programs and reforms. That is fundamental to our economic progress. If we sit idle saying we donít have an elected government, then we will imperil our future," said Dr. Sharma. Amid the flurry of bouquets and brickbats, more of the latter, it is still to be seen how Dr. Lohani goes about climbing his Mount Everest. Whether the weather becomes favorable or not, whether he has strong enough boots on or not, whether he surpasses the crevasses or not, whether he escapes the avalanches or not -- the problems he could face are multiple and there are many factors on which his success hinges on. Less than a week after he presented the budget, ominous dark clouds of war are hovering over the sky of Kathmandu with Maoists going underground leaving the future of peace talks hanging precariously. Hopefully, Dr. Lohani is prepared to tackle and overcome these multiplicities of challenges. "We Are Happy With The Budget" Rajendra Kumar Khetan Rajendra Kumar Khetan is a prominent industrialist as well as the spokesperson of the Federation of Nepalese Chamber of Commerce and Industry (FNCCI). Follows excerpts of his reaction to the budget: What is the response of private sector to this budget? Has it addressed the issues the private sector raised? We are happy with the over all budget presentation. There were issues pending since last 4/5 years. They have been well addressed. Rather it has come forward on privatization and management concept for RNAC and conservation areas. The idea of bonded warehouse policy for export based industries and concept of export trading house are dynamic decisions. The waiving of visa fee for tourists staying for less than three days is a good idea included in this budget. Likewise, this has removed double taxation on dividend. Besides, this has simplified some compliance procedures and removed some hassles. In some cases, the officials have been made more accountable. As a financial policy, do you think this budget will give any direction to the countryís economy? Since some facilities, new provisions, smoothening on policy matters have been spelt out, this will increase more economic activities and ultimately help grow employment and revenue. However, all these cannot happen until peace is guaranteed. What are your views about the new
programs announced by the budget? The new programs are good but I think the major issue this time, like in the past, would be implementation. It is good that there are many programs that are time bound but the machinery and bureaucracy remains the same. The output must be monitored to achieve the results. The new programs are good for overall economic activities. The concept of trade schools, wool production companies, asset management company, financial transparency act are some of the positive ideas. "This Budget Will Inject Enthusiasm In Countryís Economy" Dr. Prakash Chandra Lohani
A day after he presented the budget, finance minister Dr. Lohani addressed media queries at the hall of Department of Information on July 18. He responded to a volley of questions put forth. Excerpts of his replies: On Budget's Focus This budget has been formulated by remaining within the framework of the Tenth Plan. Its allocations and policies stick to the plan. This is for the first time that national plan and the budget has been so closely linked. Definitely, it will end the problem like having plans looking east while budget looking west. I am basically an optimist person. So the orientation and approach of this budget is positive. On Poll Funding This budget has allocated Rs 20 per vote to political parties that are recognized as national parties by the Election Commission based on the number of votes they secure in previous general elections. Likewise, I have also proposed that business houses can donate up to Rs 5 million as donation to political party but only two months before the election date and only after making it public. Such donation can be deducted for tax. I have introduced this concept of state funding of elections to ensure transparency. Political parties are at their weakest moment during election time when they are compelled to make backroom dealings to get money that is required to fight the polls. I am sure this new proposal has made them happy despite their public utterances to the contrary. I believe this provision will make future polls fairer. On Political Legitimacy Whether myself or anybody else becomes finance minister in this kind of situation, he/she will have to present budget just like I did. It is strange to see the level of unhappiness expressed by the political parties. They criticized the budget as populist because I have set aside fund for holding election. Had I not set aside the amount, they would have been the first ones to criticize me for neglecting election and prolonging the life of the government. They are allowing me neither to sit down nor to stand up. Besides, I donít think why I should not go ahead with positive reform programs. This is for the good of the whole nation. I thought I would get commendation for this. On Economic Growth Definitely, the economic growth of 2.4 percent witnessed in the last fiscal year of 2002/2003 cannot be considered satisfactory. Nor is the estimated growth rate of 4.5 percent in the F.Y. 2003/2004. But certainly these are vast improvements from the negative 0.5 percent that we witnessed in the previous year (2001/2002). Even the growth rate of 4.5 percent is not enough to reduce poverty. On Tourism Sector The government expects to lure 200,000 tourists annually from this region alone. That is why the budget has proposed to a number of incentives to lure tourists. I have proposed to waive the visa fee for tourists from SAARC countries and China. The budget also proposes to waive visa fee to those tourists who come to stay in Nepal for less than three days. Likewise, those tourists who stay here for 15 days or more and return back within that fiscal year, too, will be waived the visa fee. On Economic Reforms I have laid emphasis on the public private partnership for the social and economic transformation of the country. The budget focuses heavily on economic reforms. It proposes that the government will introduce fiscal transparency laws and speed up privatization efforts. The national flag carrier Royal Nepal Airlines Corporation (RNAC) will be split into separate domestic and international entities before being handed over to private sector through the mobilization of domestic capital market. The budget also proposes to hand over protected areas -- except Royal Chitawan National Park, Royal Bardiya National Park, Royal Shuklaphanta Wildlife Reserve, Sagarmatha National Park and Langtang National Park -- to private management on certain conditions. The National Insurance Company will be privatized by handing over 50 percent of its share to public through capital market. Likewise, private participation will be increased in the import of petroleum products. The budget promises a number of legal provisions like fiscal transparency act, Build Own Operate Transfer (BOOT) act, special economic zones, police service commission, asset management act, competition act, foreign employment bank, road development board, among others within the fiscal year. |
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