National 3 (Spotlight Weekly)

Testing Times

Having taken up the Bag Durbar mantle for the second time in as many decades, Dr. Lohani's challenges this time are arguably more daunting

By SANJAYA DHAKAL

When Dr. Prakash Chandra Lohani's name was floated as a possible cabinet member of Prime Minister Surya Bahadur Thapa's government, it was universally guessed that he would become the finance minister.

So, when Dr. Lohani, a noted economist, was named in the cabinet list, no eyebrows were raised. Dr. Lohani is no new figure to the Bag Durbar - the erstwhile Rana durbar-turned-Finance Ministry complex. He had headed the ministry during the mid-1980s when he was a strongman of Panchayat system.

Dr. Lohani : High expectations

Immediately after he was appointed, Finance Minister Dr. Lohani outlined his agenda for economic development giving priority to 11 sectors.

He said the government would discourage the practice of misusing funds collected from the general public by institutions. He directed the ministry to become active in taking action against those who are misusing the funds without paying it back to banks and financial institutions. "The ministry should take the responsibility and help the Nepal Rastra Bank for this," he said. Dr. Lohani's statements come at a time when big state-owned banks are on the verge of collapse after they failed to recover loans from big debtors.

Dr. Lohani also gave directives to his officials at the ministry that he will give priority to 11 sectors including financial and monetary stability. He said his emphasis would be on utilization of government resources and fiscal discipline.

Promising total transparency in government's financial decisions, Dr. Lohani said he would give special attention to improving the state of public enterprises. He also promised to do away with financial slow-down in the next budget where he will concentrate on increase in productivity, export promotion and expansion.

But all these things are easier said than done. "Based on the existing framework, the new minister will have to concentrate on policy reforms, long-term fiscal reforms and compliance of past commitments," said Dr. Bishwombher Pyakuryal, a renowned economist and president of Nepal Economic Association.

At a time when even the governor of the central bank is openly admitting economic woes, the road ahead is not easy for Dr. Lohani. Among other things, the domestic economy was hurt due to lack of foreign investment, which in turn, was affected by the situation of insecurity in the country.

According to Nepal Rastra Bank Governor Dr. Tilak Rawal, in the 1990s, foreign investment worth US$ 6 million came to the country, but the figure had declined to less than $4 million in recent years. He said the national economy was being severely affected by non-financial factors.

The government has been unable even to fund the regular expenditure by its revenue resources and has gone on an internal borrowing spree. The lion's share of resources is currently needed to service the debts. As much as 13 percent of the revenue is needed for debt servicing. A mere 1 rupee devaluation in the exchange rate of American dollar could increase the debt servicing by additional Rs.2 billion.

Likewise, there is an urgent need to restore public faith in the capability of the government machinery to deliver results. "The outgoing finance minister, too, had announced a number of economic reform programs. Until and unless people are aware what political or administrative factors posed obstruction in their implementation, public confidence will not be restored. Promises like forming Revenue Tribunal have not been kept," said Dr. Pyakuryal.

Apart from these challenges, the new minister, according to Dr. Pyakuryal, also enjoys some opportunities. "Recently, the Fiscal Sector Reform Taskforce had submitted a report after thorough investigation and situation analysis. Encouragingly, the revenue collection has increased from 2.5 percent to 9 percent of late. Likewise, the international financial institutions, too, have expressed commitment to increase their support to the development budget. All these things could provide some liquidity in hands of the new minister."

However, Dr. Pyakuryal advises the new minister not to get over-excited and introduce expansionary policies. "For instance, the minister might decide to increase the rate of tax. Because by increasing the rate of VAT by 1 percent, he could get additional Rs.1.5 billion as revenue. But such policy will be counter-productive. Increasing rates and thresholds of tax is never a solution anywhere."

At a time like this when the national economy is in terrible turmoil, experts advise Dr. Lohani to "handle the financial affairs delicately". However, given the experienced hands of Dr. Lohani, experts feel there are ample reasons to be assured for the time being.