National 4 (Spotlight Weekly)

“Government’s Financial Health Has Improved A Lot”

— Bhanu Acharya

Bhanu Acharya is the Secretary at the Ministry of Finance. One of the senior reform-minded bureaucrats, Acharya had started his career in the civil service in 1976 (2032 B.S.) as an Accounts Officer. Gradually he moved up the ladder in the bureaucracy to become a Secretary in 2001 (2058 B.S.). He was appointed as a Secretary at the Ministry of Finance a little more than a year ago. Taking time out from his busy schedule, as he is busy preparing a new ordinance for the second half (six months) of the budget of the current fiscal year, Acharya spoke to KESHAB POUDEL and SANJAYA DHAKAL about the current financial situation of the country. Excerpts:

How do you find the current economic situation of the country?

In terms of government’s financial condition, the situation is not so bad. Despite the adverse security situation, the progress in the government’s financial health is an encouraging sign. Compared to the situation two years ago, the government’s financial health has improved a lot. Two years ago, the government had collected revenue of Rs 17.98 billion. This year, in the first five months of the current fiscal year, the government has collected revenue of Rs 22.03 billion. This figure is 14 percent more compared to the last year. This figure is based on the data up to the second week of the month of Poush (first week of January). Likewise, the regular expenditure has increased by only 6 percent this year even though we had estimated that it could grow by 10.6 percent. It shows that we have been able to limit our expenditure. The development expenditure, too, has increased by 18 percent compared to last year. Although the base of development expenditure last year was very small, this increase is satisfactory in spite of non-improvement in security situation. Besides, the macro-economic indicators, too, have shown progress. We have certain parameter to maintain our budget deficit to manageable level. There is a parameter that states that we cannot make domestic borrowings in excess of Rs 12 billion. This year we have only made the domestic borrowing worth Rs 1.35 billion till now – the same figure last year was Rs 2 billion during the same period. This is a good indicator so far as fiscal balance is concerned. Moreover, there is Rs 4.39 billion surplus in the government treasury at present, which is a very good thing given our track record of mostly running the treasury in deficit. The treasury position is very good because of lesser domestic borrowing as well as Poverty Reduction Strategy Credit (PRSC) from the World Bank. As such, we are in a position to guarantee resource allocation to priority development projects. There is no problem for the government to provide counterpart fund to development projects as well.

Recently, SAARC countries have agreed to adopt SAFTA. How can our country benefit from this decision?

We can get benefit from SAFTA and WTO by using our comparative and competitive advantages. While the SAFTA opens door for increasing trade with SAARC countries, WTO opens door to the whole world. But we have the challenge of making quality products at cheaper price so that we can be competitive. To achieve this benefit, we have to focus on institution building, quality and standard enhancement by identifying our exportable items.

Will the relaxation in tariffs hurt our revenue collection?

Trades are based on competition. If we cannot compete, others will take all the benefit. Just as we can have the access to others’ market, they too can have the access to our market. I think that we should not look at the free trade in terms of lost tariffs and custom duties alone. The growth in the overall trade will have positive impact on economic activities. This, in turn, will more than adequately compensate the loss in tariffs, I think.

How do you look at the recent Country Assistance Strategy issued by the World Bank?

I have taken the CAS as the proof of the increased credibility of our economy before the multilateral donors. We have also received supports in the form of PRSC from the World Bank and Poverty Reduction Growth Fund (PRGF) from the International Monetary Fund (IMF). If the economy moves along the path of reforms, we can be successful in achieving objectives of poverty alleviation. Therefore, I find the CAS has expressed satisfaction over the policy of the government to engage in reforms in the sectors like governance, decentralization, public resource management and poverty alleviation. However, there is also the possibility of withdrawal of such supports if we falter in our path and stop giving continuity to the policy.

How do you find the ongoing reforms in the financial sector?

Until and unless reform is pursued in the financial sector, the overall economy and particularly the corporate sector cannot improve. In the absence of healthy banks and financial institutions in which public have full confidence, the whole economy can collapse. Therefore, in the first phase of the Financial Sector Restructuring, the two larges banks – Nepal Bank Limited and Rastriya Banijya Bank – have been handed over to foreign management. In the second phase, they will be made more healthy and efficient by decreasing the level of Non Performing Assets (NPA), streamlining human resources and decreasing expenditures. Likewise, there are plans to improve the health of Agriculture Development Bank and Nepal Industrial Development Corporation.

What is going on in the area of privatization of late?

As far as the privatization is concerned, works have been initiated to privatize some organizations in the last two years. For example, the Butwal Power Company (BPC) was successfully privatized last year. Recently, the government has entered into privatization agreement regarding Bhaktapur Brick Factory. Likewise, the process of privatization of institutions like Gharelu Shilpakala, Nepal Transport Corporation and so on is moving forward. Besides, plans are afoot to privatize new institutions like Bigunj Sugar Factory and Rosin Turpentine. In the last two years we have completed privatization of around 8 institutions. This, I think, is a good progress given the long and arduous process it involves because we have to deal with thorny issues like labor, liabilities etc.

As a senior bureaucrat, how do you find the reforms in the civil service?

Whenever people are involved and whenever issues that have to deal with human behavior are involved, it will always complicated. The civil service is a sensitive body since any impact on it will affect the overall governance and administration. I believe that civil service must be made people-oriented. The services delivered by the administration must be easily and timely accessible to people without the latter having to bear any extra cost. Centralized administration may not be a good idea. People have to be provided with the service at the level of implementation. And this has to be ensured by legal provisions.

Does the ministry have any new development projects?

Finance Ministry, as such, does not undertake development projects. Basically, we get the requests from the sectoral ministries regarding the National Planning Commission – approved projects. We arrange funding for such projects. If we have enough resources, we provide them. But, if we do not have resources, we arrange for donor support and also pledge counterpart fund. Even the project of Financial Sector Restructuring, which directly concerns us, is carried out through the Nepal Rastra Bank.

What is the status of foreign assistance?

If we look at the data of the last three years, the foreign assistance commitment has grown handsomely. Three years ago, we had received foreign assistance commitment worth Rs 22 billion. Two years ago the figure went up to Rs 32 billion and in the last year it was Rs 41 billion. This further shows that if the situation of security is under control, there will be no problem in arranging for the resources to undertake development projects.

Are you satisfied with the current financial situation then?

I am happy to note that despite the current situation of insecurity, we have been able to keep our financial position under control. It is true that we have not been able to undertake adequate development efforts due to unfavorable security situation. The challenge before us is to continue the reforms and the existing policies. We have to keep our promises made before the donors on areas like governance, decentralization, corruption control and so on. We should not back down from these efforts.