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COVER STORY |
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COVER STORY |
BUDGET 2004 Less than two weeks before
the end of the current fiscal year, the Ministry of Finance is still without a minister.
Even a month after his appointment, Prime Minister Sher Bahadur Deuba has been unable to
expand his cabinet. This delay has been the most unfortunate for the financial sector. For
the new finance minister, there is no option than to hit the road running. Amid spiraling
regular expenditure and contracted development expenditure, the new budget need to give a
new thrust to rescue the economy out of the current slowdown By SANJAYA DHAKAL As the political parties are still trying
to finalize their common program and the Prime Minister Deuba is yet to expand his
three-member cabinet (till the writing of this article on Tuesday afternoon), there is
uncertainty about what thrust the new budget, which has to be announced within mid-July,
will take. In the absence of a full-fledged finance
minister – PM Deuba has kept the finance portfolio with himself – the exercise
of preparing a budget has resembled a bus trying to move with empty front seat.
Whoever holds the rein of the Finance
Ministry, he/she will have limited time and option to re-orient the budget. More
importantly, the new Deuba government has failed to show the sense of urgency to tackle
the economic problems faced by the country by not inducting a finance minister soon. Typically, a budget preparation involves
weeks, if not months, of homework and exercise by a bevy of bureaucrats, experts under the
political guidance of ministers. But this year, the mandarins at the Finance Ministry and
the National Planning Commission (NPC) are working without the guidance. Likewise, the reports about the Common
Minimum Program (CMP) being formulated by the political parties like the ruling Nepali
Congress (Democratic) and the Unified Marxist Leninist (UML) lack comprehensive programs
on economy. Apart from mentioning poverty alleviation, their programs are silent on the
nitty gritty of rescuing the economy out of the current morass. Derailed Development The budget for the fiscal year 2003/2004
had targeted to make development expenditure worth Rs 41 billion. Out of the total budget of Rs 102.4
billion, over Rs 60 billion had been allocated for regular expenditure and over Rs 41
billion for development expenditure. Experts and analysts have come forth with
varying figures over the exact amount the government could spend in development. But all
agree that it decreased sharply and dangerously.
A recent estimate (by the Ministry of
Finance) stated that the volume of development expenditure has been very poor. The
government could spend only Rs 13. 93 billion as development expenditure till the first 11
months of the fiscal year. This figure is less by almost half when compared to the budget
target. Big investment projects like
middle-Marsyangdi hydroelectric project and Melamchi Drinking Water projects suffered from
hitches during this year. In both the cases, insecurity was one of the major obstacles for
the smooth operation of the project. Investment in rural infrastructure – excepting
the roads being constructed with the help of army in the mid-west – was almost
non-existent. The rural service-delivery suffered and the
government was compelled to organize mobile camps to provide health, education and other
administrative services. The budget had proposed over Rs 5 billion for the road and
transport sector. Out of this amount, the budget had 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 previous year. The impact of this budget support is yet to be assessed. According to officials, the situation of
insecurity was largely responsible for the decrease. “But we are exploring
alternative means for carrying out development programs. The government has already
started handing over schools and health posts to the community. If this model succeeds,
than the development projects, too, could be carried out in similar manner,” said a
senior official at the Ministry.
Political leaders of both the ruling
NC (D) and the UML agree that the decrease in development expenditure could derail the
nation’s economy. Dr. Naryan Khadka of NC (D) and Bharat Mohan Adhikary of UML –
both well-known economists in their respective parties – concur that the number one
priority of the new budget should be to increase effective development expenditure.
“New avenues must be explored to carry out development, which cannot be kept in a
limbo,” said Adhikary. Dr. Bishwambher Pyakuryal, a noted
economist and president of Nepal Economic Association (NEA), goes a step further
suggesting that the government might need to enter into partnership with NGOs, donors as
well as the Maoist representatives to ensure smooth development program. “The
government should cash in the announcement by the Maoists that they will no longer destroy
infrastructures,” Dr. Pyakuryal said. Rosy Revenue Despite the raging conflict, one thing that
the government can be proud of is the growth in revenue collection. The government has collected revenue worth
Rs 51.81 billion within mid-June (the first 11 months) in the current fiscal year – a
figure that is 13.6 percent more compared to the same period last year. Since the month of
June/July is important in terms of revenue collection, the government expects that this
year’s revenue collection would exceed the target. The budget for the current fiscal
year had aimed to collect Rs 60 billion as revenue. According to the Ministry of Finance, out
of the total revenue, Rs 41.78 billion was collected through different taxes – 14.6
percent more than last year. Likewise, Rs 10.2 billion was collected from non-tax revenue
source – 9.8 percent more that last year.
The budget estimate of achieving 4.5
percent growth rate, too, is going to be almost achieved. Unfortunately, such
macro-economic stability is not reflected in the rural Nepalese households, who still
suffer from deprivation, famine and so on. Dr. Pyakuryal, while taking note of the
satisfactory revenue collection, adds a caveat that this is not a sustainable growth.
“Majority of revenue collection is made through custom duties, which we need to do
away with in the days ahead as we have chartered into the free-trade territory like
WTO,” he said. Priorities And Goals As the overriding priority before the
country is restoration of peace, the budget, too, cannot remain aloof from this reality.
Besides, many targets of the budget cannot be met in the state of continued conflict. “Peace and polls should be the
priority of the economic program of the government,” said Dr. Narayan Khadka. Another important priority of this budget
is going to be the utilization of development expenditure. In the absence of development,
the country is sliding further into the crisis. “This is no time to sit idle. Even if
the conflict does not end, development should not suffer. We must find ways to carry out
development,” said Adhikary. According to Adhikary, the budget should
introduce targeted programs to uplift the Dalits, women, deprived community and so on.
“In fact, we can involve the community in the local development efforts. Say for
example, the government should bear 50 percent of the cost of building irrigation canal
and ask the local community to bear the rest in terms of free labor and so on. Such
initiatives will go a long way if effectively carried out,” he said. Amid wide-ranging difficulties, the budget
will need to strike a balance as well as send a strong and positive message to the people
in general. As the government is poised to take all party shape, the budget will also have
to address the competing as well as conflicting interest. Naturally, the budget will have
an uphill task of pacifying variety of opinion-holders, business community, farmers,
traders, civil servants and so on. “The Macro-economic Stability Is
Only Supporting The Urban Areas” — Dr. Bishwambher Pyakuryal
Dr. Bishwambher
Pyakuryal is a well-known professor of economics at the Central Department of Economics,
Tribhuwan University. President of Nepal Economic Association (NEA), Dr. Pyakuryal spoke
with SANJAYA DHAKAL on the issues relating to the present economic situation and the
forthcoming budget. Excerpts: On the eve of the budget for the
new fiscal year 2004/05, how do you evaluate the implementation of the 2003/04 budget? The current budget could not be implemented
properly. One reason for that is the spiraling non-budgetary expenses. The government has
spent huge amount in titles that were not included in the budget. Security expenses have
sky-rocketed. Military recruitment has increased, which will also result in more of such
expenses in the coming days. We can anticipate there has been off-budget military
expenditure. This will make it difficult to target inflation. Without knowing the nature
of the money flow, how come the central bank can bring about monetary policy. And without
fully comprehending this sort of non-budgetary and off-budget flow of money, how can the
framers of the upcoming budget estimate the requirements and resource allocation? What will be the impact of the
decrease in development expenditure? In the current budget, we witnessed sharp
increase in regular expenditure whereas the development expenditure could not exceed more
than 35 percent. In the absence of government investment in social sector and
infrastructure, our growth cannot be sustainable. The macro-economic stability only
supports urban sector. This trend will also result in further increase in unemployment and
deterioration in education and health sector. Besides, there is alarming trend of budget
deficit. This deficit has to be filled by internal and external borrowing. The government
has already crossed its legal limit in making internal borrowings. The external borrowings
– most of them – are conditional, which means that they are tied up with the
Rate of Return. Without investment, the return cannot be high. As a result, there will be
very little likelihood of disbursement of funds in accordance with the commitments.
Whatever expectation you have for external borrowing to meet the fiscal deficit is not
going to be fulfilled. We also should stop from using fiscal deficit as a regular
instrument. Every year, the budget has deficit of around Rs 10-12 billion. We should have
two goals- one, that we should retain minimum growth and two, provide basic service to the
people. Otherwise, there might even be starvation deaths. When there was high growth in
West Bengal (India), there was also famine there. Therefore, higher growth, if not enjoyed
by grassroots people, could be meaningless. Unfortunately, we are witnessing that due to
insecurity, the domestic markets are disintegrating. How can the development expenditure
be met in current situation? It is not possible to achieve effective
development expenditure through existing machinery. It would require some sort of
partnership of local governments, NGOs as well as Maoist representatives. The government
needs to adopt flexibility to materialize this partnership, which can ensure service
delivery to poor people and help achieve minimum level of investment in infrastructure,
health and education. The Maoists, too, have come out with their code of conduct stating
that they would not attack infrastructures. So, I see a possibility of such partnership if
the government exhibits flexibility and cashes in their code of conduct. How would you explain the likely
collection of revenue as per the target? The government has subtly increased its
non-tax revenue. It has increased certain duties and royalties, which has not affected
people considerably. The reforms in customs have also resulted in this growth. The problem
is that the government has not been able to widen the VAT net or increase compliance. As a
result, the whole of our budgetary exercise is being carried out within a given number of
around Rs 100 billion. Moreover, since Nepal has already become member of WTO, customs
will become unsustainable source for revenue in the days ahead as we have to embrace
free-trade regime. What should be the priorities of
the new budget? I want to emphasize that the new budget
should not be populist in nature. Although slogans and special programs to help victims of
conflict, Dalits, indigenous people and so on sound good, they may not be healthy for the
country’s economy. In the absence of a well-defined and proper system/machinery to
distribute such funds to the targeted group, only announcing programs will not suffice.
There is no guarantee that such programs will help the targeted group. The number one
priority of the country today is peace. Therefore, I think the upcoming budget should
– remaining within given numbers – try to decrease regular expenditure and
increase development expenditure; deliver basic service to the people and retain minimum
level of growth. That apart, the budget should also have programs that would resettle the
displaced person and provide them with income-generating skills and access to credit. Less than two weeks remain before
the new budget has to be brought out. And still there is no clear picture of who is going
to become the Finance Minister. Can any individual re-orient the budget to his/her
party’s policies in such a short notice? Re-orientation does not require much time.
First, the government partners should make a clear minimum understanding on what they
intend to do. Of course, the challenge is big. Any new individual who becomes Finance
Minister will have to again work within the same given number. The only thing he can do is
make few changes and introduce few programs, which does not take much time. The current government is poised to
take the shape of all party one including representatives from left, right and center. How
do you think will be the budget prepared by such government? The parties are talking about common
program. I believe that they should have focused common program. Otherwise, each of the
parties have their own brand of ideology and program. In fact, I, for one, do not have
much faith in such unfocussed common programs. “New Budget Should Target
Poverty Alleviation And Rehabilitation” — Dr. Narayan Khadka
Dr. Narayan Khadka is
the former vice chairman of the National Planning Commission (NPC). A central leader of
the ruling Nepali Congress (Democratic), Dr. Khadka spoke with SANJAYA DHAKAL on the
upcoming budget. Excerpts: How do you evaluate the performance
of the current budget? The current budget was prepared by a
nominated government. The major failure of the government was the inability to make
development expenditure. Although it targeted to make development expenditure of Rs 40
billion, it could hardly spend Rs 30 billion. Besides, the assessment of impact of this
expenditure is yet to be made. Revenue collection was satisfactory. High remittance and
good monsoon also helped. Because we have an urban-based economy, we could witness
macro-economic stability. What should be the priorities of
the new budget? Does the common minimum program also have some points regarding economy? Basically, it has to target the poverty
alleviation programs as well as the rehabilitation of displaced persons and victims. Peace
and polls are the primary priorities of the common minimum program. The new budget should
provide relief to the people and focus on reconstruction of destroyed infrastructure. What do you think would be the
major challenges before the new Finance Minister? Since the government is going to be an all
party one; a particular Finance Minister might not be able to engage in extensive reforms.
He will have to follow programs that are agreed upon by all and sundry. The task will be
really challenging. “Development Programs Must
Continue” — Bharat Mohan Adhikary
Bharat Mohan Adhikary
is a former finance minister and a standing committee member of the Unified Marxist
Leninist (UML). Adhikary spoke with SANJAYA DHAKAL on what he thinks should be the
priority of the new budget. Excerpts: What should be the thrust of the
upcoming budget? The main thing is that the regular
expenditure is sky-rocketing. The ratio of regular to development expenditure has reached
to almost 4:1 level, which is dangerous. Whatever government officials say, the
development expenses of the last 11 months show that they hover around Rs 13-14 billion
only. Likewise, the issue of unemployment, poverty etc should not be segregated from the
Maoist problem. There should be a clear link between development and peace. So, the thrust
should be given to decrease regular expenditure by as much as possible; carry out
development programs despite conflict; involve community in programs and send positive
message to the people. How can you increase development
expenditure in such a situation? New avenues must be explored. We cannot sit
with our hands tied if the conflict does not end. There are approximately 36000 wards in
the country. Let us first introduce targeted programs in one-third of them. Let us urge
the community to build infrastructures like bridges, irrigation canals and so on where the
government invests up to 50 percent in terms of capital and equipment. I do not think that
even the Maoists will pose obstruction in such programs. Development must take place. The
government must pump in money into villages. Since Nepal has become a member of WTO, the
budget should also reflect our commitments. Can a new finance minister do
anything in such a short notice? A new orientation can be given to the
budget even in less than ten days. All in all the budget should give positive message to
business community, farmers and common people. |
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