Promises To Keep
The budgets have ceased to become anything but an annual ritual in the country. Particularly, in the past three years three different Finance Ministers prepared the budget, which were similarly shredded by the political opponents citing lack of elected representatives in the driving seat of governance. This year, too, a new Minister came up with a new set of pledges. But the problems are old and getting worse. Once again, the budget has been touted as harbinger of peace. This time the Finance Minister has gone a step ahead by claiming to restore peace within three years and has claimed the rising security expenditure as investment for peace. How far the minister will succeed in keeping his promises, time only will tell
By SANJAYA DHAKAL
It was an uninspiring show. The Finance Minister stuttered, stammered, fumbled and stumbled awkwardly throughout the two-hour budget speech he delivered amid a small gathering of high officials and selected invitees at the auditorium of the National Planning Commission (NPC).
Never known for his oratory skills, an aristocrat-turned-minister FM Madhukar SJB Rana made a poor showing unable to inspire his fellow countrymen let alone his fellow opponents through his rhetorical delivery of text filled with promises.
Amid deepening political instability, persistent conflict and decision of many foreign donors to suspend aid citing lack of democratic regime, FM Rana had a difficult task of presenting the budget of a country, which always depended heavily on foreign assistance. However, FM Rana has not decreased the estimation of foreign assistance even this year.
Hard Figures
Contrary to expectations, Finance Minister Madhukar SJB Rana unveiled Rs 126.88 billion strong budget estimates for the fiscal year 2062/63 BS (2005/06). Economists and experts had advised the government to keep the total budget figure around Rs 100 billion in view of lesser possibilities of raising foreign assistance and bleak situation in domestic revenue growth. But when it was released, the total figure for this budget ended up 25.71 percent more than the adjusted estimates of the previous fiscal year.
This year, the FM has set aside Rs 75.85 billion for current expenditure; Rs 37.23 billion for capital expenditure; and Rs 13.8 billion for the payment of principles and interests of loans. The budget has set aside Rs 74.84 billion for regular and Rs 52.04 billion for development expenditures.
To finance the budget, FM Rana stated that Rs 77.75 billion revenue would be raised from existing sources, while Rs 18.68 billion and Rs 14.53 billion are expected to be collected from foreign grant and loans respectively. The gross budget deficit will be of Rs 15.9 billion.
The budget has expected to generate an additional Rs 4.057 billion revenue as a result of changes in revenue rates and reforms, which will make a net budget deficit of Rs 11.85 billion, which the government expects to recover by raising domestic borrowings.
Ambitious Or Over-ambitious
The huge budget figure, plans to raise substantial foreign assistance and the estimates of high revenue growth have been termed by economists as over-ambitious.
Just a day after the Economic Survey report published by the Ministry of Finance lowered the estimation of GDP growth for the fiscal year 2004/05 to just over 2 percent, the new budget projects the economy would grow by 4.5 percent. Economists have termed it simply not feasible. It estimates the GDP will grow by 4.5 percent with an increase of 4 percent in agriculture and 4.8 percent in non-agriculture sectors.
“We believe that if we can reach 3.5 to 4 percent growth in agriculture, the GDP growth can be pushed to the estimated 4.5 percent level. It is very much attainable,” said Dr. Shankar Sharma, vice chairman of the National Planning Commission (NPC).
The budget has estimated the revenue to grow by 14.7 percent. “It is over-ambitious for the government to estimate the revenues will grow by over 14 percent when the situation of industries are not good,” said Rajendra Khetan, industrialist and vice president of Confederation of Nepalese Industries (CNI).
Dr. Sharma rejects charges that the estimation of revenue growth is ambitious. “In the fiscal year 2004/05, the revenue mobilization grew by 13.8 percent. So, I do not think it is over ambitious to project the growth to reach 14.7 percent in the fiscal year 2005/06,” he said.
Former finance minister Bharat Mohan Adhikary of the Unified Marxist Leninist (UML), said the government would fail to raise Rs 33 billion as foreign loans and grants in present situation. “Since this budget will not be able to raise expected resources in the absence of foreign assistance, it will fail,” said Adhikary.
However, Dr. Sharma insists that the budget will raise Rs 81 billion as revenue, Rs 12 billion from domestic borrowings and Rs 4.5 billion promised from Debt Relief Fund (DRF) by Japan . “This will total to over Rs 97 billion and we have kept the level of foreign assistance to the same as that of previous fiscal year,” he said.
Anyway, the rising volume of foreign debts have also created pressure on resource allocations. According to a report by the Office of Accounting General earlier this year, the total foreign loan of Nepal stood at Rs 232.7 billion at the end of the last fiscal year (2003/04) – which is 49.15 percent of the Gross Domestic Product (GDP). In the first six months of the fiscal year 2004/05, Nepal had paid Rs 4.2 billion foreign loans – of which Rs. 1.05 billion was accrued interest alone. The government planned to pay Rs 9.5 billion of foreign loan this fiscal year. – which is 8.2 percent of the total budget.
Sectoral Allocations
This year the government has increased its allocations to agriculture by setting aside a sum of Rs 3.81 billion for the sector (up 61.7 percent from previous fiscal year). “We have seen impressive performance by cash crops, which have a big potential of further growing,” said Dr. Sharma. The budget has also introduced the concept of “ One Product One Village ” in places near the highways to boost up the commercialization of agriculture. Around Rs 420 million has been allocated for agriculture research.
These apart, a separate allocation of Rs 2 billion has been made for irrigation sector including Rs 350 million for proposed Sikta project.
Education has bagged the lion’s share of the budget. The government has allocated Rs 21.05 billion for the education sector (up 31.26 percent). “And we will be using around 65 percent of the resources in education sector for primary education,” said Dr. Sharma. The budget proposes to provide free education up to secondary level to students from dalit, backward communities and Karnali region. The government will also accelerate the handing over of primary schools to community. The government increased the allocation in education as it needs to implement Education for All programs. Besides, the donors, too, have not suspended their support in this sector.
The health sector, too, has increased its share. The budget allocates Rs 7.68 billion for health sector (up 51.15 percent). In the drinking water sector, Melamchi project will attract Rs 1.5 billion. Structural reforms will be carried out to supply additional 30 million liters of water to Kathmandu valley. The budget has allocated Rs 5.57 billion for road constructions. Around 244 km of roads will be added.
The security expenses, too, have been increased to reach Rs 18.78 billion. The budget for the Ministry of Defense has been increased from Rs 8 billion to Rs 10.9 billion. Likewise, that for Armed Police and Nepal Police have been increased to Rs 7.88 billion. “The expenditure in security would be investment for peace,” said FM Rana. The royal palace expenditure has been increased from Rs 355 million to Rs 336 million. Around Rs 500 million has been set aside for municipal elections.
In another important allocations, the government has set aside Rs 1.5 billion for the development of Karnali region. FM Rana also mentioned that the government would invest in the construction and improvement of seven roads linking north and south within three years with the objective of developing Nepal as a transit corridor between India and China .
Basis Of Budget
This year, the budget is based on the Royal Proclamation of February 1 as well as 21-point agenda of the government apart from the Tenth Plan and the Poverty Reduction Strategy Paper (PRSP). Finance Minister Madhukar SJB Rana has claimed that the budget this year has focused on both security and development. He said the budget followed three-year plan. “The budget will also reflect the framework of 11 th Plan,” Rana added.
Dr. Shankar Sharma, vice chairman of National Planning Commission (NPC), claimed that while the budget of the previous fiscal year succeeded to fulfill 87 percent of its programs, this year they planned to improve the success rate to above 91 percent. “But our attempt will be to fulfill 100 percent,” he said.
Dr. Sharma added that in view of the conflict situation, the budget had to focus on four major aspects – the budget allocated to districts have been increased by 50 percent in past four years; involvement of community has to be expanded; in some of the worst hit areas the umbrella of security will be needed (to push development line building of roads); and alternative course of development (through NGOs and INGOs) will be encouraged.
This is where economists point fingers at the ability of the government. “It is clear that the government was not able to carry out development activities in districts. Whatever little development took place were carried out by NGOs/INGOs and donors,” said Dr. Ram Sharan Mahat, former finance minister.
In fact, Dr. Mahat termed the budget speech as ‘poor essay’ and its targets of good governance as ‘hoax.’ For the past three years, Dr. Mahat has consistently been brushing aside each and every budget calling them as documents lacking people’s endorsement. “There is neither accountability nor ownership in these documents. You cannot separate the budget from political process,” he said.
Senior economist Professor Dr. Bishwambher Pyakuryal, president of Nepal Economic Association (NEA), criticizes the budget for scattering resources in various sectors. “It was not appropriate to make such huge budget at this juncture,” he said pointing to the ambitious revenue target and equally ambitious hopes for foreign assistance.
Will The Promises Be Kept?
FM Rana has made a number of promises in the budget including the restoration of peace within three years. He has also promised to attain overall economic stability to attain high economic growth rate.
“This budget is guided by the objective to bring down the population living below poverty line to less than 10 percent by 12 th Plan and to attain the Millennium Development Goals (MDGs),” said Rana.
Other promises he has made include activating the elected political institutions through free and fair elections and to develop infrastructures to transform Nepal as a transit corridor between India and China .
Market-oriented economy, fiscal discipline, people-government participation and security are other promises the budget has made. How many of these promises have been made to keep, time only can tell.
ECONOMIC SURVEY REPORT
The Economic Survey for the fiscal year 2061/62 (2004/05) has showed that the GDP growth rate will just hover above 2 percent – against 3.3 percent growth witnessed a year before.
Presenting the survey report on July 15 on the eve of new budget, Finance Minister Madhukar SJB Rana blamed the decrease in economic growth to increased violence and terror in the country, coupled with unsatisfactory performance of business sector such as trade, construction and tourism. He said that investment-GDP ratio in the fiscal year has gone down to 26.1 percent and domestic saving-GDP ratio has also gone down to 12.3 percent.
Rana said the growth in the agriculture sector was 2.8 percent while that of non-agriculture sector stood at 1.6 percent – compared to 3.9 and 2.9 percent respectively in the previous year.
Exports increased only by 5.3 percent (compared to 7.2 percent rise a year ago) and imports declined by 4 percent (compared to 7.8 percent rise a year ago). The Balance of Payment surplus has been estimated at Rs 5.57 billion.
Likewise, foreign exchange reserve has increased by 5.2 percent to reach Rs 131.67 billion. Dr. Shankar Sharma, vice chairman of National Planning Commission (NPC), said that the development expenses have increased by 11 percent. Finance Secretary Bhanu Prasad Acharya said that in the period, the country has received foreign assistance of Rs 35.3 billion. Of the total foreign aid agreed, foreign grants amount to over Rs 23 billion and loan stands at Rs 12 billion.
According to the survey, total domestic loans stand at Rs 86.13 billion up from Rs 83.2 billion a year ago.
