BUDGET SPEECH OF THE FISCAL YEAR 1999

(Unofficial Translation)
Budget Speech of the Fiscal Year
1999 / 2000

Delivered by
Mahesh Acharya
Finance Minister
To the Sixteenth Session of the Parliament

11 July, 1999.

His Majesty's Government
Ministry Of Finance
July, 1999.

Rt. Hon'ble Speaker,

1. After the restoration of multi-party system, I, on behalf of the government of majority Nepali Congress, had the foremost opportunity to present the budget of the fiscal year 1991/92. Today, after eight years, while standing again in this august house, on behalf of the government of majority Nepali Congress, to present the budget of the fiscal year 1999/2OOO, I would like to salute to all democracy friendly sisters and brothers of the, country.

2. Policies and programs initiated by the government of Nepali congress in 1991 in economic, social and administrative. sectors were poised toward building strong and efficient economy. The fact that those reform programs had positive impact in -strengthening the economy was experienced by all. During that period of the Eighth Plan, when there had been speedy reform in revenue mobilization and high economic growth rate, programs related to social services and social welfare were also initiated for the economic prosperity of deprived classes of society. However, due to the political instability of the past four and half years, those policies and programs of economic reform could not be sustained as we expected. Consequently, slackness instead of expansion started to surface in economic activities. The adverse impact of economic slackness has also been felt in our social life.

Review of the Current Economic Situation

3. While preparing the budget of the fiscal year 1999/2OOO, it is necessary to assess where we stand now and what have been pointed out by main economic indicators. Therefore, I would first of all like to have permission to present, in this august house, the brief glimpse of the current economic situation.

4. The growth rate of Gross Domestic Product (GDP) during the Ninth Five Year Plan period has been targeted at 6 percent with growth rate of agriculture sector and non agriculture sector of 4 percent and 7.3 percent respectively. However, during the first two years of tile plan period, overall economic growth rate of only 3.1 percent in average could be achieved with the growth rate of 1.7 percent of agriculture and 4 percent of non agriculture sector. Against the targeted ratio of 17 percent of gross savings and 25 percent of gross investment to GDP during the ninth plan period, it is estimated that such ratios of gross savings and gross investment would be only 1 O.6 percent and 17.3 percent respectively in the current fiscal year.

5. The situation commanding faith of investors in overall economy could not be created due to the unfavorable climate, uncertainties in economic reforms, slackness in internal resource mobilization and increasing fiscal imbalances during the period of last two years. The cost of capital, which is necessary for investment, could not come own as expected. Sluggishness appeared in economic activities due to slowness in the mobilization and utilization of foreign aid. Due to all these reasons, the overcall economic growth rate is expected to be 3.4 percent in the current fiscal year. The growth of agriculture and non-agriculture sector is estimated to be 2.4 percent and 4.1 percent respectively.

6. Against the revenue collection target of RS. 39,479.4 million in the current fiscal year, it is expected, as per revised estimate, that the revenue mobilization in comparison with the previous fiscal year will increase only by 11.9 percent and reach RS. 36,85O.O million. As such, the ratio of revenue to GDP is estimated to be 11 percent, which is not a satisfactory situation in view of internal resource mobilization.

7. During the current fiscal year, a total of RS. 69,693.3 million was allocated. out of which RS. 31,952.2 million was for regular expenditure and RS. 37,741.1 million for development expenditure. The revised estimate is that in the current fiscal year 98.8 percent of the allocated budget for regular expenditure will be spent as internal sources had to be mobilized also for the general election, and for the preparatory works of 11~1 summit of the South Asian Association for Regional Cooperation (SAARC) and Eighth South Asian Games to be held in Nepal. However, development activities could not take momentum due to the political instability, general election, inadequate provision of' counter part fund for foreign aided projects, lack of timely claim on reimbursement, and difficulties appeared in project management. As a result, it is expected per revised estimate that in the current fiscal year only up to 84 percent of the allocated budget for development expenditure could be spent

8. 0verall monetary indicators have expanded at slower rate as compared to the previous year. During the first 11 months of the previous fiscal year, narrow and broad money supply were increased by 13.5 percent and 17 percent respectively. Whereas, during the same period of the current fiscal year, the growth rate of such monetary expansion have been 13.1 percent and 16.8 percent respectively. During the same period, the credit flow to private sector has risen only by 12.1 percent as compared to 1S.5 percent during the previous year.

9. In foreign trade front, total export during the first 11 months of the current fiscal year has increased by 34.2 percent and reached RS. 33,21O.O million as compared to the previous fiscal year. out of this, export to India increased by SO.8 percent and to other countries by 26.4 percent. During the same period, the export of woolen carpets and garments rose by 1S.7 percent and 37.1 percent respectively. The total import declined by 2.9 percent and amounted to RS. 78,93O.O million. The import from India has increased by 18.8 percent, whereas import from other countries has declined by 12.2 percent. The overall ratio of export to import has been 42.1 percent.

10. As per the latest balance of payments indicators of up to the first eight months of the current fiscal year, there has been after many years a surplus of RS. 330 million in the current account. As a result of such basic change in the current account, there has been a surplus of RS. 9,O9O.O million in the balance of payment during the above period, which led to the foreign exchange reserve of RS. 74,48O.O million by mid-June. on the basis of the tendency of import to-date and prevailing exchange rate, the present level of foreign exchange reserve appears to be adequate to support imports of 11 months equivalent.

11. During the first l 1 months of the current fiscal year, the growth rate of the overall national urban consumer price index has been l 1.8 percent. During the same period of the previous fiscal year, the price index had increased by 7.9 percent. The continuous increase in the price index of food items from the beginning of the current fiscal year has been the main reason for such high increase in the price index in the current year.

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