Quick observations on FY 2020/21 budget

Amid much speculation regarding the size of the fiscal budget, this year the Nepal Communist Party government has come up with a slightly smaller budget (NRs 1.475 trillion) compared to the previous year (NRs 1.533 trillion). At first glance, it is indeed a welcome move considering the fact that in the midst of the Covid-19 crisis when the economy is plummeting at an ominous rate, businesses are shutting down, millions are losing jobs at home and abroad and almost every sector is looking to the government to bail them out, the NCP could have announced massive new popularity programs for political gains at the cost of taxpayers.

The government does seem to have taken into the account the fact that people’s tax-paying abilities are also taking a hit and as a low-income country, Nepal does not have much fiscal space to submit to popular call for relief packages. This reflects in the targeted revenue section which comprises taxes, fees and foreign grants. This government has never been able to generate foreign grants to the scale of its predecessors in its three years. Even in the case of domestic receipts, it has estimated a dip of Rs. 91 billion (to NRs. 890 billion from Nrs. 981 billion). The ratio of revenue mobilization (which largely consists of taxes) to the GDP has come down to 23.6% from 28.36% last year and 27.3% the year before. This means that the government is taking away lesser from an individual’s earning that in previous years. 

But one would have to be looking through rose-tinted glasses to say that this has been a great budget. This has not. There are programs announced to respond to the effect of Covid-19, but the government has definitely failed to make concrete policy commitments to incentivize and facilitate the private entrepreneurs and investors who would be creating much more jobs in the economy in the days ahead only if the government were willing to trust them and offer them an improved entrepreneurial environment. One can find a sense here that the government thinks it is the primary agent for creating jobs. Governments do create jobs; there is no denying that. But the kind of jobs that the government seems to be entertaining here is low-paying and menial jobs instead of ones that truly uplift people from joblessness (or poverty) to a decent livelihood. This kind of job comes from the private entrepreneurs who are the engines of growth for an economy like ours. And it is here that the budget could have done more. It could have announced deregulations and breaking syndicates and cartels to offer a level playing field for aspiring private entrepreneurs and fostered a competitive market where people prosper by solving other people’s problems by leveraging the ICT, the shared economy or the innovations that free entrepreneurs come up with. This would have also freed up the government to focus on things like health, education, security, and administration of justice.    

With the reduction in total revenues, the government is faced with its largest deficit thus far. Domestic borrowing is, therefore, seeing a 15.38% growth compared to the last year, and this is definitely going to have a bearing on the liquidity in the markets. Private investments are likely going to be even dearer considering the fact that they do not see much of that policy reform support from the government’s end.  

All in all, not a very promising budget; could have been smaller (#greater_austerity). But points are definitely owed to the government for considering the impact of Covid-19 on people’s wallets. As to the other promises it has made, time will tell if these are well thought and serious commitments. Nepal hasn’t historically been a great promise-keeper, but if the ones made this year are implemented, that would be a pleasant surprise.

This article is written by Akash Shrestha.