The Finance minister of the Government of Nepal presented a national budget of Rs.819 billion for the Fiscal year 2015/16 in the national legislature on 14th July. The government expenditure allocation has increased by a whopping 60 % compared to last year’s revised estimates. Allocation for capital expenditure has increased from Rs.86 billion (current years revised estimate) to 209 billion. As the massive quake has led to the serious loss of property and requirement of massive rebuilding efforts, big increase in capital expenditure allocation was expected. The Finance minister has allocated Rs.91 billion for reconstruction, a significant proportion of which is going as subsidy/support to homeowners for reconstruction of their dwellings destroyed by the quake. The budget also envisages a substantial growth in foreign grant from Rs.38 billion to Rs.110 billion. Probably, the Minister is confident that the support pledged in the recent International Conference on Nepal Reconstruction 2015 (Donor’s Meet) will be translated into reality and foreign grant will climb north as a result of the increased sympathy towards Nepal and her people in the aftermath of the quake. However, it is worth noting that Nepal has a record of grossly missing the target in capital expenditure as well as foreign grant receipt. For example, in last year’s budget speech, the same Finance Minister had targeted to garner Rs.73 billion as grants and spend Rs.116 billion as capital expenditure. The revised estimate put in this year’s budget speech under these headings is a mere Rs.38 billion (under achievement by almost 50% ) and Rs.87 billion (underperformance by about 25%). So the biggest challenge for the government will be to meet the set targets. This concerns not only these headings but also other headings including the revenue targets.
The budget has put up ambitious targets like completing the reconstruction works (effects of the massive earthquake) within the next five years, linking all constituencies by an all-weather black topped road within the next two years, or linking all Village Development Committees by a motor-able road, providing irrigation facilities to the entire cultivable land of the country within next 5 years etc. These declarations sound great while listening, but meeting these targets pose a real challenge. We have a history of high-sounding targets and declarations and meager performances. One can only wish, same will not be the case with this year’s budget.
Budget speech is not merely a statement of anticipated income and expenses of the government. Budget speech is also used to make policy announcements and indicate the direction of the government in running an economy. The private sector operators keenly await budget as it indicates where the money of the largest spender is going to go. The sector wise allocations are along expected lines with education, health, transportation, electricity, and agriculture commanding lion’s share of the government budget spending. Following the earthquake, there were high expectations from the citizens towards the Government. Unfortunately, the budget lacks innovative ideas on moving the economy forward. Similar programs (questionable as to their achievements) have been continued in this year’s budget as well.
The best thing about the budget speech this year is that the Government has left the tax rates more or less untouched. On the eve of the budget, fears were being expressed regarding a rise in tax rates, as the government needed money to finance the reconstruction process. By avoiding meddling with the tax rates the Government has given some sort of stability on the policy side. By accepting the fact that the government alone cannot carry out all reconstruction, and there is need of rehabilitation businesses in the quake-affected areas, the Government has indicated that there is space for the private sector in running the economy. Many private operators would take solace from such development especially because it has come after the recent constitution draft, which seems to be oriented towards creating barriers on the path of the private sector.
The small traders and businessmen in the districts may be happy that after more than one and half decade the Government has raised the threshold limit for compulsory VAT registration and compliance requirement.
The budget mentions concepts like green cities, putting up of smart cities, ensuring cleanliness and hygiene through construction of toilets and sewages, agricultural extension services in all VDCs, and at least one doctor in every VDC. There are also declarations of legislative changes. The issue is whether these declarations will turn into reality. Past performance of the same government does not give us the required confidence!
This year’s budget envisages significant increase in the borrowings by the government. Till now our public debt has been at affordable limit. Our debt as percentage of the GDP is below that of most of the developing world. The economists by and large have been telling that there is space to increase the debt. Let us hope finance ministers from next year onwards will not take the debt route as the means of financing their fancy programs. The Greek crisis should pose us a warning on ‘what would be the result of living beyond your own means’
The budget speech has generated a mixed reaction from the political as well as the professional class. The biggest critics so far are not the people from the opposition party, but from the coalition partners. You do not need opposition when your allies are saying that they won’t allow a smooth sailing to this year’s budget. This only strengthens the opinion that something is wrong in our system, and the budget as it is, may not get the green signal from our legislature.
The test of this year’s budget will be in implementation. As the saying goes,’ the taste of the pudding is in eating’ the budget speech is full of good intentions, but intentions alone cannot get rid of hunger. As for Nepali citizen, we are still on that elusive quest for accelerated growth and prosperity.
Dr. Dabadi is senior fellow at Samriddhi, The Prosperity Foundation