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Nepal's Budget: The Paradox Continues
An old wine in a new so-called revolutionary bottle
Bhuwan Thapaliya (Bhuwan)     Print Article 
Published 2008-10-04 12:14 (KST)   
Nepalese tired of the lackluster budgets, soaring inflation and high unemployment again got what they feared the most: Another budget of the same class.

In the first budget of the republic Nepal presented by Maoist- led government, Finance Minister Dr Baburam Bhattarai inflated the budget by adding number of populist slogans but in substance it's nothing new than the older ones presented by the previous governments.

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Majority of the Nepalese were hoping for some concrete budget but in the end it turned out to be just an old wine in a new so called revolutionary bottle. Only one thing has changed- the size of the budget. The budget is mammoth in size. It is 39.7 percent higher than budget of the Fiscal Year 2007/08.

Finance Minister Dr Baburam Bhattarai unveiled a whopping Rs. 236.15 budget for the fiscal year 2008-09, at the Constituent Assembly and ever since there has been widespread criticism of the budget but the Finance Minister has defended the programs of the budget.

He stated that a mega budget like this is needed to move ahead and take a giant leap forward. Defending the huge size of the budget, the minister said, "some risks must be taken when you want to take a leap forward.'

The minister aims that the budget will push the economic growth rate to 7 percent from current 5.6 percent. But no matter how hard he preaches, the reality looks otherwise at least for few more years unless something drastic happens in the Tourism and Agriculture sector.

Nepal's economy looks remarkably shaky given the storm clouds gathering over the global economy, but the various economic indicators and reports expect the country to accelerate its economic pace in the near future.

Asian Development Bank (ADB) has amended its projection for GDP growth rate for Nepal in the year 2009, now putting the projected growth rate at 5.0 percent.

According to an updated publication of the Asian Development Outlook 2008, Nepal's GDP growth rebounded to 5.6 percent in this fiscal year from 2.6 percent last year due to weather led recovery in agriculture.

The growth revival was also aided by continued expansion of services. The only drawback however is the massive decline of industrial growth which declined to 1.8 percent from 3.9 percent due to the stinging impact of power shortages, fuel shortages, political rivalries and never ending labor tensions.

Now coming back to the budget. The budget is very ambitious and given the economic realities of Nepal, many doubt the budgets objective. For instance, the budget has aimed to raise Rs 129 billion revenue.

However, it is worth noting here that in the previous fiscal year the government collected Rs 105 billion revenue only. How will the government collect this mega revenue as nothing concrete has happened and as the government has not substantially changed tax rates?

On the one hand the Maoist Party preaches the dogma of Self Sufficient Economy and of building the economy from internal means and resources with no foreign grants and loans, but paradoxically the budget aims to obtain whopping sum of Rs 47 billion of foreign grants and Rs 18 billion of foreign loan.

If all goes well according to the plan, then there still would be a budget deficit. The budget deficit will stand at Rs 41 billion.

The budget aims to raise Rs 12 billion from reforms in revenue administration and Rs 3 billion from existing cash reserve. The remaining Rs 25 billion will be mobilized as internal loan and this leaves a big loop hole in the budget.

Furthermore, the recurrent expenditure size has been increased by 40.6 percent while the capital expenditure has surged by 64.5 percent.

Out of the total expenditure, the Finance Minister has proposed Rs.111 billion 824.9 million (47.38 percent) for general administration and Rs. 124 billion 199 million (52.62 percent) for development related programs.

"The budget has allocated Rs 5.91 billion for agriculture, Rs 5 billion for irrigation, Rs 1.52 billion for industrial sector, Rs 13.91 billion for road development, Rs 5.27 billion for rural infrastructure development, Rs 38 billion (44 percent more than past year) for education and Rs 15 billion for health sector," according to the budget draft.

With these massive inputs, the growth rate in agriculture sector is expected to be at 4.5 percent and non agriculture sector at 8.3 percent. The major headache for the government is inflation and the inflation rate is estimated to be around 7.5 percent. And this budget is all set to ring the inflation note higher than expected because the expenditure side of the budget is not promising.

On various note this budget can be termed as a spender's budget and not the investor's budget. The same rule applies everywhere, whether it is the individual or the nation. If we spend all without investing for future then it is not too long before we lose our capital, or our spending power.

On this ground the budget is lame and it lacks a clear vision but Dr. Bhattarai has no option given the condition of the majority of the Nepalese people, so I give him the benefit of doubt cause according to Keynes, we all are dead in the long run.

Considering so, sometimes the best option of the government is to spend and give people an immediate relief and to let them know that their government cares for them, and this is exactly what Dr. Bhattarai did -- He announced a number of populist programs.

He has increased monthly allowance for elderly, widows, and disabled people. This is a welcome sign. He has also set aside millions of rupees for providing relief to conflict-victims and families of martyrs. This is another step in the right direction.

Furthermore, he has introduced slogans like Hamro Gaun Ramro Gaun (Our Village, Beautiful Village) and New Nepal Healthy Nepal. These are also wonderful slogans and if implemented properly in the grassroots' level it has every chance of making our village prosperous and beautiful.

But there are every chances of the money allocated for the villages landing in the pockets of the Maoists Village Cadres as these cadres are still feared by the public in most villages of Nepal.

Things however are improving in Nepal, slowly but surely. For example, according to the report published by Nepalnews.com, higher remittances and tourism receipts helped more than offset a widening trade deficit to bring the current account surplus to 1.9 percent of GDP (compared to a deficit of 0.1 percent in the previous year).

"In 2009, the current account surplus is now projected at 1.5 percent of GDP, supported by sustained growth in remittances and tourism receipts," reports Nepalnews.com, Nepal's leading online portal.

Finally, there can be no question of 'abnormality", the rise in the growth rate in prospect for this year and another year is extremely welcome because it means that the economic catching-up process is accelerating.

Moreover, the danger that it may have to come to halt for now cannot be dismissed because Nepal's biggest challenges are domestic.

Agflation is a major setback and Nepal's position is made trickier by continued inflationary concerns.

©2008 OhmyNews
Other articles by reporter Bhuwan Thapaliya

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