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Economists have said that the country's economy has fallen into a policy trap due to unstable and inconsistent government practices for a long time. According to them, the problem in the economy is multi-faceted as the government's current expenditure has exceeded revenue collection and more resources have to be allocated for the interest payment of sovereign loans than the capital expenditure. During a post-budget discussion organized on Wednesday, former finance minister Yubaraj Khatiwada and Professor Shiva Raj Adhikari, Head of Central Department of Economics at Tribhuvan University said that the country’s economy has become a victim of a policy trap that has been clearly reflected in the next fiscal year’s budget. “The budget deficit is expanding rapidly due to increasing recurrent expenditure and shrinking revenue. With the widening budget deficit, internal debt will increase which will again affect the monetary system,” mentioned Adhikari. According to him, the budget deficit in the current fiscal year has already reached Rs 271bn which has played a role in the rapid increase of internal debt. “The more the deficit, the greater the expansion of debt. The remaining months of the current fiscal year will see an increase in debt level with the government expediting public spending,” said Adhikari. He said there is a need for a big policy leap to escape from low fiscal space and structural problems and the new budget has principally indicated something towards this end. “However, the budget allocation under different headings has failed to signal the government’s readiness toward structural changes in the economy,” he said, adding, “While the new budget talks about policy reforms and reducing expenses, its relationship with budget allocation and other aspects is not well established. The downsizing of capital expenditure shows inefficiency in overall budget allocation.” Speaking on the occasion, former finance minister Khatiwada said the post-2006 practices of the government have led the economy to a policy trap and its effects are increasing now. According to him, the current situation is the result of competition among the political parties that have led the government over the years to introduce distribution-oriented programs. “We focused on distributive fiscal policy to resolve the problems of conflict, keeping the production-oriented approach in shadow. Some of the policies taken during the natural calamities also created problems. After the 2015 earthquake, the governments competed for providing grants by taking loans for post-earthquake construction,” said Khatiwada. Stating that a six percent economic growth target mentioned in the budget is appropriate for bringing the economy out of the recession, Khatiwada said that the investment required for this will be insufficient. He suggested the government avoid raising too much internal debt as Nepal's economy is falling into a debt trap. Finance Minister Prakash Saran Mahat admitted that the economy has fallen into a policy trap. “It is clear that we are in a very difficult situation,” he said. “There is no easy escape from the policy trap. But by accepting the problems, we can find ways to resolve the issues. With the budget, we have attempted to initiate economic reforms and expand the economy.” According to Mahat, while the capital expenditure has been reduced for the next fiscal year, the budget has announced measures for the effective utilization of the money allocated for development works. “If capital expenditure is utilized properly, foreign aid will also increase and this will ease the pressure on resources,” he said, adding that the government’s next focus will be on implementing the budget. Prakash Saran Mahat, Finance minister There is no easy escape from the policy trap. But by accepting the problems, we can find ways to resolve the issues Shiva Raj Adhikari, Head, Central Department of Economics, TU While the new budget talks about policy reforms and reducing expenses, its relationship with budget allocation and other aspects is not well established. The downsizing of capital expenditure shows inefficiency in overall budget allocation Yubaraj Khatiwada, Former finance minister We focused on distributive fiscal policy to resolve the problems of conflict, keeping the production-oriented approach in shadow

The Nepal Stock Exchange (NEPSE) gained 16. 54 points to close at 1,866.34 points on Thursday. Similarly, the sensitive index surged by 2. 19 points to close at 355. 62 points. A total of 6,128,621-unit shares of 272 companies were traded for Rs 1. 65 billion. Meanwhile, Joshi Hydropower Development Company Ltd was the top gainer today with its price surging by 6. 94 percent. Likewise, Sunrise Focused Equity Fund was the top loser with its price dropping by 6. 00 percent. At the end of the day, the total market capitalization stood at Rs 2. 72 trillion.

The government and the World Bank on Wednesday signed a financing agreement for a $120 million concessional loan from the International Development Association and a grant agreement for $19.7 million from the Global Partnership for Education for the School Sector Transformation Program (SSTP) Operation, which support the implementation of the government’s flagship School Education Sector Plan. The agreement was signed by Arjun Prasad Pokharel, Finance Secretary, and Faris Hadad-Zervos, the World Bank Country Director for Maldives, Nepal, and Sri Lanka. The World Bank in a press statement said the SSTP operation focuses on improving foundational skills by implementing the national integrated curriculum in early grades. According to statement, the operation supports the government’s program through the development and implementation of the Recovery and Accelerated Learning Plan to address learning losses as a result of school closures due to the Covid-19 pandemic and other disasters, strengthening teaching and learning in the classrooms, construction of green and resilient classrooms, ensuring minimum enabling conditions such as qualified teacher, child-friendly taps and seating, and toilets in the early childhood education development centers, and strengthening digital teaching and learning materials, among others. "The operation also envisions improving the equity of the school sector by supporting girls, disabled students, and those of lower socio-economic status, through targeted scholarship programs," reads the statement. “We are hopeful that the reform agenda envisioned in the School Sector Transformation Program will be instrumental in increasing equitable access and improving the quality of education, which are critical for human capital development,” said Pokharel. Speaking on the occasion, Hadad-Zervos of the World Bank said the School Sector Transformation Program operation supports the Government of Nepal’s Green, Resilient, and Inclusive Development (GRID) agenda by investing in quality and equitable access to education, which is key to developing human capital and fostering inclusive and resilient growth.

Indian Prime Minister Narendra Modi has announced to import 10, 000 megawatt electricity from Nepal in the next 10 years. Speaking at a joint press conference organized at the Hyderabad in New Delhi on Thursday, he said that the Indian government has a goal to import 10, 000 megawatt electricity from Nepal within the next 10 years. Prime Minister Modi said that important decisions were made on petroleum pipeline, electricity import, railway and hydro among others to strengthen relations with Nepal. “Various achievements were made during the nine years. We have constructed the first integrated check post in Birgunj of Nepal, constructed a cross border petroleum pipeline and constructed a railway in the border area. We have been importing 450 megawatt electricity from Nepal,” he said. Meanwhile, the Indian prime minister has committed to resolve all the border problems with Nepal.

Prime Minister Pushpa Kamal Dahal, who is on a four-day visit to India, invited his Indian counterpart Narendra Modi to visit Nepal. Prime Minister Dahal extended the invitation while speaking at a joint press conference organized at the Hyderabad House in New Delhi this afternoon. “I have already invited Prime Minister Modi to visit Nepal,” he said, “I am ready to welcome him in Nepal.” The Indian prime minister visited Lumbini of Nepal last year.    

Prime Minister Pushpa Kamal Dahal and his Indian counterpart Narendra Modi signed a seven-point agreement on Thursday. The agreement was signed at a joint press conference organized at the Hyderabad House in New Delhi this afternoon. They signed the agreement on petroleum pipeline, Lower Arun Hydropower Project, Pukhot-Karnali Hydropower Project and cross border payment among others. They also jointly laid the foundation stone for the construction of Sunauli-Bhairahawa Integrated Check Post. Similarly, the two prime ministers inaugurated the Bathana-Biratnagar Cargo Rail. They also signed the agreement to lay foundation stone for the construction of a petroleum pipeline from Amlekhgunj to Lothal of Chitwan, construction of 40 KV double circuit transmission line from Gorkhpur to New Butwal and take ahead the project of Lower Arun Hydropower Project. It has also been agreed to construct a petroleum pipeline from Siliguri of India to Charali of Jhapa, Nepal and to expand the petroleum pipeline of Amlekhgunj to Lothar of Chitwan.    

The government will be spending more than a quarter of its revenue on repaying domestic and external loans in the next fiscal year. In the budget for the next fiscal year 2023/24, the government has announced to spend as much as Rs 330.55bn in loan repayment which accounts for 26.47 percent of total projected revenue. The government has to repay Rs 221bn in loans in the current fiscal year, as per the revised estimate. With the massive amount allocated for repaying the internal loans, the total budget for repayment of loans has increased substantially. As large amounts of internal loans will be matured in the next fiscal year, the government had to allocate a huge amount for repaying the internal loans. Rs 275.78bn has been allocated for repaying domestic debts which accounts for the repayment of both loan principal and interest amount. The allocated amount is higher than the total internal loans planned to be raised in the next fiscal year. The government has planned to raise Rs 240bn in internal loans in the next fiscal year. According to the Ministry of Finance, the government will spend as much as Rs 93.23bn for repaying the interest on internal loans in the next fiscal year. In the new budget, as much as Rs 182.55bn has been allocated for repaying the principal loan amounts. Because of the liquidity crunch in the banking system, the government had to pay more interest for raising internal loans in the last two years. Experts caution the government to keep the debt servicing budget under five percent of the revenue collection. “The government's ability to finance important sectors including the health, education, and infrastructure sector will be reduced for requiring a massive amount in debt servicing,” said an economist. The government started to raise loans on a large scale from internal and external creditors for post-quake reconstruction purposes from FY 2015/16. According to the International Monetary Fund (IMF), following a gradual decline in the early 2010s, and against the background of the country’s transition to fiscal federalism and the need to rebuild after the earthquake of 2015, Nepal’s public debt has risen significantly over the last five years. The country's total debt has increased from 25 percent of GDP in FY 2015/16 to 44 percent in FY 2020/21, with the largest increase in FY 2019/20 after the start of the Covid-19 pandemic. According to the Public Debt Management Office, Nepal’s total outstanding debt as of mid-May stood at Rs 2.15trn, of which Rs 1.08trn is internal debt while Rs 1.07trn is external debt. The latest IMF Debt Sustainability Analysis shows that both external and overall debt remains at low risk of debt distress. “Despite a challenging global environment, developments since the Extended Credit Facility (ECF) request had limited effect on public debt dynamics, as the increase in the current account deficit in FY 2021/22 has been absorbed by a drawdown in reserves rather than accumulation of external debt,” reads an IMF report. IMF has projected Nepal’s debt to peak at 50 percent of GDP in FY 2025/26 and gradually subside afterward.  

Senior advocate Surendra Bhandari and advocate Bal Krishna Neupane have moved the Supreme Court against the authentication of the Citizenship Bill. The advocate duo filed separate writs at the apex court. It has been said that the writs are in the process of registration. President Ram Chandra Paudel on Wednesday authenticated the controversial Citizenship Bill. Earlier on August 15, President Bidya Devi Bhandari had returned the Bill to the Parliament for a review. The incumbent government, however, had urged President Paudel to authenticate the Bill. A Cabinet meeting held on May 26 had decided to urge the President to certify the Citizenship Bill endorsed by both the Houses.