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With hardly three weeks left for the government to bring the federal budget for the next fiscal year 2023/24, the government on Wednesday replaced the Finance Secretary. Transferring the incumbent Finance Secretary Toyam Raya to the Office of the Vice President, Arjun Pokharel has been brought in at the Finance Ministry. The reshuffle of the top bureaucratic post in the Finance Ministry was doing rounds in the past few weeks in Singha Durbar after Dr. Prakash Saran Mahat was appointed as the Finance Minister. However, the replacement of the finance secretary ahead of the federal budget has invited more questions at a time when the government is drafting a new budget amid a severe resource crunch. Economists say that given the current state of the economy, the next federal budget should be prepared with utmost planning and that frequently replacing the Finance Secretary doesn't augur well for the budget preparations and the country’s economy. In fact, the Finance Ministry has seen four secretaries over the past year. When FY 2022/23 started, Madhu Marasini was the Finance Secretary. However, he left the ministry following a dispute with the then Finance Minister Janardan Sharma. Then, Krishna Hari Pushkar was appointed to the post and replaced by Toyam Raya later when the new government was formed after the parliamentary elections and Bishnu Poudel became the Finance Minister. Poudel brought in Raya as new Finance Secretary who hardly spent four months at the ministry before he was replaced by Arjun Pokharel. Hard hit by the resource crunch, the government is not in a situation to announce new programs and projects in the next fiscal year's budget. The National Planning Commission (NPC) has also recommended the government to reduce the budget ceiling. Given the mismatch between revenue collection and expenditure, the NPC has set a limit of Rs 1,688.4bn for the next year's federal budget. The government has set a target of raising Rs 1403bn in revenue in this fiscal year. However, in the first 10 and half months, it has succeeded to collect only Rs 713bn which is only 50.84 percent of the target. With revenue worth Rs 2.5bn being collected daily, it looks quite impossible to meet the revenue collection target in the next 70 days. Economists are of the view that since the revenue collection has been very poor in this fiscal year, there is no possibility to increase the revenue estimate for the next fiscal year. They say, if there is no increment in revenue, there will be no space to bring more programs. While the current situation demands a prudent budget, the developments in recent weeks including bringing in a new finance secretary suggest the Finance Ministry could succumb to the pressure of the political leadership. Sources at the NPC and Finance Ministry said there has been pressure on them to increase the budget ceiling. Lawmakers and political leaders have been asking for special projects, especially in their constituencies. The Nepali Congress lawmakers have already asked the finance minister to reintroduce the highly controversial Local Infrastructure Development Partnership Program, popularly known as the 'constituency development fund'. As per the constitutional obligation, the government has to present the federal budget on Jestha 15 (May 29). With only 24 days left for the budget presentation in the parliament, the Finance Secretary has many tasks, including preparing crucial documents such as the government's policies and programs, economic survey, and economic act, apart from the budget. Analysts say the new finance secretary will have limited time to grasp the severity of the situation and prepare such documents. "Bringing a new person as Finance Secretary just ahead of the budget will not give a good signal," said economist Keshav Acharya. "There is very little time for the new finance secretary." According to him, the need of the hour is an experienced and responsible person in the Ministry of Finance who can convince the Prime Minister, Ministers, and other stakeholders.  

With the government pursuing the citizens to open bank accounts for savings with initiatives such as the “One Person, One Bank Account” campaign, and the need for a bank account to receive social security payments, savings account use has jumped dramatically in the last decade. A new report by International Finance Corporation (IFC) and United Nations Capital Development Fund (UNCDF) shows the number of adults who have their savings in formal financial institutions has increased from 40 percent in 2014 to 63 percent in 2022. According to the report titled 'Nepal Financial Inclusion Report 2023' states 36 percent of Nepali adults have savings in banks, while 27 percent have their savings in other formal financial institutions, mainly in saving and credit cooperatives (SACCOs) which are not regulated by the central bank. However, the growth in savings is higher than at the banks. Bank savings increased from 27 percent to 36 percent while savings with other formal financial service providers increased from 13 percent to 27 percent in 2022. The growth in formal savings has also been driven by other policy initiatives. The Nepal Rastra Bank (NRB) has directed banks and financial institutions (BFIs) under its purview to increase access points to financial services across the country. Similarly, the mandatory requirement of bank accounts for migrant workers to get foreign employment permits, and the additional one percent interest on remittance deposit accounts have encouraged many migrant workers and remittance-receiving households to use formal channels to remit money and for savings. The government's recent move to allow Nepali migrant workers abroad to participate in primary market Initial Public Offerings (IPOs) is expected to drive both formal remittances and bank savings. The report says the usage of formal savings mechanisms is higher among women, with 66 percent of them saving using formal channels (banks – 33 percent and other formal financial service providers – 32 percent ) while men are trailing lower at 59 percent (banks – 38 percent and other formal financial service providers – 21 percent). Urban adults have higher usage of formal savings channels at 64 percent, while rural adults have usage at 58 percent. The growth has largely been aided by attractive returns on long-term deposit accounts resulting in a rise in formal savings. The role of NRB has also been instrumental in driving long-term deposits, as the share of total fixed deposit accounts has surpassed savings accounts. "As of mid-July 2022, fixed deposits accounted for 55 percent, savings deposits – for 27.2 percent, demand deposits – for 9 percent, and other deposits – for 8.8 percent of the total deposits," reads the report. There has been tremendous growth in the usage of formal credit in the past decade as the number of adults having credit access has increased to 47 percent in 2022 from 14 percent in 2014. Of this 47 percent, 34 percent used banks while 13 percent used other formal financial channels. The use of informal credit has decreased from 23 percent in 2014 to 8 percent in 2022, largely due to increased reach and expansion of formal channels across the country. "The increased usage of credit from the formal sector is an outcome of strong structural market development in the financial sector," says the report. Bank credit usage has grown across urban and rural areas and reached 45 percent of the rural and 49 percent of the urban population. It was only 17 percent and 21 percent respectively in 2014. With the increase in uptake of formal credit, the usage of informal channels has come down drastically in both rural at 9 percent and in urban areas at 6 percent, which stood at 26 percent and 11 percent, respectively, in 2014. Contrary to the situation where 46 percent of women have higher usage of formal savings mechanisms, men have slightly higher usage of formal credit at 49 percent. The credit distribution through BFIs has been gradually increasing over the years. Of the total credit distribution by BFIs, 57 percent has been disbursed in metropolitan areas, 29 percent in sub-metropolitan areas, 11 percent in municipalities, and 3 percent in rural municipalities. As of mid-July 2022, BFIs had 1.83 million loan accounts, up 77 percent from 1.03 million in 2015. The report says

• The number of adults who have their savings in formal financial institutions has increased from 40 percent in 2014 to 63 percent in 2022.
• 36 percent of Nepali adults have savings in banks, while 27 percent have their savings in other formal financial institutions
• The usage of formal savings mechanisms is higher among women, with 66 percent of them saving using formal channels while men are trailing lower at 59 percent
• The number of adults having credit access has increased to 47 percent in 2022 from 14 percent in 2014.
• Bank credit usage has grown across urban and rural areas and reached 45 percent of the rural and 49 percent of the urban population.
• Of the total credit distribution by BFIs, 57 percent has been disbursed in metropolitan areas, 29 percent in sub-metropolitan areas, 11 percent in municipalities, and 3 percent in rural municipalities

The Nepal Stock Exchange (NEPSE) gained 12.73 points to close at 1, 869.73 points on Thursday. Similarly, the sensitive index surged by 2.07 points to close at 357. 91 points. A total of 2,533,714-unit shares of 276 companies were traded for Rs 732 billion. Meanwhile, NIBL Growth Fund was the top gainer today, with its price surging by 9. 86 percent. Likewise, NMB Debenture was the top loser as its price fell by 5.85 percent. At the end of the day, total market capitalization stood at Rs 2. 72 trillion.

In what can be seen as an indicator of the country's economic downturn, the import of 24 items out of the 27 major items that Nepal imports, has declined in the nine months of the current fiscal year. The Trade and Export Promotion Center (TEPC) has listed 27 items as the major importable items of the country. Of them, there has been a sharp decline in the imports of capital goods which include machinery, equipment, steel & iron, and vehicles. Only the imports of petroleum products, fertilizers and gold increased marginally in the current fiscal year. The latest economic growth data of the government also points to the decline in demand for such goods in the domestic market. The National Statistics Office on Tuesday projected that Nepal’s economy is expected to grow by 2.16 percent in FY 2022/23, a four-year low since the negative growth of 2.4 percent in the fiscal year 2019/20. Nepal is a heavily import-dependent country with the share of imports compared to export has been growing over the years. Nepal has been importing consumer, capital, and intermediary goods from abroad. The import of capital goods such as machinery, vehicles, iron, and steel among others are considered vital to the economy as such goods are used to increase production. But declining imports of capital goods means there will be little capital formation in the current fiscal year. According to the TEPC, the import of machinery slumped by 33 percent; iron and steel by 17 percent, and transport vehicles by 63.4 percent. While import restrictions imposed till December last year greatly contributed to a decrease in overall imports, there has not been a recovery in imports even after the import restriction measures were lifted. In December last year, the government lifted the ban on the import of vehicles, alcohol, and expensive mobile sets, and subsequently, Nepal Rastra Bank also removed the provisions that the importers need to deposit a cash margin of up to 100 percent to open a letter of credit. As of the first nine months of the current fiscal year, Nepal’s overall imports declined by 18.1 percent, according to the TEPC. Though the decrease in imports helped to increase the foreign exchange reserves, it also badly affected the government’s revenue. The federal government’s half of the total revenue depends on imports. Amid reduced revenue collection, the government has been forced to cut spending on development projects and has also been struggling to distribute salaries and pensions to government employees and retired employees on a timely basis. Economists say Nepal's economy is currently in dire need of structural reforms. "Nepal could turn the current crisis into an opportunity for becoming a self-reliant economy with the right policies and actions in place," said Keshav Acharya. According to him, there are lessons to be learned from past mistakes in this regard. "In 2049 BS, the government introduced policies for the country's economic liberalization. The move aimed at creating an export-oriented economy. Ironically, imports began to replace domestic products in the years that followed," he said, adding, "It is because foreign goods became cheaper than domestic products." Acharya observes that the government is losing an opportunity for structural reform of the economy as its focus is on raising revenue by increasing imports. "Over the past year, the restrictive measures of the central bank have helped to boost our foreign exchange reserve and maintain a good balance of payment. In this situation, the government should launch a campaign to increase production. Ironically, the political leadership lacks such a vision," he said. He cited the example of the government scrapping the land use policy. "The strict implementation of the policy could have resulted in increased agriculture and industrial productivity as the land prices would have come down after the categorization," he mentioned. Acharya thinks that provincial and local governments should be given more authority and encouraged to increase production.  Major Imports Items