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Four parties—CPN-UML, CPN (Maoist Center), Rastriya Samajwadi Party (RSP) and Janata Samajbadi Party (JSP)—have formed a new coalition government with Maoist Chair Pushpa Kamal Dahal continuing as the Prime Minister. The four parties have vowed to address people’s aspirations for good governance, development, and social justice. On the external front, the alliance has pledged to maintain balanced and expanded international relations, keeping national interests and priorities at the forefront. While the new ministers have assumed office and promised to deliver positive results, people do not have much hope for the new government because there is a repetition of the same parties and faces tested several times in the past. 

This frustration extends beyond individual parties or leaders. People are disenchanted with major parties that have held power for two decades. The formation of three coalitions within a year does not augur well for the people and the country. It reflects a focus of the major parties on power and resources rather than the welfare of the populace and the nation. Over the past year, the government under Pushpa Kamal Dahal has struggled to deliver services, curb corruption, and stabilize the economy. Victims of microfinance and loan sharks are demanding justice from the streets, but their demands remain unaddressed. Moreover, reactionary forces are raising their heads, and the 2015 constitution is at risk. There also have been efforts to fuel ethnic and religious tensions. The government has failed to create jobs, leading to an exodus of people seeking opportunities abroad. 

Not only the unemployed youths, but even affluent Nepalis are losing faith in the country’s future and relocating elsewhere. Both exports and imports are declining, and capital expenditure is showing no sign of picking up. Rampant corruption is hampering governance at all levels.  The new coalition government, therefore, should prioritize these pressing issues instead of engaging in empty rhetorics. Restoring trust in the major political parties hinges on effective service delivery and economic improvement. The success of this coalition will be measured by its ability to restore people’s faith in the political system. PM Dahal is putting the blame on Nepali Congress for all his failures over the past year. He may do that again. The CPN-UML, as the second-largest party in the parliament, has a huge responsibility in ensuring that the government functions effectively.

The government has begun preparations for the budget of the fiscal year 2024-25. The National Planning Commission (NPC) has set a budget ceiling of Rs 1.8trn for the upcoming fiscal. Minister for Finance Prakash Sharan Mahat outlined the principles and priorities of the new budget in parliament three months ahead of the budget day. The government was presenting policies and priorities of the Appropriation Bill in parliament mere two weeks before the budget day so far. This allows lawmakers more time for deliberation on the principles and priorities of the budget. The government has made significant changes in the budget process to prepare a more realistic budget.

Many economists have described the budget for the current fiscal year as ambitious, stating that the government’s success depends on its ability to manage expenditures in line with estimated resources. However, the government fell short on this front. During the first half of 2023-24, the government could mobilize only 40 percent of its revenue target, with capital expenditure progressing at a dismal 21 percent and recurrent expenditure at 44 percent. Consequently, the government was compelled to downsize the budget by 13 percent, or Rs 221bn, through the midterm review in the second week of February. This adjustment reduced recurrent expenditure to Rs 1,007.45m and downsized capital expenditure to Rs 254.13bn. During the mid-term review, Mahat acknowledged the government’s failure to achieve significant improvements despite earnest efforts to increase revenue and control expenditures.

Realizing the demographic dividend must be a priority for the government to ensure the success and efficacy of the budget for the next fiscal year. At the same time, public expenditure must be directed toward priority projects that support production growth. The government should prioritize projects ready for implementation with assured resources. On its part, the finance ministry must resist pressure to include populist programs from political leaders. The budget should aim to maintain a balance between government income and expenditure to alleviate mounting pressure on public finances. Moreover, it should strive to achieve high economic growth and job creation, and bring policies and programs to create demand in the market to give a new impetus to the economy.

The government criminalized loan sharking in July last year following a series of protests launched by usury victims. The majority of loan shark victims were poor people leading subsistence living. They had taken loans from unscrupulous lenders for various reasons, from paying medical expenses to sending their sons abroad for foreign employment and paying for their daughters’ weddings. In exchange, they offered what little land they owned as collateral or agreed to pay the interest rates dictated by the lenders.

Little did they know that they had agreed on an impossible deal, that they would forever be indebted to their lenders or lose their collateral. It was as if they had been held hostage by their lenders.         

With the passing of the law that came into effect following the amendment to the National Criminal Procedure (Code) Act 2017, it was expected that the loan sharking victims would finally be free of their financial troubles. Convicted loan sharks could face jail terms of up to seven years with fines up to Rs 70,000. In case of those loan sharks found guilty of confiscating cash or property from borrowers, the law prescribed that they return the equivalent cash or property.

The government also formed a commission to investigate and resolve usury-related cases. The commission recorded thousands of complaints in the initial weeks and many loan shark victims were finally unburdened from their seemingly unending debt cycle. But not everyone got justice. Many loan shark victims still do not seem to have recourse to legal channels. They are still resorting to protests and demonstrations to make themselves heard. 

Usury victims from various parts of the country are still walking all the way to Kathmandu to demand justice. This is a cause for concern; clearly the law has not deterred loan sharks from exploiting the poor. Many victims say that their lenders are too powerful and politically connected. The government should make sure that the concerned authorities prosecute those loan sharks, no matter how powerful or politically linked they are. No one is above the law. 

The macroeconomic report for the first half of the current fiscal year and the mid-term review of the monetary policy for fiscal year 2023-24, recently released by the Nepal Rastra Bank, shows positive developments in the external sector of the economy. The economy has experienced strong performance in sectors such as mining, construction, tourism and financial services. The resurgence of tourism after Covid has been remarkable, with a substantial increase in tourist arrivals contributing to economic activities and income generation. Infrastructure development, particularly in the energy sector, is expected to enhance production potential. Foreign exchange reserves have reached an impressive Rs 1,816.57bn by mid-January. This achievement is primarily fueled by a notable 25.3 percent increase in remittances amounting to Rs 733.33bn, which undoubtedly paints a positive picture of Nepal's external sector.

Prudent policy adjustments such as maintaining interest rate stability and implementing targeted measures like lowering interest rates for institutional fixed deposits in the mid-term review of monetary policy demonstrate a proactive approach to mitigating risks and stimulating economic activity. The Nepal Rastra Bank's decision to maintain the interest rate corridor while implementing measures to enhance its effectiveness shows its commitment to balanced monetary policies. Moreover, the focus on supporting agriculture and small to medium enterprises through regulatory retail portfolio arrangements reflects a dedication to growth and economic resilience.

While a healthy foreign exchange reserve is essential for economic stability, it is not a solution to all of our economic problems. The decline in exports, slow import growth, manufacturing slowdown, low demand for bank loans from the private sector and the lack of investment despite favorable conditions highlight the underlying issues plaguing our economy. The government has been consistently missing revenue targets. It is crucial to accurately assess economic indicators and devise appropriate policies. Worryingly, both the government and the central bank seem to be falling short in this regard. It is high time for the government and the central bank to shift their focus from highlighting nominal successes to implementing meaningful changes.