An economic slowdown automatically leads to a decline in revenues. This results in a budget deficit, which has not only made it difficult to maintain public expenditures, but also resulted in excessive increment in socio-economic inequalities.
There has been uncertainty about expenditures used for providing health services and food for saving lives, and the budget allocation for investment in physical infrastructure and education. The devaluation of Nepali currency against the US dollar has increased loan obligations, and financial space has shrunk, with foreign aid decreasing due to a global crisis.
Unemployment and poverty have soared. Allocating budget for social security in the context of shrinking economic sources is easier said than done, compounding policy complexities. It is challenging to propose the annual budget for the fiscal year, 2023/24 amid challenges posed by the macroeconomic indices and the economy advancing toward a crisis. The onus is on the government to fulfill the immediate needs and keep the dream of future prosperity intact despite adversities. The present situation calls for making plans with caution and taking decisive policy initiatives.
To fight the recession, the government should increase expenditure under the financial incentives in physical infrastructure, health, education and social security. Providing financial incentives is not a recommendation that takes credits at a time when there is insufficient money, but such investment help create jobs, boost economic activities and provide assistance to affected groups.
So, it is crucial for the Ministry of Finance and the central bank to reach an understanding for saving the economy by forgetting ideological differences.
Budget should prioritize tax reforms at a time when there is a delay in economic rehabilitation and a long recession ahead. Such reforms may be able to collect required revenues while taxes becoming progressive and efficient do not affect economic activities. Strengthening the private sector is limited to rhetoric only.
We lack even a single exemplary project that is based on the public-private partnership. There is a need for introducing the program directed by the budget for groups affected by recession for their livelihood by reducing administrative hurdles, and carrying out and implementing required reforms mentioned in the budget. These groups are such that they cannot speak up for themselves, and there is no one to speak up for them.
The thing that we pretend not to understand even after understanding it is that we hesitate to invest in human capital in the name of the unavailability of resources. Factors like education, health service and social service not only bring qualitative reforms in the lives of people; they also increase productivity
of human resources.
It means investing in such sectors will help in economic development in the long run. Our economy is based on limited areas, and the credibility of these areas cannot be estimated.
For instance, there is a lack diversification in our foreign trade.
It means the main reasons for recession in Nepal are its structural shortcomings and incapability for work execution apart from other global challenges and complications. It can encourage regulatory reforms and budget directed investments by including mentioning these issues in the budget.
In the past few years, climate change has been a serious problem in Nepal. Factors like flash floods, rising temperatures, soil erosion and glacial lake outburst floods have increased food insecurity and poverty. The budget this time should manage resources for the climate change adaptation strategy to reduce the losses taking place due to the climate change. For this, things like renewable energy, sustainable agriculture development and the reduction of disaster risks should be prioritized. Budget is always brought with hard work and amid blame-games in the parliament. Despite this, 60 percent of capital expenditures remains unused. The budget this time should focus on some theoretical principles in order to address this problem.
While allocating budget, there is a need to identify sectors with higher potential. The areas for which the budget is allocated should be such that they can help in the economic development, create job opportunities and have long-term impacts on national development.
There is a need to conduct a study on the ways of merits and demerits of the proposed sector to calculate returns on investments. This policy will ease the prioritization of projects. Besides, it is equally necessary to introduce a risk management plan.
Each investment involves some risks like political protests, economic changes and project failure. There is a need to prepare a plan to reduce problems by estimating such possible challenges in the process of preparing a budget.
As our experiences have shown, it requires creating a timeline for implementation if we actually want to increase capital expenditures. It will be easier to work out and implement alternative solutions if possible political, economic and other challenges of the project are properly assessed.
Trust of service-seekers in a project increases only when there are manageable and proper consultations among government employees, business leaders and concerned communities.
There should be conceptual clarity and transparency on rationale for increasing capital expenditures, plans to utilize income sources, substantial benefits of investment and ways to manage required capital even by adding an index in the budget.
There is a need to mention in the index the methodology elaborating how effectively and with what efficiency the sectoral budget allocation can be spent.
It will be easier to get required help from international organizations, which have been providing technical and monetary assistance, by winning their confidence by maintaining close relations with them. Our main aim is to increase people’s trust in the budget, and make people feel the results of its implementation.
Special focus should be on creating a technical and legal mechanism to control corruption in projects.
For collaboration with the private sector, encouraging efforts like offering tax discounts and providing subsidies for certain projects should not be off the table. It is necessary to remove the bureaucratic red tape for creating a more conducive environment for investment.
Finally, the Ministry of Finance, through the budget for the next fiscal year, should seek to strike a balance between the revival of the national economy and financial stability.
The author is an economist and a former Nepali ambassador