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FinMin bid to maintain fiscal prudence with Rs 1,751.31bn budget

FinMin bid to maintain fiscal prudence with Rs 1,751.31bn budget
The Pushpa Kamal Dahal-led coalition government on Sunday presented a budget of Rs 1,751.31bn for the fiscal year 2023/24 in the Federal Parliament. Presenting the federal budget for the next fiscal year, Finance Minister Prakash Sharan Mahat reduced the size of the budget by 2.37 percent, announced measures to reduce recurrent expenditure, and largely refrained from bringing populist schemes. While the budget for the next fiscal year is lower than the current fiscal year’s budget, it is higher than the revised amount Rs 1,549bn during the mid-term review of the budget for the current fiscal year.  In bringing the budget for the first time as the Finance Minister, Mahat, who had to walk a tightrope managing the expectations of many while also maintaining fiscal prudence at the same time, has focused on easing the business environment, promoting startups, and making a push for digitization of the economy.  

The finance minister has allocated Rs 1,141.78bn for the current expenditure, Rs 302.07bn for the capital expenditure, and Rs 307.45bn for financing purposes. The recurrent expenditure of the government accounts for 65.20 percent of the total budget while the capital expenditure is 17.25 percent of the budget. Likewise, the budget allocated for financing purposes is 17.55 percent of the total budget, the finance minister said. The government aims to achieve a six percent economic growth and plans to keep inflation at 6.5 percent in the next fiscal year. 

The government has set a target to collect Rs 1,248.62bn in revenue in the next fiscal year. Likewise, it aims to receive Rs 49.94bn in foreign grants, raising Rs 212.65bn from foreign loans and Rs 240bn from internal debt.  At a time when the government has been hard hit by a resource crunch, Mahat has announced various measures to cut the ever-increasing recurrent expenditure. The government has announced plans to scrap 20 public enterprises (PEs) of similar business nature. The government has said that it will not buy new vehicles in the next fiscal year and will not build new buildings. The government has abolished all kinds of incentives and extra allowances. Similarly, cash-based transport allowance will be introduced to replace vehicle privilege.  The federal budget for FY 2023/24 has emphasized prioritizing agriculture, tourism, and development projects for broad economic growth. Presenting the federal budget, Mahat said that the government’s highest priorities in the next fiscal year would be modernizing agriculture, developing the tourism sector, and supporting the completion of development projects. Mahat has tried to earn brownie points by announcing the much-needed second phase of economic reforms. In this regard, the government has removed the minimum threshold limit on foreign investment in the information technology sector. In a bid to facilitate Nepali IT companies, the government has said that up to 10 percent of the foreign exchange earnings made by the IT industry will be provided to them to establish contact offices in third countries for the purpose of exporting IT services and to purchase software or programs and install equipment. A separate law has been made to promote and regulate the trade of Nepali goods and services through e-commerce. Similarly, Mahat announced a 50 percent income tax concession for domestic firms exporting software programming, business process outsourcing and cloud computing services.  In order to promote innovation and startups, the finance minister said that one percent of the total budget will be allocated to foster innovation and support startup businesses. A separate unit will be established within the Education Ministry for promoting innovation and startups. The budget has allocated Rs 1.25bn for startups.  The government has announced that the process of registration and cancellation of companies will be carried out online. The budget has also abolished the fee for the capital increment of companies. The government has announced that there will be no fee charged for new company registration and capital increment. Now, companies will be registered by declaring an authorized capital of only Rs 100. Similarly, the government has promised to amend the labor law to adopt a flexible labor policy for IT and innovation-based industries. The other major policy initiative regarding FDI is the announcement of the arrangement of automatic approval for investment in the sectors, except for those requiring permission. The government has also said reinvestment of income earned from foreign investment will not require approval from now onwards. In order to maintain discipline in capital expenditure, Dr. Mahat said that a committee under the leadership of the National Planning Commission will be formed to monitor development projects worth more than Rs 1bn. The Environmental Impact Assessment (EIA) report must be approved by the Ministry of Forests and Environment within 30 days of the application. The budget has announced conducting country ratings of Nepal as well as organizing an investment summit in order to attract foreign investors. The announcement of the country rating is, however, not a new one, as the past budget had also talked about it. In between, the finance minister did announce some controversial plans—mainly the revival of the constituency infrastructure development program, allocating Rs 50m to each parliamentary constituency. The government has allocated Rs 8.25bn for the program. The then finance minister Bishnu Paudel scrapped the program after it received criticisms from various quarters of the society.  Continuing the cash subsidy provided for the export of various 36 types of goods, the budget has allocated Rs 900bn. “Cash subsidy provided for exports will be paid in three months,” Mahat said. In a bid to enhance international air connectivity, the government has announced a reduction in ground handling fees for foreign airline companies operating flights to and from the Gautam Buddha International Airport (GBIA) and Pokhara Regional International Airport (PRIA). “Discussions will be initiated with the authorities in Thailand, India, and China to establish air connectivity with these international airports,” Mahat announced.  In the meantime, the resource crunch has forced the government to cut the budget of 15 ministries for the next fiscal year, while six ministries saw an increment in their budget.  The Education Ministry, Home Ministry, Physical Infrastructure and Transport Ministry, Energy Ministry, and Health Ministry are the top five ministries that are getting the highest resources in the next fiscal year. The finance minister allocated Rs 197.29bn for the Education Ministry, Rs 194.16bn for the Home Ministry, Rs 134.39bn for Physical Infrastructure and Transport Ministry, Rs 87.45bn for Energy Ministry, and Rs 83.99bn for Health Ministry.  Mahat has kept the social security allowance unchanged for the next fiscal year. The government has allocated Rs 157.73bn for the social security scheme which is Rs 23bn more than the current fiscal year. Size is this budget’s enemy Dilliraj Khanal, Economist  The Finance Minister tried to effect reforms through the budget, but it didn’t show a way to monitor and tie up different sectors for this end. Besides, this budget is a big one and its very size may hamper its implementation, what with slimmer chances of getting grants and loans. The finance minister has pledged to cut down on expenditure, but he revived the constituency development fund, raising questions on the credibility of the budget.  A ritualistic budget, a looming debt trap Pushpa Raj Kandel, ex-vice chair, NPC Of the Rs 302.07bn allocated as capital expenditure for the fiscal 2023/24, the government, at this rate, is unlikely to spend even one-third. As usual, a large portion of the total amount will go toward the payment of salary to government employees. More capital will go toward fiscal expenditure management, meaning the government will likely spend more money on repayment of foreign loans by seeking to get foreign loans! This points toward a looming debt trap.  A ritualistic budget, it is the continuation of past policies. The body language of the Finance Minister, while he was presenting the budget in the Parliament, showed a lack of excitement. The body language told it all!   A departure from the past Chiranjibi Nepal, former governor  In a welcome departure from the trend of increasing budget size and revenue collection target, the finance minister has downsized the budget and revenue target. Austerity has gotten due priority. It appears that the budget aims to manage the current crisis, but let’s wait and watch the implementation part. As for the constituency development fund (CDF), it was necessary because Nepalis do not want their elected representatives to make laws and do nothing else.