The government has presented a Rs 1.79 trillion budget for the fiscal year 2022-23. Critics say the allocation is bloated, given the country’s precarious economic situation. The ‘populist’ budget has been bought with the one and only intent of pleasing prospective voters, they argue. Is that really the case? ApEx talked to Achyut Wagle, professor of economics at Kathmandu University School of Management.
What are the positive points of this year’s budget?
The budget is not very ambitious and is largely a ritualistic continuum of the past. It has expanded by less than nine percent from the last fiscal year. The idea of handing over small infrastructure projects to provincial and local levels is in conformity with the spirit of federalism. Its focus, at least in principle, on increasing productivity, particularly in agriculture, is welcome. The scheme to gradually replace cooking gas stoves with electric induction stoves with the objective of increasing the consumption of domestically-produced hydroelectric power is also a welcome proposition. Farmers’ pension scheme and setting up of a separate fund to increase farmers’ access to agricultural loans, if implemented, can help make agriculture more attractive. Incentives for tourism and export promotions were also desirable. ‘Make in Nepal’ and ‘Made in Nepal’ certainly create some branding vibe and opportunity for Nepali products.
When then are its biggest downsides?
The budget certainly has missed the bull’s eye. In 10 and half months of the current fiscal year, only 33 percent of the capital allocation has been spent. Such a trend is also observed in provincial and local governments. This exhibits Nepal’s serious capacity constraint in resource absorption. This has multiple ramifications. The shortage of loanable funds in banks is a major concern. Infrastructure and development activities naturally get curtailed as a result. This, in turn, affects the overall economy. The budget lacks convincing programs to enhance productivity and create enough jobs. On the front of agricultural productivity, lack of availability of cultivable land for commercial scale agriculture has been a big concern that this budget seems to completely ignore. Incentives, subsidies and rewards will be meaningful if there is production. The budget also has failed miserably to take subnational governments on-board in key programs related to boosting trade and productivity.
There is also a criticism that this budget is populist and election-centered.
In multiparty competitive politics, it is natural for incumbent forces to make all possible effort to woo voters through populist elements in the budget. This government of five-party coalition is no exception. Extended social security schemes and extensive pork-barrel approach in allocation certainly indicate that.
But this will certainly put pressure on the exchequer as it is an unsustainably deficit budget. The proposed deficit financing of over 30 percent in an allocation of Rs 1.79 trillion is unsustainable, and financing unproductive populist schemes by borrowing is absolutely undesirable. The national debt has already crossed the 38 percent mark of the revised GDP of Rs 4.85 trillion.
Will this budget help overcome the current economic crisis?
This is the saddest part of this budget. Nepali economy is heading towards a crisis primarily for three reasons. The first is the growing trade deficit that needs to be bridged entirely in foreign currency. Real exports are small due to limited value addition on input-imports. The major source of forex is workers’ remittance, which is always volatile. Our big trade deficit is also an indication of import-dependence even for survival. The budget has failed to take up and address these entangled issues.
The second issue is the dismal state of capital expenditure. A thorough review of the problems and commitment of structural and legal reforms, for instance in facilitating transparent and timely public procurements including at the local government levels, is missing.
Lastly, the country faces a crisis in fiscal governance at every level of government. This has given rise to pervasive corruption, irregularities and, the most alarmingly, impunity for financial crimes.
This budget has deliberately missed these key aspects, which could result in further inefficiency and exacerbate the crisis.
What are the budget’s implementation challenges?
The revenue target may not be achieved without serious reforms in revenue administration. As Nepal’s main revenue source is customs duty, it is vital to break the politician-business-bureaucrat nexus to check under-invoicing of imported goods. But this will happen only with strong political will.
Sourcing international funds to the tune of around Rs 300 billion (in loans and grants) is definitely daunting. Development partners are unlikely to commit new support until parliamentary elections are over.
The ‘swadeshi’ sloganeering might just turn out to be a fiasco, as it lacks a mechanism of investment in the productive sector. Viable products for the scheme that have both scope and scale have not been identified; moreover, the possible backward linkage to Nepali products is not even duly thought about.
Labeling the products that don’t even have 20 percent value addition as ‘swadeshi’ is a mockery of the branding endeavor.
