Thursday, July 18, 2013

Heaps of challenges greet new budget


KATHMANDU, July 19: “Announcement of a full-fledged budget in time itself is a great success of the government at a time when country has already seen disruptions in the process of bringing out the annual budget for the last four years,” Finance Minister Shankar Prasad Koirala told a press conference a day after the budget for current fiscal year was announced on Sunday.

The government succeeded in bringing out the full budget amid uncertainty over the fate of the budget for the current fiscal year on the back of increasing lobbying from left-leaning parties and Madhesh-based parties not to get a full-fledged budget announced with programs having long-term impact by this election government.

Those non-Congress parties were further apprehensive that Finance Minister Koirala and the Finance Ministry’s chief Economic Advisor Chiranjibi Nepal, both of whom are from Nepali Congress backgrounds, would undermine the concept of the three-pillars of economy -- Public, Private and Cooperative -- by only promoting the private sector in the budget.

However, the budget announced by Koirala allayed the suspicions of other parties by reinforcing and acknowledging the importance of Public, Private and Cooperative sectors in the economy.

“The coordinative and promotional role of the private, cooperatives and public sectors are important for spurring economic activities. The role of government will be strengthened to tide over the imbalances and malpractices that crop up in a free market economy. The role of cooperatives will be made stronger to increase production and employment at the local level,” Koirala announced unveiling the Rs 517.24 billion budget.

To some extent the government has been able to avert the immediate obstacles in announcing the budget. But the uphill task of the government is how to effectively implement the programs to achieve the targets set in the budget.

It is still uncertain that coming elected political government will accept or ignore the programs underlined by this technocratic government.

There are heaps of challenges before this government of bureaucrats to get the economy on track at a time when the country has long been witnessing ballooning trade deficit, spiraling inflation, slow growth in recent year, a deepening power crisis, unfriendly labor environment, and bleak performance of agriculture and manufacturing sector.

Last fiscal year, the government had to revise down the initially targeted growth rate of 5.5 percent to end up with 3.6 percent-- an impact highly attributed to the decline in agriculture production and late announcement of full-fledged budget.
This year's budget has also set a target of achieving 5.5 percent growth and containing inflation at 8 percent which is not easily attainable given the allocation of meager development budget, uncertainty in performance of the agriculture sector, which depends on monsoon rains.

Strengthening of US dollar against the rupee and double-digit rise in salary of civil servant will be great challenges for the government to tame the inflation in this year.
The situation will be more complicated if food production is affected by weak monsoon in the farming seasons or other causes.
Imbalance in supplies due to an almost double-digit decline in key farm products jacked up inflation to 8.2 percent by mid-June as against the government’s target of confining it at 7.5 percent.

Worsening power shortage, deficit of skilled workers and labor unrest have limited industrial sector’s growth at 1.5 percent. The agriculture sector, which commands more than one-third of the Gross Domestic Product (GDP) of the country, also saw 1.3 percent growth last year.

There is no guarantee that the agriculture sector will perform better this year as it highly dependent on the monsoon.

The government has planned to spend Rs 85.12 billion -- around 16 percent of the total budget -- under capital expenditures this year which is only a 28. 7 percent rise compared to last year’s allocation.

“It is very difficult to attain the set growth of 5.5 percent as the allocation for capital expenditure is still limited compared to the amount provisioned for regular expenditure,” says Hari Bhakta Sharma, the vice-president of Confederation of Nepalese Industries (CNI).

Worse, the weak capacity of the government to spend the allocated resources for development activities also plague the economic activities leaving idle billions of rupees in the state’s coffers.

This trend could repeat this year as well if the government fails to implement the budget applying strict measures.

The government has to see tough times to drive up revenue by 20 percent as targeted by the budget as economic activities are slowing.

A huge chuck of revenue is based on import of goods.

Amidst the weakening supply capacity of Nepal in the international market, bringing down the skyrocketing trade deficit, which hovers at around Rs 1.45 billion per day, is not an easy nut to crack.

We have not seen an immediate solution to the bloating trade deficit as the manufacturing and farm sectors are not functioning well enough to support increasing of the volume of exports.

“The private sector has been recognized as the key sector economy and many programs and incentives announced in the budget have boosted confidence of the private sector. We want the government to monitor the implementation of the budget sincerely,” Bhaskar Raj Rajkarninkar, the first vice-president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said.

Though the government has acknowledged the soaring trade deficit as one of its key challenges, the budget has failed to come up with concrete measures that really boost exports from Nepal.

Amid persisting load-shedding, which has not only affected normal life but also inflicted huge losses to the business sector, the government has rolled out a raft of incentives to promote power generation and expand transmission lines.

But the task of land acquisition for transmission lines is a tough job due to resistance or exorbitant prices of land demanded by the local people.

“Land acquisition for transmission lines will be a difficult job to complete even though the government has given priority to energy generation and extension of transmission lines,” Gyanendra Lal Pradhan, a hydropower developer, said.

“The country has to come up with the low-growth trap which has been seen for last few years as a result of slowed growth in manufacturing and agriculture sectors. We need massive investment from both government and private sectors increasing spending capacity. However, adverse investment climate, we can’t expect such progress immediately,” says Mahesh Acharya, former Finance Minister.

Acharya is also not optimistic that the target of limiting inflation to 8 percent is achievable in the current fiscal year as increasing production costs have jacked up from rising import bills, supply constrains due to unpredictable farm output and frequent labor disputes in the industrial sector.

“Albeit off late, we have identified the problems crippling the economy. But we have long way to go by breaking the vicious cycle of low-growth trap to achieve impressive growth,” Acharya added.

Though the government has the chief mandate of conducting the upcoming election of Constituent Assembly (CA), the budget has given significant priority to hydro power development, infrastructure, irrigation, education and agriculture allocating ample budget for these sectors. None can be confident that the huge allocation for these sectors can yield the desired results at the end of the current fiscal year.

However, Finance Minister Koirala expressed confidence that timely announcement of the budget, followed by authorization and approval of the programs by the National Planning Commission (NPC), introduction of rules for budget management and accountability of concern officials, strict measures to ensure to effectively utilize the public fund and restriction on amendment of programs after mid April will support effective implementation and achieve set targets in the budget.

“We are also sure that programs announced by us in the budget will be acceptable to future government,” adds Koirala.

Published on 2013-07-19 08:49:53

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