Size of budget should not cross Rs. 200b: Dr. Sharma
With the government's policies and programmes approved by the cabinet and
the budget being presented September 19 afternoon by Finance Minister Dr
Baburam Bhattarai, former vice-chairman of the National Planning Commission
and noted economist Dr. Shankar Sharma talked with Prithvi Shrestha of
Nepalnews about upcoming budget for fiscal year 2008/09:
Dr. Shankar Sharma.
The government has made many promises in its policies and programmes. Do you
think the government will be able to generate required resources to meet
those promises?
Specifically speaking, the government is unlikely to generate adequate
resources to meet all the promises made in the policies and programmes. The
policies and programmes has taken ambitious targets in three areas -ending
illiteracy within two years, providing access to clean drinking water within
the five years and electrifying all households within the next 10 years.
We have studied the required resources to meet the target of Millennium
Development Goals (MDGs) in the past. As per that study, we need at least
six times more resources than the existing Rs. 8 billion to provide access
to clean drinking water to all people within the next five years. Similarly,
we need to spend at least Rs. 25 billion every year to meet the target of
electrifying all the villages in the next 10 years. So, it is very
challenging to meet these targets. Additionally, most of other programmes
mentioned in the policies and programmes are ongoing programmes that have no
specific targets. If they are implemented effectively, the targets can be
met.
How big (in monetary value) should the upcoming budget be?
Some weeks ago, the size of the budget was projected to be smaller than Rs.
200 billion. There are only three basis for increasing the size of the
budget: 1. Controlling revenue leakage and expanding tax bases; 2.
Increasing foreign aid and; 3. internal borrowing.
Strengthening the implementation of foreign-aided projects can increase the
contribution of foreign aid. The Asian Development Bank (ADB) still has US$
1 billion in its pipeline to give Nepal. Internal borrowing is not a good
idea for the economy because government will have to pay back the loans. The
money spent through government agencies also does not give maximum output. I
think the size of the budget should not exceed Rs. 200 billion. The budget
sized above Rs. 200 billion means that there are more chances than not that
it will not be implemented.
The Finance Minister has said that resources could be generated by strictly
controlling the leakages that stand at around 40 percent. Do you think the
measures taken towards this direction will work?
If the government could control the leakage and expand the tax regime, that
would help generating significant resources. But our system is such that
businessmen use another customs point if the goods are checked tightly at
one point. Our institutions can't be changed outright. Such institutional
mechanism does not allow us to be too ambitious. So, it is difficult to
increase revenue by 40 percent immediately.
What are the economic issues that need to be addressed by the new budget?
There are many economic problems in Nepal. Nepal witnessed relatively better
economic growth last year due to robust growth of the agriculture sector in
the last 14 years. Nepal has been witnessing economic growth of around 3
percent over the last 8 years but other Lest Developed Countries (LDCs)
obtained around 7 percent growth. Even 4-5 percent growth is taken as not so
good a growth nowadays. So, two things need to be done to attain high
growth-one is to increase private sector investment and another is to
promote export. We need to make appropriate environment to attract private
sector investment. Another urgent need is to develop the backwards regions
of the country because there is wide disparity between Kathmandu other part
of the country. We also need to provide immediate relief to the conflict
affected people and flood hit people. Similarly, we need to ensure supply of
essential foods in the remote areas. Likewise, inflation is another problem
but we cannot control price rise effectively as the imported goods cause
rise in inflation here.
Unemployment is another problem. We have been able to manage our labour
forces because most of them go for foreign employment. But, policy wise, it
is not good to export our labour force.
We can find that many countries recovering from conflict are achieving high
economic growth, for example, Afghanistan. Why has Nepal lagged behind in
doing well like them?
Most of the African countries as well as Afghanistan, which are recovering
from conflicts, have got huge foreign aid in their reconstruction process.
Such countries can't attract private sector investment due to security
reason immediately. Foreign aid helps in boosting the growth. There was an
attempt to organize a broader economic summit here right after the peace
agreement was signed. But it was postponed as the foreigners suggested that
it would be better to hold such meeting after the election of Constituent
Assembly (CA). It is necessary to hold such a meet because we need huge
resources to meet the people's expectation. We need to open all options to
generate more and more resources including foreign aid, private and
government investment.
Do you believe the donors will assist the Maoist-led government to a similar
degree that they would have done if there were another party-led government?
The type of budget the government will introduce will determine donors'
confidence. The government should present many papers related to policies of
the government in developing private sector and infrastructure development.
Before that, the donors want to see to what degree the government has
adopted the market economy, policy towards private sector and economic
reforms. If the government is liberal on these issues, it will not be
difficult for the Maoist-led government to get foreign aid.
What's your comment on the government's high priority on cooperative sector?
Yes, in the policies and programmes, the government has given importance to
the role of government, private sector and cooperatives in the development
process. But it should be noted that the cooperatives movement in Nepal
experienced a failure in Nepal over the last several years. Nepal
experienced two types of cooperatives-one is government pushed and the other
is a self-formed cooperative. Both types of cooperatives could not see the
success.
So, do you think the government should not give much focus on cooperatives?
We need to open door for cooperatives if they come with commitment to run
themselves. Otherwise, the government-funded cooperatives won't give any results.
But, the government has announced that it would strengthen the cooperatives
to make them capable of competing with the private sector. Will it be
possible?
It is very difficult for cooperatives to compete with the private sector. If
the government funds them without seeking return, it will not help the
economy of the country. Such cooperatives collapse eventually.
The government has given high priority to Public Private Partnership (PPP)
in its policies and programmes. Do, you find any difference between the
approaches taken earlier and now on PPP?
There is no difference in approaches then and now. The PPP should be
promoted but the government's role in the PPP should be defined clearly.
There are two models in PPP-in one model, the government bears risk of the
project and in the other model, the government becomes a partner of the
project.
The latter model has not attained success in Nepal. So, the former model is
more appropriate to adopt. In this model, the private sector seeks
protection to some extent from the government to do business. For example,
if fast track road linking Kathmandu and Hetauda is constructed under this
model, the private sector may ask the government to provide ownership of the
lands along the road. But with the partnership of the government, the
project suffers with overcapitalization because of weak governance on the
part of it.
There have been talks about restructuring the National Planning Commission
(NPC). Do you think it needs to be restructured or is its present form ok?
After the federal structure of the country is finalized, the structure of
the NPC should be changed as per the new situation. Currently, normal
preparation can be done towards this direction. But, no concrete action can
be taken immediately.
The government has announced that it would take measures to protect the
vulnerable groups from negative impact of liberal economic policy. How can
these groups be protected?
It has been found that the liberal economy has benefited the people of urban
and semi-urban areas in Nepal. So, the government should focus on developing
the remote areas where economic potential is higher. It should be noted that
the far-western region of the country has lagged behind although there is a
good road network. So, the government's focus should be to support a certain
area as per the economic potential of the region and sector.
(Editor's Note: Nepalnews will continue this column by talking to officials,
professionals, politicians, businessmen, diplomats, those who make
outstanding achievements in their chosen field and newsmakers. Please post
your suggestions/comments to feedback@mos.com.np)
