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VOL. 28, NO. 06, Sept 26 , 2008 (Ashwin 10 2065 B.S.) |
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BUDGET 2008
Ambitions Set High
The economists are unanimous – a rare occasion – in giving their verdict to the first-ever budget of the republican Nepal presented by a Maoist ideologue-turned-finance minister Dr. Baburam Bhattarai. They all say that the 2008/09 budget is highly ambitious and is much more larger than the country can shoulder. The 236 billion budget – up by Rs 66 billion compared to the previous fiscal year has also promised everything for everybody. One thing, however, is clear – the Maoist leader has not dared make any visible/sharp departure from the established path of liberal economy. He re-emphasized this fact by making numerous statements backing the private sector role in the economic growth. Will the budget help the country leapfrog as the minister wants to reiterate or will it crash land, not only the experts but also the people are watching nervously
By SANJAYA DHAKAL
"We are now in the process of making a great leap forward from one era to another. However, there is always a risk involved in such move. This requires breaking relations from the conventional status quo in terms of thinking and acting. And this requires being little more ambitious too. We can never reach the destination if we do not aim high, as the Great Poet Laxmi Prasad Devkota once famously said, - We should aim to fly high and touch the moon".
That was how Dr. Bhattarai defended his budget termed as 'inflated' by sundry experts.
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FM Bhattarai: Aiming the sky |
A vocal supporter of 'leapfrogging' growth of economy, the finance minister presented a 60-page document a day after he produced what he called as the 'white paper' of the economy – predictably heaping the blame of economic ills and failings on the previous regimes.
"This coalition government has burdened the responsibility of realizing the dream of thousands of martyrs, the disappeared and the wounded in the course of people's war, people's movement and the Madhesi movement. Therefore, this budget has very carefully and thoughtfully cherished some ambitious goals in areas of revenue and expenditure which, however, are not beyond reach. Likewise, the budget's major indicators have also not gone beyond the established international norms. This is why there will be found no logic in some people's arguing that this budget might negatively impact the macro-economic stability," the minister argued before he started presenting the hard budget facts when addressing the Constituent Assembly (CA) on Friday (Sep 19)
Terming stability as a relative fact quite different from "stagnation," the minister predicted that it will pass the litmus test. "Since this is the first step to the great journey towards a new federal republican era, this budget contains many such programs of long-term nature which may not be completed in one year but would inevitably require to be initiated this year as otherwise it will be too late for the future," he said.
Budget Figures
Finance Minister Dr Baburam Bhattarai unveiled a whopping Rs. 236.15 budget for the fiscal year 2008-09, Friday, at the Constituent Assembly. Out of the total expenditure, recurrent expenditure is estimated at Rs. 128 billion 516.5 million, capital expenditure at Rs. 91 billion 311 million while Rs. 16 billion 189.3 million have been allocated for payment of principal and interest of loans.
The budget size itself is higher by 39.7 percent compared with the total allocation of Fiscal Year 2007/08 and 44.5 percent more than the revised expenditure of that year. The recurrent expenditure size has been increased by 40.6 percent while the capital expenditure has surged by 64.5 percent. The amount allocated for loan repayment has been lowered by 1 percent against the revised expenditure of the previous year.
Out of the total expenditure, Finance Minister Dr Baburam Bhattarai has proposed Rs.111 billion 824.9 million (47.38 percent) for general administration and Rs. 124 billion 199 million (52.62 percent) for development related programs.
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The budget has aimed to raise Rs 129 billion revenue (up from Rs 105 billion collected in the previous fiscal year) and obtain Rs 47 billion of foreign grants and Rs 18 billion of foreign loan. The budget deficit will stand at Rs 41 billion – of which the budget aims to raise Rs 12 billion from reforms in revenue administration and Rs 3 billion from existing cash reserve. The remaining Rs 25 billion will be mobilized as internal loan.
Addressing the constituent assembly session, FM Bhattarai said government has given topmost priority to agriculture, water resources, tourism, human resource development and industrialization.
The minister aims that the budget will push the economic growth rate to 7 percent from current 5.6 percent. The growth rate in agriculture sector is expected to be at 4.5 percent and non agriculture sector at 8.3 percent. Inflation rate is estimated to be around 7.5 percent.
The budget has allocated Rs 5.91 billion for agriculture, Rs 5 billion for irrigation, Rs 1.52 billion for industrial sector, Rs 13.91 billion for road development, Rs 5.27 billion for rural infrastructure development, Rs 38 billion (44 percent more than past year) for education and Rs 15 billion for health sector. In education, the government expects foreign aid of Rs 10.5 billion and in health, it expects foreign aid of Rs 4.48 billion.
Likewise, the budget has allocated Rs 9.14 billion for the Ministry of Peace and Reconstruction; Rs 12.26 billion for Ministry of Defense; Rs 12.47 billion for Ministry of Home Affairsand Rs 24.1 billion for Ministry of Local Development.
He has announced a number of populist programs. He has increased monthly allowance for elderly, widows, and disabled people and introduced slogans like Hamro Gaun Ramro Gaun (Our Village, Beautiful Village), New Nepal Healthy Nepal, Gau Gaunma Sahakari, Ghar Gharma Bhakari and so on. The budget also increased Rs 2000 in month salary, across the board, for government employees of all level.
He has also set aside millions of rupees for providing relief to conflict-victims and families of martyrs. Predictably, he has allocated some fund for development of what he called as 'Balidani Chhetra' – meaning the areas that made the sacrifice during the
'People's War' period, particularly in the mid west region. The budget has not substantially changed tax rates. The budget has also announced Voluntary Disclosure Scheme to extract more revenue.
The minister later clarified that the budget could not announce the multi-rate in the Value Added Tax (VAT) this time due to lack of homework. The minister also promised to do away with all kinds of transport syndicates and make roads free of Dhat (temporary and local tax collection units).
Criticisms
Economists have harshly criticized the budget terming it as 'over-ambitious' and 'beyond the means of the government.' "This is a huge budget. Where will the government get the resource from? It has said it will raise Rs 65 billion as foreign aid (both loan and grant) this year whereas we only got around Rs 21 billion in the previous fiscal year. And the budget deficit of Rs 41 billion and the plan to raise Rs 25 billion as internal loan are also 'historic'," said economist Dr. Bishwambher Pyakuryal.
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DR Mahat: Liberal Legacy |
Another economist Dr. Raghab Dhoj Pant also described the budget as highly inflated. "The budget will not help the economy to leapfrog at all. Instead, it will drag down the growth below five percent," he said.Dr. Pyakuryal fears that the over-sized budget will trigger inflation beyond control. "The budget has raised monthly salaries by Rs 2000 for government employees but they will be hit by inflation which will increase their expenditure by more than Rs 3000 per month," he said. Dr. Shankar Sharma, former vice chairman of National Planning Commission (NPC), also had a scathing remark against the budget size.
"This is untenable. The government must be very cautious to prevent economy from falling apart," he said. Meanwhile, Dr. Bhattarai, unveiling a white paper of the economy on the eve of budget presentation, said that the situation of economy as he inherited is poor. "It is the reality that despite some economic growth, there is increasing inequality and poor shape of manufacturing sector and industries," he said. In the white paper, the minister has presented the plan for accelerating the economic growth. As per the plan, the growth will be increased to over 7 percent for next two years and it will be increased to double digit for the five subsequent years after which, the minister aims to catapult the growth to 'leapfrogging' pace.
At the end of his budget speech, the finance minister had once again reiterated that his ambitious budget was what the people desired at this period. "All the Nepali people, particularly those who are excluded from enjoying the fruits of development, segregated, downtrodden and poor, are expecting a dawn of new era through this budget. All the Nepali people are expecting speedy economic growth and social justice."
"I believe that this budget has started a strong beginning in the direction to fulfill those hopes and expectations. We still have to travel a long journey. As has been said, the first step begins a thousand miles' journey, and this is the first step towards that long journey."
A small step or a great leap forward - that will be tested in the days to come.
ADB PROJECTS HIGHER GROWTH
The Asian Development Bank (ADB) has revised its projection for GDP growth rate for Nepal in the year 2009, now putting the projected growth rate at 5.0 percent. According to an update publication of the Asian Development Outlook 2008 published by the bank, Nepal will achieve a growth rate of 5.6 percent in 2008, against earlier expectation of 3.8 percent.
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Ca member Khetan: "Need to promote private sector |
"The political situation offers ground for cautious hope, but remains fragile despite successful constituent assembly elections as well as elections for president and prime minister," the reports states on Nepal.
GDP growth rebounded to 5.6 percent in this fiscal year from 2.6 percent last year due to a weather-induced recovery in agriculture. The growth revival was also aided by continued expansion of services. Industrial growth, however, declined to 1.8 percent from 3.9 percent due to the impact of power and fuel shortages and labor tensions. Assuming normal weather conditions, greater political stability, and improved power and fuel supplies, GDP is forecast to grow by about 5 percent in 2009.
As a result of sharp increases in food and oil prices, year-on-year inflation rose to 13.4 percent in mid-July 2008 while average inflation in 2009 is expected to remain at 8.5 percent, an increase form earlier forecast of 6.5 percent. Higher remittances and tourism receipts helped more than offset a widening trade deficit to bring the current account surplus to 1.9 percent of GDP (compared to a deficit of 0.1 percent in the previous year).
In 2009, the current account surplus is now projected at 1.5 percent of GDP, supported by sustained growth in remittances and tourism receipts.
ECONOMIC FREEDOM RANKING
Nepal has fared poorly in a World Economic Freedom ranking. Nepal ranks at 128th position, way behind neighboring country India, in the latest global rankings of economic freedom, jointly released Tuesday (Sep 16) by independent research organization the Fraser Institute and the CATO Institute.
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DR Pyakural: " Too ambitious |
The Economic Freedom of the World: 2008 Annual Report has Nepal in the 128th spot with India at 77th rank along with China falling behind at 93rd and Sri-Lanka at 103rd spot just ahead of Pakistan. Hong Kong is again first in the rankings of 141 nations and jurisdictions, followed by Singapore, New Zealand, Switzerland, the United Kingdom, and Chile, the first Latin American country to break into the top 10. The 2008 report is based on 2006 data, the most recent available.
The overall rating of Nepal is 5.35 out of 10, further pushing it down from 123rd spot last time. However, neighboring country India maintains its 77th spot similar to last time with growing index every year. The report, at present, ranks 141 countries on a range of factors in five broad areas: 1) size of government; 2) legal structure and security of property rights; 3) access to sound money; 4) freedom to trade internationally; and 5) regulation of credit, labor and business. As the eradication of global poverty is a major concern in the world today, this year's report includes a chapter investigating the connection between economic freedom and poverty.
According to the report, Nepal's scores in key components of economic freedom (from 1 to 10 where a higher value indicates a higher level of economic freedom) has been thus; Size of government (5.26 up from 5.23 in the previous report); legal structures and security of property rights (dropped to 3.96 from 4.67); access to sound money (dropped to 6.58 from 6.61); freedom to trade internationally (improved to 5.49 from 5.40); and regulation of credit, labor and business (dropped to 5.46 from 5.83).
