Oped»
Serial bunglers
JUL 06 -
Political uncertainty has sidelined the budget agenda for the third year in a row. This time, it is the resignation of Prime Minister Madhav Kumar Nepal that has made the leaders busy in gathering support from the members of the Constituent Assembly. Instead of brainstorming the upcoming budget, our leaders, completely ignoring the feelings of the people, are organising and attending inter- and intra-party meetings and dinners to form a government under their leadership. Due to this kind of political uncertainty, service delivery by the government has deteriorated after the People’s Movement of 2006, and ordinary citizens have not been able to enjoy the fruits of the republic of Nepal.
The annul budget is an effective medium to deliver social service to the people. It is an eco-political document of the government. It is also the framework of government expenditure for development. The budget is that document which is focused on higher economic growth and reducing inflation. It is mainly for the betterment of the people’s lives. However, the implementation status of the budget so far shows that its main thrust has been ignored.
For instance, the government could hardly spend 60 percent of the money set aside for this fiscal year’s capital expenditure. Capital expenditure is the budget allocation for development (See chart). This indicates very little improvement in the social sector such as health, education, drinking water and sanitation. During the last five years, the current fiscal year’s capital budget implementation has been the worst.
This all-time low public sector investment by the government has not only discouraged private sector investment, it has also slowed economic growth. Though the public sector accounts for 30 percent of the total investment, it is the catalyst for private sector investment. Public sector investment is focused on infrastructure. Better infrastructure helps the private sector to implement their projects. On top of that, public sector investment creates confidence in the private sector. Private sector investment has not been encouraging. In the first 10 months of the current fiscal year, foreign investors had pledged to invest around Rs. 2 billion. But political instability hindered full-fledged implementation. For example, Upper Karnali and a few other hydropower projects are facing problems from the Maoists.
Bandas and strikes have decreased in comparison to last year, but labour problems still exist. Last year, industrial growth fell by 0.5 percent. The stake of the industrial sector has been reduced from 11 percent to 7 percent of GDP in the last 10 years. Politics eclipsing the budget has also affected economic growth. Data shows that the economic growth rate has not surpassed 60 percent of the projection during the last three years. This year, growth has been estimated at around 3.5 percent. Initially, the growth rate for this year had been projected at 5.5 percent. (See chart for a comparative yearly 'target' and 'achieved' growth rates.)
The coming fiscal year is going to be even tougher for the people of this country. As the government is a caretaker government, the Finance Ministry has prepared a caretaker budget. This budget will have authority to spend only one-third of the current year’s actual expenditure. The best way to explain the limitation of this budget is that, apart from the existing small-scale projects, government officials and CA members will get their pay cheques smoothly for the next three months. With no new projects coming up in the near future, the crawling growth rate will slow down further. If a new government is not formed by then, what happens next is anybody’s guess.
Even if a new government is formed within a month, past experience shows that this kind of temporary arrangement hinders development process. The current situation is such that even if a government is formed within the next 24 hours, we will have to wait until February (at the earliest) for the new budget to be implemented. This had worked in the past because back then our macro economic situation was quite on track. But this year, we don’t have that leverage to delay implementation.
This year country is facing the toughest economic challenge after 26 years. In the first 10 months of the current fiscal year, balance of payment is negative by Rs. 17.36 billion. This indicates gradual deterioration of foreign exchange reserve. Total import is six times that of export. We can pay only 15 percent for import with the money we earn from exporting goods.
This year, the government has planned an import substitution programme to decrease the record high trade deficit. But a caretaker budget does not have the right to start new programmes. We are going to waste one more fiscal year due to the political turmoil. The eleventh hour attitude we have is also to be partly blamed for this mess. In other countries, the budget is prepared and sent to the parliament for approval at least three months in advance. We too have a similar provision in the Interim Constitution. The record of the past five years shows that this has not been followed. Had the finance minister and the parliamentarians shown the slight interest, we would not be in the midst of another deadlock.
As a result of this stalemate and the carefree attitude of the policy makers, inflation is going to hurt our day-to-day life even more. Last year, we had the highest rate of inflation in 17 years. This year, inflation has been projected at 11 percent. A rate of inflation of 11 percent on last year’s base of 14 percent will make survival harder for the people. And there is no indication of inflation coming down to provide the people some respite.
Slower growth and higher inflation indicates less opportunities for employment and higher cost of living. Every year, 4 hundred thousand youths enter into the labour market. Thanks to foreign employment, social unrest has been delayed for some years. However foreign employment is not a sustainable source. That is why we must create job opportunities within the country. Investment creates job opportunities sadly for us we will not get anymore jobs in the next 12 months because of the political turmoil and the delayed budget.
If this trend continues for a few more years, not only the people but also the politicians will suffer because unemployment might create social unrest. The politicians who have created the present mess will bear the brunt of the rage of unemployed youth even though they have been safe from the wrath of the general public so far.
(The author is an economic correspondent with Kantipur daily)
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10(proj.)
Tar. Ach Tar. Ach Tar Ach Tar. Ach. Tar. Ach. Tar. Ach.
Growth 4.5 2 4 2.3 5 2.5 5 5.56 7 3.9 5.5 3.5
Inflation 4 4.3 3.9 8 5 6.6 6.4 7.7 7.5 13 7 11
Dev. E. 31b 25b 36b 29b 45b 39b 55b 53b 96b 76b 106 75
Posted on: 2010-07-07 08:14
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