Oped»
Late again
JUL 17 -
Nepal’s caretaker government has recently announced a special budget of Rs. 110 billion, which is one-third of the usual national budget, for lack of political consensus. This financial plan has been designed only to resolve the immediate problems of regular expenditures like salary and benefits of government employees. It has been three years in a row that the government has not been able to release a full-fledged budget on time. An incomplete budget such as this erodes private sector confidence, widens the
trade deficit and constrains revenue mobilisation.
Even government officials have admitted that it would be a challenging task to achieve the targets set by the three-year plan, which begins from the coming fiscal year, due to lack of timely implementation. The private sector is also worried about the possible adverse impacts on new and existing investments due to economic uncertainty in the absence of a full-fledged budget. Planned investments could be affected by the government’s new plans and policies. Investors are in a dilemma whether to invest or not as the special budget do not contain concrete programmes and policies of the government.
A delay in announcing a full-fledged budget will also have a negative impact on revenue collection. The government has been amassing an impressive amount of revenue by changing the rate of taxation (especially excise duty) every fiscal year. However, revenue cannot be expected to grow this year because the tax rates remain the same. A delayed budget will also slow down work to address the balance of payments which has become negative for the first time in 26 years. Recently, the finance minister claimed that the balance of payments deficit would be reduced to Rs. 9 billion by the end of the current fiscal year. The shortfall amounted to Rs. 24 billion a few months ago.
Even though there has been an improvement in the balance of payments, delays in publishing a full-fledged budget have hurt efforts to correct it. Policies to promote exports and curb imports to ease the deficit are urgently required, but it has not been happening. Consumption of foreign products has been increasing by the day for lack of domestic production. As of the 10th month of the current fiscal year, the trade deficit had ballooned to Rs. 238 billion, which is Rs. 21 billion higher than the deficit of the whole of the last fiscal year.
It is essential to bring down the trade deficit for the sake of the balance of payments, foreign currency reserves and economic stability. These problems can be addressed only through effective fiscal and monetary policies. There is also the risk of the informal economy expanding in the absence of a timely budget. Though the government is planning to bring an interim monetary policy, experts view that it would not be able to address the core economic problems that the country is currently facing without a full- fledged budget.
When development activities cannot take place, capital expenditure cannot happen. This ultimately affects foreign aid. In Nepal, foreign aid accounts for more than 70 percent of the total development budget. The government couldn’t spend the development budget even though donors had pledged Rs. 47 billion worth of foreign aid. Most projects could not be started on time because of political instability and other unfavourable circumstances. As a result, only a small portion of the committed budget was released. Statistics show that the government had a hard time spending even 60 percent of the capital budget in the current fiscal year. The country has already received foreign aid commitments amounting to Rs. 100 billion for the coming fiscal year. Future aid pledges will depend on the political environment and the priorities set by the political parties.
When the government cannot utilise the committed foreign aid properly, donor communities could question its capability to utilise and manage resources. The government has introduced multi-year contracts in development projects, especially those run with foreign aid, from the current fiscal year. This is a very good initiative. But delaying a full-fledged budget can affect payments in these projects in the long run. Officials have expressed concern that it will create problems in making payments which cannot be delayed or avoided after the contracts have been signed. For instance, the government has to pay 20 percent of the total contract amount if the printing contract for machine readable passports is finalised. The Foreign Ministry has recently decided to award the printing contract to a France-based company. Around four million copies will be printed at a cost of US$ 3.59 each.
As the resources allocated by the special budget are only enough to continue the development projects initiated in the past under multi-year contracts, there will be a resource crunch for pre-payment of new projects if the government fails to announce a full-fledged budget on time. There are risks of negative impacts on education, health, drinking water, sanitation and other infrastructure development including road construction.
Finance secretary Rameshwor Khanal recently disclosed that the government nearly faced such a problem last year in paying the bonuses and benefits of government employees. He said that the budget for the current fiscal year had allocated Rs. 850 million to purchase medicines for free distribution at government hospitals and health posts under the recurrent expenditure head. As the Health Ministry failed to award the contract for supplying the medicines, the unspent money was used to pay the perks and benefits of government employees. Such problems could recur if the government fails to bring a complete budget on time.
There is also a need to review if it is appropriate having the fiscal year start on July 17. For example, development activities can take place in the high hills only during the three months of May, June and July. At other times, heavy snowfall prevents work from being done. Having a financial year that starts on July 17 means that development projects cannot be implemented effectively in these areas.
When the budget is delayed, the government should adopt a short-cut process to start the planned projects. Even when the budget has been announced on time, projects are implemented only from December because of the lengthy process involved in getting the projects approved by the National Planning Commission, preparing the implementation procedures and guidelines by the ministries and releasing the budget by the Ministry of Finance.
However, even if the government were to adopt a short-cut process in case the budget is delayed, it will not help to correct the negative balance of payments situation. Timely announcement and implementation of a full-fledged budget is the only way to do it. And in order to make this possible, political consensus is a must. Unless the major political parties reach a consensus on the minimum economic agendas, such problems will persist. There should be a mandatory provision that a full-fledged budget should be announced by the end of the fiscal year in any political situation.
(The author is an economic reporter with Kantipur daily)
mainadhital@gmail.com
Posted on: 2010-07-18 08:39
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