Staving Off the ECONOMIC CRISIS

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Staving Off the ECONOMIC CRISIS

--BY SAGAR GHIMIRE

The KP Oli-led government will present its fourth budget on May 29 for the upcoming fiscal year 2021/22 after an electoral alliance between two major communist parties swept parliamentary elections in December 2017.

While the first three budgets were presented by the then Minister for Finance Dr Yubaraj Khatiwada, the upcoming budget will be tabled at the federal parliament by Finance Minister Bishnu Paudel.

As the Constitution of Nepal requires the government to lay before the federal parliament an estimate of revenues and expenditures on Jesth 15, the Ministry of Finance (MoF) has intensified preparations of the budget for the upcoming fiscal year.

The budget preparation for the upcoming fiscal year also comes in the wake of the second wave of Covid-19 that is expected to deal another blow to the economy that was already shattered by the pandemic and containment measures introduced by the government last year.

According to officials at the MoF, the budget will primarily focus on addressing the economic effects of Covid-19.  

“When the entire country is suffering from the pandemic, saving lives and livelihoods will be the government’s number one priority in the upcoming budget,” a senior official at the MoF involved in the budget formulation told New Business Age, requesting anonymity as he is not authorised to speak with the media about the budget.  

There will be higher allocation for vaccination, ramping up the medical system including extending isolation facilities and increasing the number of hospital beds and strengthening the healthcare infrastructures, according to the senior official.

“We are proposing measures in the budget that will put our economy on the track of recovery after the worst of the health crisis passes. The budget for the upcoming fiscal year will be a starting point to revive the economy and make the economic growth resilient and sustainable,” added the senior official.

Economists and private sector leaders also agree with the government’s priority in the budget to shore up health infrastructure and provide healthcare services continuously.

“There is no doubt that the immediate priority of the budget should be on the health of the people as Covid-19 cases are rising again. However, the country is better prepared for the Covid-19 response this time compared to last year as the vaccination campaign has already started. There is also a growing realisation that a complete lockdown is not the solution to the pandemic,” said economist Biswo Poudel.

Focus on job creation
According to economist Poudel, the upcoming budget should have measures, programmes or projects in place that result in massive job creation.

“Rising unemployment was already a major problem for us. Covid-19 has exacerbated the situation. There are many youths who have returned from abroad or those who have not been able to go for foreign employment. Similarly, there are those who have lost their jobs in various businesses including tourism and hospitality due to Covid-19,” said Poudel.

He said that the construction and industrial sectors hold potential to create thousands of employment opportunities in Nepal.

“Private sector organisations like Federation of Nepalese Chambers of Commerce and Industry and Confederation of Nepalese Industries have come up with their plans to boost the industrial sector. The government should support them and create a favourable environment for businesses and industries to flourish,” he said.

FNCCI recently launched its vision paper entitled ‘National Economic Transformation 2030’, envisioning the structural economic transformation of the country through active multi-stakeholder participation and cooperation and an engaged private sector.

The FNCCI, in its vision paper, has not only set ambitious goals of increasing the size of the country’s economy to USD 100 billion, creating 2.2 million additional jobs and reducing trade deficit to GDP ratio by 50 percent by 2030, but also outlines strategies, initiatives and priorities that need to be undertaken to achieve them.  

CNI also launched its own ‘Make in Nepal-Swadeshi’ campaign setting various ‘ambitious’ targets like establishing 1,000 enterprises annually, creating 1.5 million industrial jobs each year and increasing annual exports to USD 3.4 billion in the next five years.

Leaders of the private sector say that the government should come up with a budget that supports the agenda raised by FNCCI and CNI if it really wants to put the economy on the path of a high growth trajectory.

“It should be the government which should have come up with such a campaign. When the private sector has taken the initiative, the government can support it through fiscal measures,” said Hari Bhakta Sharma, immediate past president of CNI.

“Our fiscal policy should be driven towards increasing production in the country. The budget could be an opportunity for the revival of industries hit hard by the Covid-19 if the government introduces relief measures,” said Sharma, who is also the executive director at Deurali-Janta Pharmaceutical Pvt Ltd.

According to Sharma, the budget should increase the size of refinance facility and extend it for at least two years.

“There are many industries and businesses including both small and large which continue to suffer due to the pandemic. This will put further pressure on the economy which has already shrunk. There is a limited resource with the government. It should provide relief to those businesses and industries through the budget based on whatever capacity it has,” added Sharma.

Call for adequate resources to crucial projects  
While the MoF is under pressure to manage financial resources to announce new projects or programmes for the upcoming fiscal year, economists say that the Finance Minister should allocate an adequate budget for some crucial development projects that are currently being implemented. Nepal-India cross-border transmission line, upgradation and expansion of East-West Highway, improvement and expansion of the highway section between Mugling and Pokhara and Postal Highway are development projects that economist Biswo Poudel suggests the government to expedite in the upcoming fiscal year.

“These are some of the projects that the government should prioritise in the upcoming budget as they can revive the construction sector and create more jobs,” said Poudel.   

CNI’s Immediate Past President Sharma also echoed that the budget should help speed up national pride projects that have been moving at a slow pace. “Rather than earmarking funds in petty projects or initiating new projects, the government should focus on completing the ongoing infrastructure and national pride projects on time,” said Sharma.

Temptation for distribution!
As the ruling CPN (UML) eyes another election, there are worries that the current government could be tempted towards announcing some populist programmes or increase handouts under the social security allowances to woo voters. Prime Minister Oli has already announced that the allowance for elderly citizens will be raised from the upcoming fiscal year. In a programme organised by the Reporters Club last month, Prime Minister Oli had said that the allowance to the senior citizens will be increased from Shrawn 1 (July 16).

In its manifesto during the election of 2017, the CPN (UML) had promised to raise the allowance for senior citizens to Rs 5,000 per month in five years of its tenure. Currently, senior citizens above 65 years are entitled to Rs 3,000 in monthly social security allowance. According to an estimate, the liability for the government will reach nearly Rs 100 billion per year if the ruling party follows through with its election manifesto to raise the old-age allowance to Rs 5,000.
Some also worry that the government could raise salary and allowances of government staff through the upcoming budget speech.

However, economists say that increasing handouts and election-oriented distributive spending during the crisis caused by the pandemic only puts pressure on resource management. 

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