Economy in Crisis Again

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Economy in Crisis Again

January 21: The economy is on the verge of crisis again due to poor performance of economic indicators and poor implementation of budget. According to the statistics of the Ministry of Finance, the capital expenditure is pitiful and the current programmes announced in the budget have not been implemented for a long time.

According to the Financial Comptroller General Office, the government expenditure is pathetic. In the last six months, the government has met only 31 percent of its annual target. As the pandemic resurfaces again, the government is expecting a slump in revenue collection as well as expenditure, and other challenges in meeting the annual target.

Ravi Singh, president of the Federation of Contractors Association said that development expenditure is low not only because of the current situation created by the pandemic but also due to the government's policy and the shortage of liquidity. The development activities can be accelerated if the government releases the deposit amount collected as collateral from the contractors, argues Singh. Such an amount totals Rs 30 billion.

Singh shared that if the mobilization payment system is maintained at 20 percent, the cycle of economy will be better and construction work can be expedited. The rise in COVID cases has impeded development projects. The projects that were affected by the pandemic for the last two years will be further affected by the latest Omicron variant. Omicron is expected to affect 2772 development projects across the country.

Similarly, the government has not paid any attention to the implementation of the programmes announced in the current budget. Distributing cash relief to poor families is one of many such programmes. This affects the economy on one hand and jeopardizes the public trust on the other. 

Similarly, providing concessional loans to startup businesses have not been implemented though this programme has been included in the budget for the last ten years. The Ministry of Finance and the National Planning Commission have been reiterating that the work procedures are being formulated but it has never gone into implementation.

Ritesh Kumar Shakya, joint secretary at the Ministry of Finance, informed that the work procedure is taking time and the programme will be implemented as soon as the work is completed. Likewise, the government has introduced the Prime Minister's Employment Programme to provide employment to those who lost their jobs due to the pandemic. But the condition of this programme is awful. A total of 700,000 people had applied for this employment programme but only 6,000 have received employment in the current fiscal year 

The poor implementation of the budget is risking the economic growth rate set for the current fiscal year. The World Bank report had revised the growth rate and brought it down to 3.9 percent. The sectors that influence economic growth are once again bearing the brunt of the pandemic. Hotel Bookings are being canceled. Various five-star hotels, including Soaltee, Everest Hotel, Hotel Yak & Yeti, Hyatt, Marriott, Aloft, Radisson, Hyatt Place, have reported about cancellation of rooms and banquet hall bookings. According to the Baneshwor-based Everest Hotel, the occupancy rate is only seven percent at the moment. 

The real estate business is also in recession. More than 2500 houses and lands used to be bought/sold in Lagankhel, Bhaktapur and other places of the Kathmandu Valley. The number has significantly gone down. The real estate business has slowed down for the past three months. The interest rate of loans taken by entrepreneurs has increased to twelve to thirteen percent.

Real estate entrepreneur Dinesh Lal Chuke said the real estate business in the country has also slowed down like in the international market. The shortage of lendable funds in the banking system has impeded the growth of the economy. The loan-to-deposit ratio of financial institutions has increased to 90. Earlier, the CD ratio had increased to 91.49 percent on November 10.

However, the recent provision of the Nepal Rastra Bank (NRB) to open LCs for import of goods since December, and the provision set by the Ministry of Finance to use up to 80 percent of the local level funds for CD calculations, had eased the CD ratio to 89.29 percent.

Dr Gunakar Bhatta, spokesperson of Nepal Rastra Bank, said that the liquidity crisis is set to improve as the central bank is working on it. 

According to experts, the government should prevent the economic crisis by increasing external debt and grants along with the increase in capital expenditure. Bimal Koirala, former Chief Secretary, argued the government announces ambitious plans through policies and programmes but do nothing to achieve the goals which is hitting the economic indicators.

 

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