Recently, an English daily published detailed interviews of the current Finance Minister Dr. Babu Ram Bhattarai and his predecessor Dr. Ram Saran Mahat. A unique feature of the interviews is that both of them justify their capacity for taking the correct economic policy for national economic development while criticising the others for the mismanagement of the national economy. The question is: What is the truth if we have the privilege to be on the judge’s bench or even to act simply as a witness. My answer will be simple in that there is the cancer growing in the economy; it is growing daily and it is growing at a compound rate. Neither of them has realised the problems, and their performances are not much better than that of Dr. Roop Jyoti, the Minister of Finance under the royal regime before Jana Andolan II.

Dr. Mahat speaks by quoting quantitative information but without taking into account the structure of the economy and the interrelation among various macro economic variables.

“The present finance minister is”, he said, “ lucky to inherit such a healthy economy. No finance minister has been so fortunate... Last fiscal year the growth rate was 5.6 percent, revenue growth was around 23 percent, foreign exchange reserve was more than $3 billion, Balance of Payments situation was positive...” Unfortunately, the high economic growth rate, a rough projection made by Central Bureau of Statistics based on six months’ data, was due to low base and favourable monsoon, and the rise in government revenue is largely attributed

to the rising import financed by receipts from remittances coupled with sluggish domestic performances. Similarly, the surplus in the balance of payments was also due to rising receipts from remittances, a sign of rising poverty that led many to migrate abroad in search of jobs to support family members back home. In fact, what Dr. Mahat has claimed as development was due to good monsoon and high poverty — a sign of demographic disaster in that the government has not been able to match the growth in employment to the rise in working age population.

It is, therefore, natural for Dr. Bhattarai to comment, “I don’t agree that the economy is sound” but after that he is also following the Don Quixote methodology under which one will believe only in his own imagination totally rejecting the reality. Otherwise, there is much similarity in the approach of both the current and former finance ministers, both of whom have no plan to change the structure that we have inherited from the royal regime, the most hated regime in Nepali history. Some examples:

a)The structure of the economy based on agriculture and remittances has remained unchanged for the past several years. The share of manufacturing sector in total GDP was 7. 6 percent in 2005/06 but declined steadily to reach 7.0 percent in 2007/08. It is expected to decline further in the current year. There is little prospect of foreign investment due to maintenance of unrealistic exchange rate, specially with Indian currency, poor infrastructure, labour problems and political instability.

(b)The deficit in foreign trade was as high as 18.5 percent of GDP in 2005/06, the last year of the royal regime. It, however, increased further in the following two years to reach 23.5 percent of GDP in 2007/08. This led to the rise in revenue from customs duty and , subsequently, the government revenue. The same pattern is expected to continue this year too: the trade deficit will rise further with positive impact on government revenue. There will be a surplus in the balance of payments due to rising receipts from remittances. (c)The government revenue was barely sufficient to cover regular expenditure and payments of the principal of loans due in the royal regime. There was no change in that pattern in the following two years. In the current year budget estimate too, the Finance Ministerhas not proposed any new measure to break the pattern set in the royal regime. On the contrary, the government has to borrow Rs. 3 billion from domestic market to meet regular expenditure from internal sources.

(d)The development expenditure was financed entirely by foreign aid in the year 2006/07 and 2007/08, and the current year budget is following the same route. Dr. Mahat did not sign the agreement with IMF to borrow under the Poverty Reduction Growth Facility (PRGF) which is available to the developing countries under financial distress. The reason was simple: He was able to use the unused facilities signed by the royal regime by extending the period of the loan by one year. Dr. Bhattarai has expressed his desire to use the facilities under PRGF. A mission from IMF is already in town. A government led by the communist party and with a declared aim to establish a communist regime aims to serve the people under the conditionality imposed by IMF. God bless all the finance ministers that faithfully served us in the current century!

Dr Pant is executive director, Institute for Development Studies