‘Investment climate needs improvement’

Kathmandu, June 13:

Finance minister Dr Ram Sharan Mahat today reiterated that the forthcoming budget would focus on creating a conducive investment climate and expedite development activities including infrastructure development and optimum utilisation of potentials.

He was addressing a discussion programme on ‘agenda for the forthcoming budget 2007-08’ organised by the Management Association of Nepal (MAN). Dr Mahat also stated that the budget would principally be based on a common minimum programme (CMP) of the current eight-party alliance of the government.

Besides, reconstruction, rehabilitation and revival of the economy, the budget would also attempt to overcome the current challenges of diverting public investment from consumption to development activities, he said. “Political consensus on many issues including diverting subsidies to needy sectors as well as for the creation of conducive investment climate is a must,” Dr Mahat said.

Although an all-party consensus is a tricky business, there is a sense among all ruling parties that the economic development is a must to uplift the people’s living standard, he said. He added that the creation of opportunities and effective utilisation of potentials are two vital challenges ahead.

Dr Mahat also reaffirmed that local resources and manpower would be given priority while devising policies and implementing them. “The imported (foreign) or readymade formulae alone cannot help Nepal in transforming itself from its current status of underdeveloped to a developed one,” he said.

He also criticised the international agencies for their attempts to impose their ideas and formulae on Nepal.

Responding to queries, the finance minister admitted that the situation has fairly improved after April last year. He, however, said that the current problem is by and large a political phenomena and a non-fiscal matter.

Earlier, presenting a paper, a senior economist Prof Dr Madan Kumar Dahal, proposed the

budget for the fiscal year 2007-08 to be around Rs 165 billion consisting of 55 per cent

recurrent and 35 per cent of capital expenditures.

“The primary objectives of the budget should be restoring normalcy in the economy by fighting recession, unemployment, corruption and inefficiency,” he said, adding that priorities should be on gearing up public spending on social sectors and infrastructure development for growth and poverty reduction.

Prof Dahal also suggested that the government should set the economic growth target at five

to six per cent by keeping the inflation rate at five per cent.

For which, the government must be able to collect Rs 97 billion of internal revenue and mobilise foreign aid worth Rs 68 billion, he said.

He also suggested hike in the VAT rate to 15 per cent from the current 13 per cent and adjust personal and business income taxes accordingly, whereas lowering of the corporate tax to 20 per cent. Prof Dahal also suggested setting up of a couple of institutional bodies including national level finance commission and a high-powered Revenue Board as well as reviewing some policies that are key for economic development.

On behalf of the private sector, Rajendra Kumar Khetan, second vice-president of MAN, gave

suggestions for the budget. He asked the government to ensure peace and security for doing business and operating industries in the country.

Policy initiatives that ensure better investment climate is a key to attract both domestic and foreign investment, while reduction of non-business related risks is also equally important, he added.

Khetan also said that Nepal’s geo-political character must also be taken into consideration, while formulating long-term economic policies.