Nepal | November 19, 2018

Budget to target economic growth of 6pc

Himalayan News Service

Three priorities

• Achieving economic growth of about six per cent, with focus on capital formation
• Consolidating social security provisions to improve livelihood of around 60 per cent of the population living below $2 a day
• Giving continuity to next generation policy reforms

KATHMANDU, July 6

The budget of next fiscal year is expected to set economic growth target of around six per cent, give continuity to next generation policy reforms and consolidate social security measures to improve livelihoods of around 60 per cent of the population living below $2 a day.

Finance Minister Ram Sharan Mahat will unveil budget of Fiscal Year 2015-16 by next week.

If the budget ceiling extended earlier by the National Planning Commission (NPC) is anything to go by, the size of the budget of next fiscal is expected to hover around Rs 841 billion — up 36 per cent than this fiscal’s.

Announcing the budget’s principles and priorities in Parliament on Wednesday, Minister Mahat had said the upcoming fiscal policy would focus on ‘achieving high growth rate to make the country economically prosperous, completing tasks related to rehabilitation and reconstruction within a certain timeframe and tapping every opportunity to give a boost to socio-economic development’.

In this regard, the Finance Minister is expected to emphasise on achieving economic growth rate of about six per cent in the next fiscal, with focus on capital formation, a reliable source told The Himalayan Times.

The country’s gross fixed capital formation (GFCF) as percentage of GDP is below the average of least developed countries (LDCs), indicating much of the financial resources are being exhausted on consumption rather than on accumulation of physical assets required to boost production and raise economic growth.

The country’s GFCF averaged 21.2 per cent between 2004 and 2013, as against LDC average of 24 per cent.

It is said the country’s gross fixed capital investment has to be raised to at least 30 per cent from the existing level to support higher economic growth.

To drive up GFCF, the country must increase capital spending, meaning more funds have to be invested in civil works and purchase of land, building, furniture, vehicles, plants and machinery.

Although ramping up capital spending appears to be a tall order considering the current state of public financial management systems and practices, the government hopes to spend more on infrastructure projects and works related to reconstruction through a powerful National Reconstruction Authority in the next fiscal. These activities, the government believes, will push up capital spending.

“Also, the budget of next fiscal will focus on consolidation of existing social security provisions and introduce new social security measures not only to address human poverty but improve livelihood of around 60 per cent of the population living below $2 a day,” the source said.

The government has felt the urgency to improve financial condition of people living below $2 a day due to a bitter lesson learnt during devastating earthquakes of April and May.

A report prepared by the World Bank (WB) for the NPC said quakes are expected to end up pushing 700,000 to 982,000 people — 2.5 per cent to 3.5 per cent of the population — into poverty in 2015-16.

These people, who were previously lifted out of poverty trap, are in danger of falling into it again because of ‘the high degree of vulnerability’ — a pitfall of the poverty reduction drive launched by the government.

For instance, Nepal’s poverty rate stood at 24.8 per cent in 2013. This means around a quarter of the population in that year was living on less than $1.25 a day. But if the international poverty line of $1.25 a day was raised to $2 a day at that time, 57.3 per cent of the population would have been categorised as poor.

“What this means is that a large proportion of Nepali households are just a sickness, a bad monsoon or natural disaster away from slipping back into poverty,” the WB report said.

This indicates the need to address this problem head-on so that gains made by the country in fighting absolute poverty are not eroded.

Among others, the budget of next fiscal is expected to give continuity to next generation policy reforms launched earlier this year, the source said.

This fiscal alone, the government has enacted or revised about 40 policies, Acts, and regulations. These policy-level reforms were supposed to lure foreign investors and yield higher economic growth rates. But ‘this momentum has been disrupted by quakes’ and, thus, needs to be ‘given continuity’.


A version of this article appears in print on July 07, 2015 of The Himalayan Times.


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