Nepal | May 22, 2019

Distributive budget of Rs 1,048.9 bn launched

Rupak D Sharma
annual budget Finance Minister Bishnu Prasad Paudel

Finance Minister Bishnu Prasad Paudel reads out the annual budget estimates for the Fiscal Year 2016/17 at the at the meeting of the Legislature-Parliament on Saturday, May 28, 2016. Photo: RSS

Kathmandu, May 28

The government, which has not been able to meet 50 per cent of the annual expenditure target even ten-and-a-half months into this fiscal, has expanded the size of the budget for the next financial year by 28 per cent to Rs 1,048.9 billion.

At a time when the economy is chronically ill and private investor confidence is low, higher public spending is necessary to create jobs and give impetus to economic growth. But the distributive programmes incorporated in the next fiscal year’s budget, launched on Saturday by Finance Minister Bishnu Prasad Paudel, are only expected to benefit certain groups in the country and stoke inflation.

“The budget — although positively aspirational — reeks of populist gamble, as the document doesn’t contain provisions to introduce radical reforms and is fraught with the risk of not meeting the revenue target and traditional execution challenges,” Swarnim Wagle, senior economist and former member of the National Planning Commission, told The Himalayan Times.

One example of the distributive programme incorporated in the budget is the decision to raise grants, under the Constituency Development Programme, for each of around 596 lawmakers to Rs 5 million from the existing Rs 2 million. Also, each of the 240 electoral constituencies will receive Rs 30 million under the Constituency Infrastructure Special Programme in the next fiscal — up from existing Rs 15 million.

Buget-Pie-ChartFunds extended through these programmes, government officials say, have had very little developmental impact because lawmakers use the money to build small projects, or use it to serve their vested interest or secure vote banks.

Yet the government has raised the budget for these programmes to please the lawmakers, which is expected to increase financial burden on the government by at least Rs 5.4 billion.

Budget-Pie-ChartThe government’s plan to dole out fund in this manner will push up spending on grants by around 27 per cent in the next fiscal year to Rs 262.7 billion. This amount accounts for 25 per cent of the next financial year’s budget.

Also, the government has decided to raise the salary of civil servants by 25 per cent in the next fiscal year. This will cause government spending on salaries and benefits to jump by 26.9 per cent to Rs 132.3 billion. This amount accounts for 12.6 per cent of next fiscal year’s budget.

Recurrent spending budget 2016/17

Amount in Rs billion

To finance expenses of these types, the government has appropriated Rs 617.2 billion for recurrent expenditure — up 27.4 per cent than in the current fiscal year.

recurrent budget use“Such a hike in recurrent spending exerts pressure on upcoming governments to give continuity to the trend, which is not good for financial health of the country,” said Wagle.

capital utilisation budget 2016/17Also, the government has expanded the size of capital budget by 49.3 per cent to Rs 311.9 billion. This money will be spent on civil works and purchase of land, building, furniture, vehicles, plants and machinery. This kind of expenditure generally helps the government to narrow the infrastructure gap, which is crucial for a country like Nepal that has been struggling to recover from a long spell of sub-par growth.

 

However, the allocation for financing provision, which includes lending to state-owned enterprises and principal repayment, has dropped by 5.1 per cent to Rs 119.8 billion.

These appropriations made by the government for various types of spending will now have to be approved by Parliament.

To fund expenses of the next fiscal year, the government is planning to raise Rs 565.9 billion through tax and non-tax revenue. Another Rs 10 billion will come through principal repayment and Rs 106.9 billion through foreign grants.

Tax and non-tax Revenue budget 2016/17The resulting deficit will be financed through foreign loans of Rs 195.7 billion, domestic loans of Rs 111 billion and Rs 59.4 billion from savings of this fiscal year.

“It is not known whether the government will be able to mobilise the financial resources to finance expenses for the next fiscal year as the (tax and non-tax) revenue target looks very ambitious,” Wagle said.

The government had fixed revenue collection target of Rs 475 billion for this fiscal year, which was 21 per cent of the gross domestic product. But the government is likely to meet only 96.8 per cent of the target by the end of the year.

Foreign grants and loans budget 2016/17

Amount in Rs billion

The government’s revenue collection drive took a hit this year because of blockade at the Nepal-India border points, which squeezed trading and other economic activities. But what also needs consideration is the windfall gain of around Rs 12 billion made by the government from advance capital gains tax collected from sale of stakes at Ncell, the largest private telecom company, which helped negate some of the losses. Despite this, the government is unlikely to meet this fiscal’s revenue target.

Considering this and the pace in which the economy is growing, it would be very difficult to increase the size of revenue to Rs 565.9 billion in the next fiscal, which is Rs 90.9 billion more than this fiscal year’s target, according to Wagle.

Yet the government believes higher spending in post-earthquake reconstruction works and construction of various physical infrastructure projects will help it meet the revenue target.

The government plans to spend Rs 140.7 billion in post-quake reconstruction and rehabilitation works in the next fiscal year.

The government has also earmarked Rs 5.3 billion to begin construction of 1,200-megawatt storage-type Budhi Gandaki Hydroelectric Project in the next financial year. Additional financial resources to the tune of Rs 7 billion will be raised for this project by levying infrastructure tax of Rs 5 on every litre of petrol, diesel and aviation fuel imported into the country.

appropriated budget 2016/17

Amount in Rs billion

Also, Rs 10 billion has been appropriated to begin construction of the much-talked-about Kathmandu-Tarai Fast Track; Rs 7.2 billion has been allocated for Gautam Buddha Regional International Airport; Rs 5 billion has been earmarked for Pokhara Regional International Airport; Rs 4.2 billion has been earmarked for construction of Postal Highway; and Rs 1.50 billion has been appropriated to acquire land required for construction of Second International Airport in Nijgad.

With spending on these infrastructure projects, the government expects the economy to grow at a roaring pace of 6.5 per cent in the next fiscal.

capital expenditure budget 2016/17

Amount in Rs billion

But what is evident is that the government always sets ambitious targets through fiscal policies but fails to deliver.

“This is likely to happen in the next fiscal as well because the (fiscal policy) is silent on implementation,” said Wagle. “This practice of making false promises will erode the government’s credibility and people’s trust on the state. This will not only affect the incumbent government but future governments as well.”

 


A version of this article appears in print on May 29, 2016 of The Himalayan Times.


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