Foreign loans to Nepal decline by over 80 per cent

Gopal Tiwari

Kathmandu, April 29:

Nepal is facing a massive decline in foreign loans by over 80.9 per cent on cash basis, leading to a low cash balance in government accounts. During fiscal year 2003-04, Nepal had received

foreign loans (on cash basis) worth Rs 7,183.5 million which declined to Rs 1,375.4 million in fiscal year 2004-05, a recent review published by the Nepal Rastra Bank revealed. During first eight months of the last fiscal year, the government had a cash balance of Rs 4.2 billion which has gone down by over 50 per cent to stand at two billion rupees, during the same period this year. Dr Chiranjibi Nepal, faculty member of Central Department of Economics, Tribhuvan University commented that Nepal would not get more foreign loans unless its

‘democratic institutions’ become ‘functional’. Foreign countries, before giving loans to Nepal, also see whether the market economy is functional or not, Nepal commented. Commenting on the steep decline in foreign loans being received by Nepal, Rajiv Upadhyaya, senior external affairs specialist at the World Bank, Nepal attributed the low foreign loans to slow reforms and weak implementation of government programmes.

Another worrying factor for the government is a decline in the growth of revenue collection to 10 per cent from 14.6 per cent during the last fiscal year. Increased conflict, low business activities with closure of industries and massive unemployment are cited as reasons for the decline in revenue growth. In the middle of the current fiscal year, the government raised value added tax (VAT) to 13 per cent from the earlier 10 per cent in an attempt to boost revenue collection, which might just prove to be counterproductive. Meanwhile, the ministry of finance has downgraded development expenditure from Rs 32 billion to 25 billion for the first six months of the current fiscal year due to ‘weak business and economic activities’.

The growth rate in foreign assets has also declined to four per cent from 12 per during the same period last year.

The government, in its review, has also downgraded its absorptive capacity to 8.7 per cent compared to 10.9 per cent during the last fiscal year. Given this dismal economic backdrop, it would be a tough call on the government to present an annual budget for fiscal year 2005-06.

Experts feel that recent developments have invited a ‘budgetary crisis’ and the government is steadily moving towards a ‘critical state’ in relation to the nation’s economy. “Over-ambitious and unrealistic targets have led to an alarming drop in foreign aid and loans. Drop in revenue collections and continuing uncertainties are likely to hurt future economic planning,” commented Upadhyaya.