Nepal | October 18, 2019

‘Govt’s budgetary priorities should not change every year’


Rupak D Sharma

The Asian Development Bank, the Manila-based multilateral lender, held its 52nd annual meeting in Fiji from May 1 to 5. The annual meeting provides an opportunity to ADB governors, who are generally finance or economic planning ministers of member countries, to engage in discussions on economic and social issues facing the Asia and the Pacific. Over 2,000 delegates from Asia and the Pacific took part in the meeting held with the theme, ‘Prosperity Through Unity’. A Nepali delegation led by Finance Minister Yubaraj Khatiwada, who is one of the ADB governors, also took part in the meeting. Rupak D Sharma of The Himalayan Times met Minister Khatiwada on the sidelines of the event to discuss issues raised by the government during the meeting, Nepal’s plan for graduation from the league of least developed countries and preparations being made to formulate next fiscal year’s budget. Excerpts: 

How did the meetings go?

I held several meetings on the sidelines of the event. One of them was with ADB President Takehiko Nakao. I thanked him and the ADB for the support they extended to Nepal in the aftermath of the devastating 2015 earthquake. I also thanked the ADB for approving the proposal to provide debt finance for 216-megawatt Upper Trishuli-1 Hydroelectric Project. Another issue that I raised was regarding Nepal’s plan to make a transition from least developed country (LDC) to a developing nation. I have asked the ADB to continue providing concessional loans to Nepal during the transitional period. The ADB president has responded positively. I also sought ADB’s support in social sector development as Nepal’s constitution has enshrined access to education, healthcare, drinking water and housing as a fundamental right. The ADB president said ADB’s portfolio in Nepal has expanded substantially and that he was happy the country is gradually enhancing its fund absorptive capacity. He, however, noted that Nepal needs to further enhance its fund utilisation capacity if it wants ADB’s Nepal portfolio to further expand.

You just touched upon the issue of LDC graduation. Nepal is technically qualified to become a developing nation as it has met two of the three criteria set by the United Nations for LDC graduation. However, the government has declined to make the transition citing its inability to meet the per capita income threshold. Are you trying to say Nepal will now push for graduation even if it does not meet the income criteria?

I think Nepal will meet the UN’s per capita income criterion for LDC graduation by 2021.

The UN’s income criterion for LDC graduation was $1,230 during 2018 triennial review. That threshold will be revised upwards by the time Nepal applies for graduation. Will Nepal be able to meet the new threshold by that time?

We’ll have to look into that issue as well. But I think our per capita income will be over $1,200 by the time we apply for graduation. In my opinion, Nepal should not remain stuck in the LDC category. What we should look for is concessional loans from development partners for three to five years after graduation to enhance our capacity. That means even if we graduate in 2022, we need the concessional lending window to be open till 2025. I have asked the ADB president to consider this request and he has responded positively.

The government has started formulating budget for next fiscal year. What are the highlights?

The budget will be framed as per the spirit of the Policies and Programmes made public by the government on Friday. The budget will give continuity to programmes and projects introduced in the past. The government’s priorities should not change every year. We should try to implement programmes and projects introduced in the past in a better way to ensure they are completed on time.

The government still has not changed the way it frames the budget and neither has it enhanced its spending capacity. Won’t that create problems in budget utilisation in the next fiscal year as well?

The way we formulate budget is pretty scientific. We use Line Ministry Budgetary Information System for allocation of funds for programmes and projects. The provinces will also use this system to formulate their budget from now onwards while local levels will use Sub-national Treasury Regulatory Application (SUTRA), a planning, budgeting and accounting software, to prepare their budget. So, we have systems in place for budget formulation at all levels. The main problem is in budget execution. The government could not properly monitor budget implementation in the current fiscal year as it was drafting new laws till mid-March. But we can’t use that as an excuse any more because most of the laws have been framed. So, the challenge is to implement budget from the first day of the next fiscal year.

Has the government finalised growth estimate for the next fiscal year?

No, we have not. It will be in line with the growth target set by the 15th periodic plan. The government will focus on enhancing performance of sectors that will help us attain growth of over nine per cent as forecast by the periodic plan.

The 15th periodic plan states Nepal’s growth rate will average 9.6 per cent per year in the next five years and investment of around Rs 9.3 trillion is needed to attain that growth rate. But these projections were made using an obsolete Harrod-Domar model, which is not a reliable tool to make forecasts on growth and investment needs. Considering this, can Nepal attain growth rates projected by the 15th periodic plan?

There is nothing wrong with the model that we have used to forecast investment needs. This model is referred to as top-down approach. There is also a bottom-up approach which is called needs assessment approach. We relied on the needs assessment approach to identify investment needs while pursuing the Millennium Development Goals and the Sustainable Development Goals. But either way, you will come to the same conclusion. So, the figures on investment needs mentioned in the 15th periodic plan are reliable.

But why can’t the government enhance its data collection capacity so that more sophisticated tools can be used to get a better understanding of the country’s investment needs?

We have to rely on the bottom-up approach to perform a rigorous exercise. The problem now in Nepal is not about availability of resources. It’s about proper allocation of resources to generate better outcomes. So, if we can utilise available resources in an efficient and effective manner, the outcomes will be better.

A version of this article appears in print on May 07, 2019 of The Himalayan Times.

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