Will Oli be able to fulfil his promises?

Kathmandu, December 17

Following the electoral windfall in the parliamentary and provincial polls, the Left alliance has tried to take the private sector into confidence and organised a press meet today. During the press conference both head honchos of the Left alliance — Chairman of CPN-UML, KP Sharma Oli, and Chairman of CPN  Maoist Centre, Pushpa Kamal Dahal — assured the private sector that government of Left alliance will not backtrack from prevailing economic policies.

Addressing the press conference, Oli, who is portrayed to be the next prime minister of the government that will be formed with a new electoral mandate, said that the upcoming government will be committed to execute the election manifesto for economic prosperity of the nation.

“We are accused by our rival forces that we are not committed to liberal economy and they have tried to scare us that there will be capital flight during our regime. This is false accusation against us,” stated Oli. He said that the private sector will get cooperation and facilitation from the government like they have never witnessed before.

However, the statements of Oli and the top leaders of the Left alliance have given enough space to doubt them. During the election campaign, Oli himself had announced that the social security allowance to senior citizens will be raised to Rs 5,000 per month and the allowance will also be provided to the marginalised, disabled and single women when the Left alliance comes to power. Oli’s announcement has raised questions on how the Left alliance government will generate the resources to raise the social protection allowance or did he just mention that to influence voters. On the other hand, the government cannot raise the social protection amount unless the parliament allows the government to do so through endorsement of annual budget proposed by the government.

Currently, around 289,282 people obtain social protection allowance from the government and the liability to the government is around Rs 32.69 billion in this fiscal. As the government has been facing challenges to manage resources for the federal set-up since the recurrent expenditure is expected to shoot up, Oli, who is most likely going to be the prime minister of the Left alliance government has no option other than to raise tax rates, introduce new tax slabs and raise domestic debt to fulfil his promises.

In this context, the private sector will have to bear the cost of Oli’s promise of raising social protection amount. Rise in tax rate will have an adverse impact on private sector growth and on the other hand, there will be a crowding out effect on the private sector if the government resorts to the option of raising domestic debt. The government normally does not surpass the ideal threshold of five per cent of gross domestic product (GDP) while raising domestic debt.

It will not be possible to raise social protection amount through foreign assistance, a senior economist said on condition of anonymity. “Likewise, the businesses run by the CPN UML under the guise of cooperatives are expected to thrive as the UML leaders are involved in running businesses in cooperative model obtaining state sponsored subsidies offered for the cooperatives (production based), which will be a major challenge for the private sector in the future.”