KATHMANDU, FEBRUARY 12
The Ministry of Finance has reduced the budget size for the current financial year by 14 per cent to Rs 1,549.99 billion through the mid-term budget review. The budget of Rs 1,793.83 billion for the current fiscal year was presented by former finance minister Janardan Sharma on May 29.
Primary allocation towards recurrent expenditure was equivalent to Rs 1,183.23 billion. This has been trimmed to Rs 1,021.92 billion.
Similarly, the initial allocation towards capital expenditure was Rs 380.38 billion million. This has been slashed to Rs 313.5 billion.
Likewise the initial allocation of Rs 230.21 billion towards financing has been decreased to Rs 214.21 billion.
Presenting the mid-term evaluation report of the current fiscal year at the Parliament today as per Sub-section 5 of Section 23 of the Fiscal Procedures and Financial Responsibility Act 2009, Minister Bishnu Paudel said although the government formed after the election was supposed to mobilise more resources to meet people's desire for development, the ministry has been forced to take drastic measures to balance the budget.
"The Parliament is aware that economic activities in all sectors have been affected due to the lingering effects of COVID-19. Besides, the war in Ukraine has disrupted supplies globally and the policies of major economies has added to the challenges of economic recovery. Besides, some short-term measures taken to keep the economy running during the COVID-19 pandemic were not reviewed on time and modified, hence, the problem increased. The half-yearly budget review shows the impact of import regulation and economic slowdown has negatively affected revenue growth and has put extreme pressure on the government's financial balance. There is thus need for strategy to control business disruption and revenue leakage resulting from the open border and the informal economy," he said.
Paudel said it was unlikely that the target of achieving economic growth rate of eight per cent would be met.
Although some increase in rice production alongside improvements in the tourism sector is expected, the manufacturing sector is not operating at full capacity. This has affected economic progress.
Similarly, the average consumer price index-based inflation has reached 7.26 per cent compared to the target of limiting it to seven per cent.
The total domestic credit also increased by 2.8 per cent while deposits collected by banks and financial institutions increased by 4.2 per cent in the first six months of the current financial year. Likewise, total exports slumped by 32 per cent, while total imports decreased by 20.7 per cent. Meanwhile, the trade deficit also narrowed by 19.2 per cent to Rs 711.86 billion.
Revenue collection also decreased by 24.8 per cent or Rs 490.40 billion compared to the target of Rs 651.62 billion in the first six months.
"The ministry has adopted a policy of maintaining budget balance, prioritising expenditure and increasing quality and capital expenditure, reducing non-essential expenditure and making the revenue administration more efficient, increasing tax compliance, and controlling leakages.
However, due to some structural limitations and international influences, it seems reform efforts will take time to give concrete results," he added.
The ministry has decided to adopt measures to reduce expenditure and revenue mobilisation.
The MoF has slashed its initial revenue collection target of Rs 1,403.14 billion to Rs 1,244.75 billion.
Programmes not yet approved for standards, procedures, guidelines, and operating methods will be suspended in whole or in part. Also, even though the standards, procedures, guidelines, and operating methods have been approved by the MoF, programmes not implemented before preliminary preparations are completed, will be fully or partially suspended.
The projects that have received resource consent from the MoF, but are yet to be implemented will also have to retake consent from the ministry.
The MoF has also directed concerned bodies not to propose new programmes and projects as it creates additional liabilities.
Concerned ministries can determine their budget and programme priorities and propose internal adjustment of resources to MoF accordingly.
Also, the unspent budget will have to be submitted to the MoF.
Likewise, the ministry has decided to make information exchange and coordination more effective among agencies involved in revenue leakage control. The ministry has also assured it will bring those involved in revenue leakage to book and ensure compliance with tax laws.
The government will mobilise high-level teams to control and monitor illegal imports and exports. Priority will be given to recovery of revenue arrears. Moreover, new bases and sources of non-tax revenue will be identified and service delivery will be made more effective. According to Paudel, the revised estimates of revenue and expenditure will lead to expansion of economic activity and improved revenue collection.
"If the revised estimate of revenue collection is not achieved, public expenditure will have to be tightened. For this, the ministry will periodically analyse the trend of the economy and estimate the challenges that may come, and based on that, make more policy arrangements," Paudel said.
More policy arrangements will be needed if expected improvements are not made
A version of this article appears in the print on February 13, 2023, of The Himalayan Times.
