Budget 2005 Institution building the basic mandate

Bihari Krishna Shrestha

The upcoming budget must sincerely act as a catalyst to “unleash the nation’s latent energies”.

Recently, the Management Association of Nepal (MAN) organised a discussion on the priorities for 2005 budget. Four strands of thoughts surfaced in the meet. Airing the expectations of the private sector, Rajendra Khetan presented a long and familiar list of recommendations: enhancing investment for industrial development, expansion of internal market and export, spurring the tourism sector, commercialisation of forestry and agriculture, WTO SAFTA-related preparations, and reforms in administrative, fiscal and tax regimes. Similarly, Professor Pushkar Bajracharya highlighted a number of chronic budget-related weaknesses “that undermine public sector performance”, such as poor planning, lack of link between policy making, planning and budgeting, poor cash management and expenditure control, inadequate funding of operations and maintenance, poor management of external aid, inadequate reporting of performance, and poorly motivated staff.

While it was also observed that an ambitious budget would be inadvisable, it was also pointed out that the 2005 budget comes against the backdrop of continuous developmental failings, now compounded by unprecedented challenge to national integrity. It must, therefore,

be able to capture the imagination of the expectant nation. For this, the budget should be much more than balancing government revenue and expenditure; for once, it must act as a catalyst to “unleash the nation’s latent energies”. While peace and security would be a high priority, the upcoming budget, more than before, has to assure that no section of this ethnically heterogeneous and socio-economically stratified nation should feel left out. Attention

was also drawn to the pernicious paradox of the Nepali economy; while more than two-thirds of the people remain in agriculture, they contribute increasingly less, now about only one-third, to the nation’s GDP, clearly indicating severe production, productivity and employment-related deficits being suffered by the rural people.

More compelling evidence in this regard has lately been brought to light by the Central Bureau

of Statistics. While the real per capita income for the average rural household increased by 27 per cent between 1995-96 and 2003-04, the “income gains among poorer households were significantly lower than those enjoyed by better-off rural households.” Real per capita income from crop production actually declined between 1995-96 and 2003-04, down by 0.5 per cent per annum. While poorer households are forced to depend on agriculture-related income, it grew far less than non-agricultural income. The wealthiest rural households receive more than 70 per cent of their incomes from non-agricultural sources. Close to half of the increase in real per capita income is attributable to remittances. Only the livestock sector, also amenable to the poor, has done well.

While a Nepali finance minister is always dogged by limited resources, he, however, cannot use it as an excuse for letting down the disadvantaged majority. Besides, given the magnitude

of the poor and poverty, even deficit financing with all its untoward consequences will allow him to go only so far and not farther. Therefore, he has to look beyond the numbers game, and into novel policy options for innovative measures. One such option, as suggested in the colloquium, would be to empower people to organise themselves for self-help action, so that each such organised initiative emerges as autonomous domain of savings and investments. One success story in this regard has been the user-managed community forestry, which was restored to its original glory in a mere decade or so, and has since emerged as significant source of funds for local development. While these forests constitute outstanding examples of the proposed autonomous domains, there are many other, albeit less known, instances too such as the Small Farmer Coops, which too have been able to generate substantial local savings and plough them back into the local economies. These are excellent examples of “unleashing the latent energies” of the people. These local undertakings need no budgetary support of the government nor generate pressures for increased money supply with inflationary consequences.

The focus of the upcoming budget should, therefore, be on institution building for the empowerment of various constituencies of people for self-help action including the private sector, whose numerous problems as listed above can hardly be addressed within the scope of one annual budget. Therefore, while the budget must enunciate appropriate policy measures, unlike in the Tenth Plan’s “policies” and “strategies”, proper and potent institutional arrangements too should be made to ensure their steady and sustained implementation. Laying the institutional foundation for growth and equity should be the basic mandate of 2005 budget, devolving the task of realising them to the respective constituencies themselves.

Shrestha is a former additional secretary