It is correctly claimed that a unique feature of the budget for the current fiscal year, with its 32 pages, 210 paragraphs and 2,519 projects, presented by the Finance Minister is to force the readers to re-read it. The reason is simple. Firstly, he is vague about his intention with numerous pronouncements with the possibility of double interpretation (for example, allowance for the King) and, secondly, he seems incapable of making himself understood.

In particular, no coordination is maintained between the speech, on the one hand, and the quantitative information presented in the budget, on the other, which gives the impression to most of us that there is no shortage of financial resources and the economy is moving in the right direction. The Finance Minister knows this is not correct, but he never bothers to correct the false impression. On the contrary, he further claims that “government revenue is increasing, deficit is under control and capital expenditure is high and rising”. We are also informed that gross domestic product (GDP) will rise by 5 per cent in the current year almost in accordance with the target set by the Interim Plan that is still to be approved by the cabinet.

Alas, between the pronouncements and the reality falls the shadow. This article is designed to prove this by analysing (i) the current status of the economy with the help of quantitative information provided in the budget documents; (ii) and the economic structure that the next government, formed after the Constituent Assembly (CA) elections in November, will inherit.

The government revenue in the current fiscal year, according to budget speech, will reach Rs. 103.7 billion, an increase of 20 per cent from last year compared with a projected growth of 10 per cent in GDP at current price. It is, no doubt, a very optimistic, if not unreliable, estimate. Still, it is not sufficient to meet the rising regular expenditure and to pay back principal on the loans. As a result, the government has no financial resources to finance capital expenditure and, to the extreme, even to provide counterpart funds of the available foreign assistance. The government has proposed to borrow Rs. 20 billion from the domestic market of which Rs.10 billion is expected to be used to meet regular expenditure and the rest as counterpart funds of capital expenditure. The financial part of the budget is now completed. And it is obvious that our capital expenditure is fully dependent on the availability of foreign assistance and on the condition imposed by the donors. We have very limited choice, and the national development activities depend almost entirely on private sector and donors.

It would have been much more helpful for the policy and programme development had the Finance Minister explained in detail the current economic situation in clear terms instead of going into unnecessary details project by project. It is obvious that current available internal resources are barely sufficient to meet non-capital expenditure and, at the same time, the foreign assistance is not coming as expected and announced by the Finance Minister. In the fiscal year 2006/07, foreign grants increased only by a meagre 15 per cent, lower than the normal trend, and foreign loan mobilised by the government was 40 per cent lower than the official target. The prospects for the current year are not encouraging either, despite the liberal budget estimate that the total foreign grants would increase by 72 per cent compared with 15 per cent last year, not much higher than the rate recorded in the Royal regime!

Against this background, the budget estimates the growth rate to reach 5 per cent this year against 2.5 per cent growth last year. This will, using the estimates on capital output-ratio used in the Interim Plan, require an investment of Rs. 161 billion in the current year to be

financed by the government and private sector. The government contribution from its own source is just Rs. 10 billion but it is envisaged that foreign aid will reach 45 billion. Still, the private sector has to invest Rs.107 billion or 15 per cent of the national income! It can be taken as a pious wish of the Finance Minister rather than a feasible goal of the interim government.

The question that will naturally emerge from the above discussion is straight and clear: what policy options the post-CA government will inherit from the current government. The answer, of course, will not be encouraging. The government has to depend fully on the private sector and, to some extent, on foreign donors to move the system in a desired path, but it will be foolish to assume that the market will solve every problem of the country, including growth, unemployment, inequality and environment. More importantly, how can we establish a federal state that is financially self-sufficient when the central government itself is barely surviving? These vital questions have remained unanswered. A great opportunity is lost.

Dr Pant is executive director, Institute for Development Studies