Forthcoming Budget Political ambition and economic reality

People do not always expect immediate results but they need to see the effort.

The three political parties have signed and issued a Common Minimum Programme (CMP) but, interestingly, CPN-UML, at the last hour, refused to join the government without getting the No 2 ranking in Cabinet hierarchy. It is expected that problems will be solved amicably after the return of Prime Minister Prachanda from his Beijing trip. We will not be surprised, however, even if some new problems emerge as our leaders are well known to maximise their benefit from the emerging problems. True, irrational behavior is something rare in the individual but, in politics in Nepal, as the behaviour of political parties in the last few years also indicates, it is the rule. The first victims of such behaviour are the voters who have no doubt that neither political party even after CA polls is paying enough attention to their distress.

In the meantime, the President has called the Fourth Session of the Constituent Assembly (Legislature-Parliament) from September 5, 2008; it is also expected to discuss Annual Policy and Programmes as well as the Budget of the government for the current fiscal year. The budget, if the CMP is any guide, indicates real challenge to the new Minister of Finance for several reasons. First, he has limited time to prepare a budget based on the commitments of coalition partners, and the chairman of his own party. These commitments are not controversial but genuinely desired, but can hardly be implemented by a coalition government whose principal job is to prepare the constitution of the country. Second, the programmes have not been prioritised and clear dichotomy is visible in government commitments and availability of financial resources. Third, the Minister of Finance himself, as his recent interviews in the media indicate, seems to have severe difficulties to reconcile between his political belief and the economic programmes that he is expected to execute in the budget.

We do not have detailed official information on the state of the economy. After Jana Andolan II, the government had issued a White Paper to inform the public about the state of the economy. We cannot request the current government to do the same as two of the political partners of the coalition were also partners in the previous government. The available data of the past eleven months released by the Nepal Rastra Bank shows that the government revenue (Rs.90. 2 billion) was barely sufficient to meet regular expenditure (Rs.73.0 billion) and repayment of the principal of loans (Rs. 14.0 billion). It is, therefore, obvious that only about 10 percent of capital expenditure of Rs.28.0 billion was financed by surplus in regular expenditure. The rest was financed either by foreign aid or by deficit financing, largely the latter as the foreign donors too were adopting a wait and see attitude.

We can not expect substantial changes in the current trend. The new government has few fiscal and monetary options to move in the new direction within a short period. The government, of course, can introduce several new measures to mobilise financial resources to attract investment, to reduce existing income disparity, and to provide basic services at the grassroots level. It will generate impact, however, only after a lag —the time interval between the initiation of policy and its effects — and a lag that is both long, at least about a year according to Nobel laureate Milton Friedman, and variable. It is estimated that in the current fiscal year the economy will show only minor deviation from past trend. Neither foreign aid nor deficit financing can be a dependable source. In addition, the foreign investors are expected to follow a watch and see policy. By the time, the government can generate the confidence, the preparation of the constitution will be in full swing. It is not necessary to recall that the election of April 10 was for the Constituent Assembly; it has also to act as House of Representatives rather than the other way around.

We, therefore, suggest that the Minister of Finance should not make any heroic pronouncements. It is better to acknowledge the current economic problems without any hesitation that the voters already know: declining income, rising prices, maintenance of overvalued exchange rate with Indian currency, extreme shortage or non-availability of basic goods, including fuel. The public already knows that the economy is in deep crisis, and that the political parties are preoccupied in their own problems.

The question is: how should the government develop and implement policy and programmes? More than growth and development, people need to see signs of development. They do not always expect results but they need to see the effort. They must trust that they have a competent and capable government and the international community is not ignoring them. It is in this direction that the government should frame and implement policy rather than making unrealistic announcements. The politicians have to develop a character rather than depend all the time on methods.

Dr. Pant is executive director, Institute for Development Studies