Nepal | August 08, 2020

Govt’s “copy-paste” policy & programmes

While the government is trying to portray that all aspects of good governance are functioning smoothly, the ground reality is starkly different.

Udaya Shumsher Rana
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Kathmandu, May 19

President Bidhya Devi Bhandari presented the government’s policies and programmes for fiscal year 2020-21 to the joint session of the Federal Parliament on May 15. This year’s policies and programmes were eagerly awaited as the COVID-19 pandemic was posing unprecedented challenges to the wellbeing of the people and stability of the economic order.

Most nations have announced and introduced coronavirus stimulus packages. Prime Minister of India Narendra Modi recently put forward a massive relief package of 20 lakhs crore Indian rupees, the value of which measures to nearly 10 per cent of India’s GDP. Similarly, the value of the fiscal stimulus announced by the USA is about 12 per cent of its GDP, Germany 10.7 per cent, South Korea 2.2 per cent, China 3.8 per cent (as of May 10) and so on. A joint statement of the FNCCI, CNI and Nepal Chamber of Commerce has sought a similar stimulus package totalling Rs 180 billion (about 5% of our GDP). But there is no mention of a stimulus package in the government’s policies and programmes.

The Nepali Congress (NC) has formed a High Level Economic Committee under the chairmanship of Ram Sharan Mahat to analyse the current crisis and recommend policies to the government to minimise the possible adverse effects of COVID-19. The committee members include former NC finance ministers and vice chairpersons of the National Planning Commission. Minendra Rijal, in his capacity as the shadow finance minister, has repeatedly assured full support of the NC to the government in a national effort to meet this catastrophic threat, and recommended involving all parties in the Federal Parliament for their opinion in shaping the policies and programmes, within the scope of an agreed basic minimum understanding, approved unanimously by the House. Such an approach should generate the much-needed trust and confidence, and ensure greater ownership and commitment of the people at large. One may recall that such an approach adopted by the Sushil Koirala government, following the earthquake of 2015, had proved its merit.

While the government is trying to portray that all aspects of good governance are functioning smoothly, the ground reality is starkly different. Even at this time of grave national crisis of COVID-19, the NCP government is caught up in a bitter power struggle, forcing it to issue two ordinances related to that power game, covering up malpractices and corruption cases, and enforcing draconian measures to curb civil rights and liberties, including an attempt to kidnap a Member of Parliament from another party.

On the economic front, the situation is no better as per the half-yearly evaluation of the Finance Ministry. At the end of the sixth month of the fiscal year, capital expenditures stood at a mere 15 per cent, revenue collection at 40 per cent, while less than 20 per cent of projected foreign grants were received. Subsequently, the overall expenditure target was reduced by 10 per cent, the bulk of which was on capital expenditure.

A review of ministry-wise expenditures also shows that sectors with large allocations had under-spent conspicuously: Physical Infrastructure (31% of its allocated budget); Energy (6.7%); and Reconstruction (22%). On Projects of National Pride (PNP), where Rs 102.8 billion was allocated, only Rs. 20.4 billion was spent as of January. With only about two months left for the fiscal year to end, the government has raised just Rs 606 billion (55% of the revenue target). With expenditures standing at Rs 749 billion (49% of the total projection), there is likely to be a big financial gap to fill.

While the slowdown in the past seven weeks has crippled the economy, the government cannot blame the economic stagnation on the onslaught of COVID-19. Growth projection had already fallen from 8.5 per cent to around 6 per cent before COVID-19 intensified, and is now estimated to fall below 2.3 per cent as per the latest projection. The government’s revenue collection and expenditure were significantly off-target even before the pandemic-related lockdown.

Ironically, the policies and programmes read by the President has been more or less a “copy paste” of the last two years. The government must realise that this year is extraordinary, and we need to take extraordinary measures. We need to cut down on the expenditure, especially the recurrent costs, and reduce the overall size of the budget. The government needs to prioritise projects and either downsize or revoke projects that lack urgency. But the policies and programmes shockingly fail to acknowledge this new fiscal reality and continue with the spendthrift practices of the past.

Our recurrent expenditure has generally been high relative to the capital expenditure. In the budget for fiscal year 2019-20, the recurrent expenditure was Rs 957 billion and capital expenditure Rs 408 billion. But since the government generally under-spends the capital expenditure, the actual budget expenditure ratio of capital to recurrent expenditure is much lower. Even before the COVID-19-related lockdown started, the recurrent expenditure and capital expenditure had been revised to Rs 904 billion and 326 billion respectively. Despite this, the government does not have any policies to reduce the recurrent expenditure, and there are no sign of any austerity measures.

Particularly galling is the fact that the government has ignored the recommendations of the Public Expenditure Review Commission 2075, which it had formed by including economists close to the ruling establishment. Some of the committee’s recommendations were simple and doable. For example, of the 206 development committees, commissions and boards, 123 can either be dissolved or merged; a number of departments and ministries also can be reduced.

In 2018-2019, 9 per cent of the (actual) total expenditure was used for the payroll of 488,964 civil servants, army, police and teachers. Grants (39.9%) and social security (10.2%) were the next two big items in recurrent expenditure. These need to be revised and allocated to capital formation. Discredited projects such as the Constituency Infrastructure Development Fund, disbursed to the MPs, should be abandoned.

In 2018-2019, government purchases of goods and services amounted to 3.46 per cent of total expenditure, exceeding shares for health (3.24%) and education (3.26%). Under capital expenditure, Rs 7 billion was spent on vehicles and furniture. The much touted Prime Minister’s Employment Fund has made little impact on generating stable income for the genuinely needy. The government should concentrate on creating a conducive atmosphere for investments and employment rather than get involved in direct intervention in implementation.

Several of the policies and programmes proposed are futuristic and infeasible. For example, railways and waterways projects have no clear and present market. It indicates that the government is unable to properly prioritise projects. There are no concrete measures in the policies or programmes for establishing new ICU wards, procuring ventilators and personal protective equipment (PPE) to meet the urgent needs of those involved in the health and security sectors, who are risking their lives to save ours.

In the budget, the government needs to come up with an economic stimulus package that should have three specific goals. First, identify the damages suffered in terms of income and job loss on sectoral bases and give available support to them so that they do not shut shop and are able to retain as many employees as possible. Most attention needs to be given to the tourism and transportation sectors, which are the foremost victims of this crisis.

Second, distribute relief (mainly) food packages to the poor and the needy for the next 3 to 6 months. In this respect, the government will need to work through the local government. Also the supply chain must be maintained for easy movement of essential commodities. Third, it must design a proper financial and banking stimulus. The stimulus should reduce the interest rate, offer refinancing options, defer installment payments, waive interest for businesses that have borrowed less than Rs 2 million for the crisis duration, and ensure that businesses do not suffer due to the sub-optimal containment efforts.

Finally, no one can disagree with the basic assessment of the policies and programmes document that human life is the most vital factor for consideration: once lost, it cannot be retrieved, while the economic losses can be recovered in due course of time. One must, however, remember that if the wheels of production, in agriculture, trading and industries are derailed for long, human lives will face mortal danger of extinction, even without the attack of the virus.

Rana is former State Finance Minster and Member of NC Special Economic Committee

 


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