The famished road
T he prediction by the Institute for Development Studies (IfDS), a research firm, that the government will go bankrupt before the end of the current fiscal year unless corrective measures are taken, the contradiction of this assessment by the minister of state for finance, Dr Roop Jyoti, and a prompt statement issued by IfDS sticking to its stand — these things have generated a lively public debate about where the Nepali economy is heading for. Most economists have also warned of the dangers looming over the economy. This bankruptcy debate has also drawn the attention of the diplomatic community and raised their concern.
In his defence, the state finance minister issued some economic data and made some claims: for example, the collection of Rs. 31.58 billion in government revenue during the first six months (the annual target is about Rs.82 billion); the release of over Rs. 47 billion for government spending; Indian currency reserves are said to be normal (but the figures were not supplied); the inflation rate is said to be ‘within limits at seven per cent’ during the year, etc. However, the state finance minister has yet to make it clear how he has filled the gap between revenue collection and expenditure amounting to some Rs.16 billion. This failure has, naturally, led to charges of the lack of transparency in the government, at a time when the parliament does not exist and the government’s legitimacy is widely disputed.
IfDS, which has based its assessment on official data, has projected the yearly inflation rate at nearly 28 per cent, far more than the central bank’s projection. According to Dr Roop Jyoti, there is no need to worry as the main economic variables are sound, while most economists agree the economy continues its slide, with zero or negative economic growth. There are clear indications that in the second half, the economy is more likely to go down further, together with the deteriorating political and security situation — for example, because of the current week-long bandh, over 90 per cent hotel bookings are said to have been cancelled by tourists who constitute a major source of foreign exchange. Under such a scenario, IfDS estimate of the collection of Rs.76 billion as government revenue by year-end seems to many economists a generous one. The likelihood of a low revenue collection and the difficulty of cutting down regular expenditure suggest that the government may well have to resort to some extraordinary measures to meet its obligations. All this calls for the need for more debate on the issue as well as for solid corrective action.