The government’s expenses are increasing rapidly while its revenue is falling way behind. The latest official statistics speak for themselves — this week the treasury reserve was Rs.1.5 billion, and last week it was Rs.550 million. The country is in political transition, and its financial promises and needs have also increased. In the days to come, therefore, the state’s thirst for funds will grow. But the budget deficit has approached Rs.10 billion during the first five months of the fiscal year — it was a surplus figure last year. If the current trend of revenue and expenditure continues throughout the year, the budget deficit could reach as much as Rs.40 billion or roughly 8 per cent of GDP — undoubtedly an alarming ratio in a normal year, all the more so at a time of not much economic growth. Non-budgetary expenditure has shot up similarly. Finding the Rs.10 billion of deficit financing inadequate, the government has withdrawn from the Nepal Rastra Bank during the first quarter an overdraft of Rs 3.6. billion, out of the statutory ceiling of Rs.4.31 billion.

Many other signs are not hopeful, either. Nepal’s trade deficit has gone up alarmingly — nine-fold from 1990 to mid-2007, that is, from Rs.14 billion to Rs.131 billion. The major share of it is with India, Nepal’s largest trading partner by far. That means Nepal has progressed unsatisfactorily on both export and trade diversification fronts. Besides, whatever revenue growth has been registered has been due to the increased collections of import duty, which is often heavy, on the swelling imports; not because of the real growth of the economy. The country’s balance of payments has for the first time in five years been in the negative — by Rs.5.8 billion in the first quarter. Similarly, foreign exchange reserves have been declining, and Nepal continues to meet the shortage of Indian currency with difficulty, by exchanging huge sums of hard currency. The problem of capital flight probably has also to do with it significantly.

The government can meet the cash crunch by either increasing its revenue collections rapidly enough, by sharply reducing its expenditure, or by getting somebody to help with grants or loans. Indeed, the finance ministry has been requesting donors to provide sufficient budgetary support, and even to allow the government to spend the money as it chose. Even if such help comes along, it will only be a temporary relief. The government needs to improve its finances through its own measures. The current state of affairs only seems to strengthen the charge that the government is not paying enough attention to the economy. Even if the government’s total revenue this year could barely meet its recurrent expenditure, it might seem to be some consolation. Finance ministry officials are reported as saying that the government is planning cost-cutting measures, such as restricting official trips abroad and purchases of land and vehicles. The public has heard of such things in the past, too. Anyway, these are just peanuts. Sadly, the government does not seem to have any concrete plan, except the hope of foreign loans and grants.