Friday, June 22, 2018

Kerung-Kathmandu railway, cartelish NBA and dysfunctional ICP

From The Kathmandu Post: Nepal and China have signed a landmark accord to develop a cross-border railway line that will connect the Tibetan town of Kerung with Kathmandu, calling the Cooperation for Railway Connectivity “as the most significant initiative in the history of bilateral cooperation”. The two sides signed the memoranda of understanding on Thursday following hour-long delegation-level talks at the Great Hall of the People.

This follows nine agreements signed by Nepali and Chinese public and private sector companies on Wednesday, with major ones being: Investment Board Nepal (IBN) and Huaxin Cement Company of China to develop a Rs15-billion Huaxin Narayani Cement; Butwal Power Company and Sichuan Investment Group (SCIG) to work together on Marsyangdi Cascade to produce 1,000 megawatt electricity; Nepal Electricity Authority and China’s State Grid Corporation will construct a 159-km Kerung-Galchhi transmission line.

In a visit where connectivity was the political buzzword, the two sides agreed to encourage Nepali and Chinese airlines to operate additional direct flights between the two countries. They will also speed up the construction of the Pokhara International Airport.

Though it was not explicitly stated which of the China-assisted projects fall under BRI, the two sides agreed to intensify implementation of the MoU on Cooperation under the Belt and Road Initiative to enhance connectivity, encompassing such vital components as ports, roads, railways, aviation and communications within the overarching framework of trans-Himalayan Multi-Dimensional Connectivity Network.

**Here is an excerpt from joint statement between Nepal and the PRC:
The two sides agreed to intensify implementation of the Memorandum of Understanding on Cooperation under the Belt and Road Initiative to enhance connectivity, encompassing such vital components as ports, roads, railways, aviation and communications within the overarching framework of trans-Himalayan Multi-Dimensional Connectivity Network. The two sides also agreed to take practical measures to promote cooperation in all fields contained in the MOU. The Nepali side conveyed its readiness to facilitate more Chinese investment in infrastructure building and in other productive sectors. In this regard, the Nepali side expressed its willingness to welcome further investment from Chinese enterprises and, in accordance with Nepali laws and regulations, simplify the related approval procedures on applications related to land, taxes and visas in an efficient manner, and create a favourable investment climate and business environment for Chinese enterprises.
Both sides agreed to reopen the Zhangmu/Khasa port at an early date; improve the operation of the Jilong/Keyrung port; ensure the sound operation of Araniko Highway; and carry out the repair,maintenance and improvement of Syaphrubesi-Rasuwagadhi Highway and push forward the construction of a bridge over Karnali river at Hilsa of Pulan/Yari port at an early date. To ensure the inter-connectivity and smooth running of the infrastructures above, the Nepali side will complete the disaster treatment around the Tatopani Port and along the Arniko Highway, maintain Kathmandu-Syaphrubesi Highway in operational condition.
Both sides expressed happiness over the signing of the MOU on Cooperation for Railway Connectivity. They underscored it as the most significant initiative in the history of bilateral cooperation and believed that it would herald a new era of cross-border connectivity between the two countries. Both sides agreed to make good use of the long-term communication mechanism on railway cooperation between government departments and promote railway cooperation. The Chinese side agreed to provide such support as in technology and personnel training.
The two sides agreed to encourage Chinese and Nepali airlines to launch/operate more direct flights between the two countries in accordance with provisions of the bilateral air service agreement between the two countries. Both sides will coordinate closely to speed up the construction of the Pokhara International Airport so that it would start operation at an early date.
The two sides expressed satisfaction over the successful commercial operation of China-Nepal cross-border optical fiber cable and agreed to further strengthen cooperation on information and communications for mutual benefit.

Birgunj ICP fails to please importers

From MyRepublica: Importers claim that the transportation of goods through the ICP has been inefficient and costlier than before. Although the replica infrastructures were constructed in both sides of the Nepal-India border so as to ease and advance trade and customs, the experience importers have faced transporting goods through the ICP is far from what was expected.

Om Prakash Sharma, president of Birgunj Chamber of Commerce stated: “The ICP has created more problems and the entry process of vehicles is very slow. As a result, containers are lined up for up to 25 kilometers.” He added, “Besides, the Indian security forces are not well-behaved. Entering the ICP, which was built to strengthen mutual trade relations, gives people the feeling as if they are entering an army camp and drivers are thus not willing to enter the ICP. Extortion of funds by Indian security forces is prevalent and at an increasing trend outside the ICP. Those who do not give the demanded money have to wait for an entire week and have also faced manhandling by the security forces outside the ICP. However those who pay between IRs 500 to IRs 1,000 per vehicle, are easily allowed to enter the ICP. 

From The Himalayan Times: The Nepal Bankers’ Association (NBA) has once again decided to regulate deposit rates without providing assurance of reining in runaway lending rates. This is an indication that commercial banks are more interested in reducing their expenses by forcefully lowering deposit rates, while maximising their income by keeping lending rates high.

The NBA today barred all 28 commercial banks from offering annual interest of over 11 per cent to retail depositors who park money in fixed deposit accounts. The interest threshold on funds deposited by institutional depositors in fixed accounts has been set at 10.5 per cent. The NBA has also said yields on money parked in savings deposit accounts should not exceed seven per cent.

Here is my earlier pieces on interest rate volatility, slack NRB, and cartelish NBA.

Sunday, June 17, 2018

Brief overview of the first provincial FY2019 budgets

As per the constitutional provision, finance and planning ministers of the seven provinces presented their FY2019 budget to their respective provincial assemblies in mid-June. The budget envelope is very close to estimated federal fiscal transfer and revenue sharing. This is the first time the provinces have presented a full budget (earlier they presented a trimmed version of FY2018 budget wholly based on fiscal transfers from the federal government).

Province 1 has the highest budget, followed by province 3 and province 2. The provinces have used federal fiscal equalization and conditional grants as well as their share of federal revenue to cover recurrent and capital spending. Capital budget for provincial projects and recurrent budgets for social services (education, healthcare, etc) are pretty much dictated by the way the federal government allocates grants to them. Karnali is the sole province that has allocated spending under financial provision (which is generally used for internal loan and share investment in public enterprises or investment projects). Here is general budget envelope:
  • Province 1: NRs35.9 billion 
  • Province 2: NRs29.8 billion
  • Province 3: NRs35.6 billion
  • Province 4: NRs24.0 billion
  • Province 5: NRs28.1 billion
  • Karnali: NRs28.3 billion
  • Province 7: NRs25.1 billion

Federal transfers (fiscal equalization, conditional, special and matching grants) and revenue sharing form the basis for their revenue plan. In fact, total federal fiscal transfer and revenue sharing account for over 90% of provincial budget. The highest internal revenue target is set by province 3 (NRs 9.3 billion), followed by province 1 (NRs 3.7 billion) and province 5 (NRs2.4 billion). The lowest internal revenue target is set by province 2 (about NRs10 million). 

A substantial portion of the budget is allocated for capital spending (federal fiscal transfer constitutes almost all of the capital budget of five provinces). This in a way is consistent with the fiscal equalization and conditional grants from the federal government, which categorizes such spending as recurrent expenditure. So, the total size of the budgeted capital expenditure is going to increase now. Technically, this was the case before as well because sub-national governments were using them in capital projects, but this time there will be proper record of how much is spent at provincial level. There is such allocation for local governments too, but it may be difficult to aggregate their spending like in the case of the first two tiers of government.  

Provinces 2 and Karnali are planning to borrow about one billion rupees to finance budget deficit. It is not clear how exactly they are going to do it (or there are rules and regulations ready for them to do so). So, during the first year of operation itself, these two provinces are going to take loans to cover budget deficit.

Note that this is the first time the provinces are going to actually implement budget on their own, i.e. under their own jurisdiction and accountability mechanism. Previously, these were dictated by federal government. Now, the likelihood of effective and robust governance and accountability feedback is much higher. This should ideally get reflected as higher capital budget absorption rate (federal government’s track record in this is terrible). 

The size of provincial budget is small right now. These will increase as they gradually master the art of raising internal revenue and budget making. It would be interesting to see how they will implement their budget. But for that they will need a slew of subnational laws, policies, regulations and institutional frameworks. So expect under-spending for some years and messy implementation, planning and budget making process. Currently, the budget documents and speeches are either not well prepared following prescribed standard format or are similar to the federal budget speech (province 5 has a pretty good one though). The provincial budgets are truly distributive if we consider the size of their revenue.  

Total budget allocation (federal and provincial) is as follows: 
  • Budget: NRs1522 billion (about 44% of GDP)
  • Recurrent: NRs930.8 billion (61.2%), about 27% of GDP – this includes fiscal transfers/grants to subnational governments, which then use it to cover both capital as well as recurrent expenses
  • Capital: NRs435.1 billion (28.6%), about 12.5% of GDP
  • Financial provision: NRs156.1 billion 
Here is an overview of FY2019 budget (more details here and here)

Saturday, June 16, 2018

Interview: Ample ground to be optimistic

It was published in Business 360, June 2018.

Sapkota was in Nepal in May for a brief visit during which he was part of an event titled ‘Ke Samriddhi, Kosko Samriddhi’ in which he spoke about the current economic state of Nepal, and his ongoing research and findings.

B360 had an opportunity to question Sapkota about Nepal’s economy and challenges. Excerpts from the interview:

During your presentation at the event organised by Nepal Economic Forum, you stated that if the government invests in a sector, then private investment will also increase by about threefold. You also mentioned in one of your articles that private gross fixed investment, which averaged 23% of GDP in the last five years also needs to increase so that total gross fixed investment is at least above 30% of GDP. What are the key areas that you have identified which the government and private sector should invest in? Why?

Increasing both private and public investment in productivity and enhancing infrastructure is essential to accelerate economic activities and to achieve GDP growth of over 7%. Gross fixed capital formation is gradually increasing since FY2015 but it is still below the average of low income countries. The government should create an enabling legal, regulatory and institutional framework to facilitate domestic and foreign investment. It should also make a concerted effort to increase capital spending to around 8% to 12% of GDP annually.

Investment in seven key sectors has the potential to accelerate growth, which could be inclusive as well as sustainable: high value agriculture, road and air transport, tourism, energy, light manufacturing, urban development, and education/ICT and skills. These strategic sectors have their own characteristics that make them stand out as the most promising ones given Nepal’s per capita income, market access to key export destinations, demography, natural resources, macroeconomic stability, geography and ability to quickly absorb technology transfer and technical know how.

In one of your recent articles published in a daily newspaper, you mentioned “the appointment of Yubaraj Khatiwada as finance minister by Prime Minister KP Sharma Oli is the right decision given the likelihood of inflation to rise to 6%, bank credit getting tighter, and the external situation deteriorating.” Do you still hold that thought?

Dr. Yubaraj Khatiwada as a finance minister at this critical juncture is the most appropriate decision given the options the left alliance (now Nepal Communist Party) had. Although his white paper had serious shortcomings, especially on attribution of accumulated economic ills and bad aspects of privatisation to Nepali Congress only (the communist parties also led the government in the past and they either did nothing or contributed to aggravate the situation), he managed to portray an honest assessment of the core economic issues over the last decade.

Yes, GDP growth was stellar in the last two years, but we should not forget that these are probably outliers (FY2017 was base effect and FY2018 was fiscal stimulus in the form of elections spending and post earthquake reconstruction). This should not mask the reality that growth remains volatile and is dictated by monsoon rains and remittance income; inflation is ratcheting up; capital spending is chronically low given the budgeted amount; financial sector is beset by recurring asset liability mismatches and liquidity squeezes; and trade deficit is ever-increasing. Prudent fiscal and external sector management are essential to macroeconomic stability, which is a key determinant of private domestic and foreign investment.

With a background in economics, policymaking at National Planning Commission and as governor of Central Bank, Dr. Khatiwada has the required understanding on these issues to lead the Finance Ministry at this point in time. However, he will face a hard time managing expectations, promoting competitive federalism, and ensuring a coordinated calibration of policies.

As an economist, how do you forsee Nepal’s future considering that we continue to count on monsoon and remittance to lift us up economically. Moreover, in FY 2017 the GDP growth was at 7.4% but Central Bureau of Statistics (CBS) estimates 5.9% in FY 2018. Agricultural output and industrial output are estimated to be down in 2018 in contrast to 2017.

The future is definitely not bleak if the government manages finances prudently, synchronises fundamental policies and priorities of all tiers of government to create a coherent economic development plan and strategy, increases productivity-enhancing investment, and relaxes rigid business regulations by continuing “second generation reforms”. Delivery of committed outputs within a stipulated time by both government agencies and private contractors will be something we need to watch out for. These alone have the potential to transition the economy from remittance-backed activities to more stable sources of growth that not only generate adequate jobs but also are inclusive. Therefore, yes, there is ample ground to be optimistic, but it all depends on how the government does its business, i.e. facilitates investment or just rolls out redistributive programs to please voter base.

For Nepal to become a middle-income country by 2030, what are its major macroeconomic challenges?

As mentioned earlier, the core challenge is to transition from a remittance-dependent economy to one that is largely driven by domestic factors. In order words, we need to ensure that the pace and pattern of economic growth and development are supported by a vibrant industrial sector, higher absorption of unemployed workforce in productive sectors, and production of high-valued, high-productivity goods and services across all sectors. I see six key macroeconomic challenges:
  • Sources of growth have to be reliable, which means less reliance on monsoon rains for agricultural output growth and on remittance-backed demand for services output growth. This is possible by increasing investment to tackle the most binding constraints to growth, i.e. inadequate supply of infrastructure (energy, transport and irrigation).
  • Fiscal management will be challenging given large spending needs and stagnating growth of revenue. This is aggravated by low quality and quantum of public capital spending.
  • High and volatile inflation which is affected by both domestic supply-side constraints and prices in India which is another major challenge to boost private investment.
  • There is a lingering risk of financial sector instability arising from recurring sources (accumulation of unbalanced portfolio, lax monitoring and supervision, and asset-liability mismatch).
  • Slow progress post-earthquake reconstruction would mean local economic activities below potential.
  • Increased import amidst stagnating exports and decelerating remittance income will widen current account deficit and reduce foreign exchange reserves. This needs to be managed well by promoting export and import competing domestic production of goods and services.

How does the general understanding that the country’s economic state is dictated by its political state matter? And what does it say about Nepal where political stability has been reduced to a concept? Is this a problem you have identified to the whole of South Asia?

Generally, political stability increases investor confidence and hence investment, which then contributes to accelerate economic activities. Even with some degree of political instability, some countries (such as Bangladesh) have managed to clock in high and sustained growth rate largely due to stable and effective bureaucracy. This is the missing piece in Nepal. Changes to government leadership are followed by changes to bureaucracy resulting in high turnover of staff in key projects and erosion of institutional memory. It substantially reduces pace of work as new staff have to reinvent the wheel in terms of understanding project’s physical and financial work plan. Furthermore, new staff are usually hesitant to fully own reform initiatives (for policy formulation or amendment of existing ones) agreed with stakeholders in the past.

Two of your research interests are South Asian economy and policy analysis. Which one country in South Asia do you think has the potential to rise economically because of the introduction of correct policies?

India is obviously the most dynamic economy in South Asia. The present government has initiated landmark reforms on digitization, tax structure, healthcare, rural agriculture, monetary policy committee, bankruptcy, industrialisation and easing of business regulations. No wonder the ruling party and its allies have swept power in 21 of 29 states.

How do cartels and syndicates affect a country’s economic cycle? Recently the government of Nepal set a firm tone against transport syndicate. Demand for dismissal of cartels in the banking sector, pharmacy, food industry is high from the civil society. Your thoughts.

Cartels/syndicates tend to protect member business interests by capturing markets, i.e. preventing creative creation and creative destruction (which in effect help them to either control prices or quantity or both). These anti-competitive practices are fostered through political or business patronage and stifle innovation. These are most prominent in transport and banking sectors, resulting in high cost of doing business. There is collusion among construction companies and a handful of them secure all the big contracts. The level of capture of contracts, permits and business exclusivity is staggering. There is so much of interlinkages between politics and cartels that it is hard to do away with them in one go. There are cartels in public transport, freight and petroleum transport, agriculture, education, healthcare, banks and airlines, among others. However, recent government effort to clamp down hard on transport syndicates and contractors is a welcome move. We will need to see if these efforts are just window dressing of core problems to placate voter base or they are genuine reform measures that the government will take to a logical end. Nepal still does not have a competition commission to look at these issues at the institutional level.

Monday, June 11, 2018

Cost of load-shedding in Nepal

The country faced a chronic shortage of electricity since 2007, when demand outstripped supply in addition to mismanagement of loads and leakages. For households, it officially ended in 2017 when a new NEA managing director spearheaded an effort to reduce leakages, enhance load management and distributional efficiency, and imported additional electricity from India (on an average, Nepal imports about 45% of total supply from India). In 2018, the NEA said that industrial load-shedding was also over. A 456 MW Upper Tamakoshi hydroelectricity project is due to come online either later this year or early next year. This, in addition to other small and medium scale projects, would help meet demand during the wet season. 

The inadequate supply of electricity between 2007 and 2017 was a major binding constraint to economic activities, affecting production, investment and exports, in Nepal for over a decade. The NEA met about 20% of total electricity demand over that period. The electricity demand is still higher than supply but load-shedding is not an acutely binding constraints as before. 

An important question that is always asked is about the cost of load-shedding in Nepal. There are enterprises surveys that provide an estimate of the use of diesel-fired generators, which increases cost of production, by firms. But, there isn’t much insight on the potential costs to the economy due to the shortage of electricity. Using a CGE model, a new WB working paper by Timilsina, Sapkota and Steinbuks tries to fill that gap. 

Here are the main average nominal estimates (covering 2008-2016) against the baseline:
  • GDP reduced by 6.4% over (so with no load-shedding, annual GDP would have been 6.9% higher). Compare actual GDP with load-shedding with the counterfactural GDP without load-shedding, it turns out to be [{100/(100-6.4)}-1]*100 = 6.9%.
  • Total loss of GDP equivalent to US$11 billion (almost equal to the entire GDP in 2008)
  • Total investment demand dropped by 33% (so with no load-shedding, average annual investment would have been 48% higher). Household consumption dropped by 0.3% annually. 
  • Output loss in construction sector was over 32%, followed by mining & quarrying 26.8%, electricity 20% and manufacturing 8.4% among others.
  • Annual exports decreased by 2.8% (manufacturing exports down by 5.1% and mining & quarrying by 15.9%) 
  • Annual imports decreased by 5.4% (inputs needed for production decreases; biggest decrease is in construction by 31.3% followed by mining & quarrying 27.3%)

How did they come up with the estimates? They used CGE model to capture economy-wide direct and indirect impact (e.g. load-shedding worsens electricity supply or/and increases input costs of an industry, leading to either lower production or higher price of output). This increase in cost or reduction in output passes on to the wider economy and trade. They use social accounting matrix (SAM) of 2007, which is kind of before the start of load-shedding. Since they cannot disaggregate the effects of household investments (purchasing backup alternatives to load-shedding and using imported fuel in various sectors), the estimates are higher than it would have been. But then it also does not consider the potential effect on output due to lack of investment linked to electricity supply (new investment in agro-processing, construction itself and the multiplier effects they generate). Another caveat is that the estimates are indicative and considers only those that were already connected to the national electricity grid (i.e, whatever population had access to electricity). 

Monday, June 4, 2018

Opportunities squandered

It was published in The Kathmandu Post, 04 June 2018. See this blog post as well for more.

The budget would have been a good expenditure and revenue plan under normal times. However, given the sizable electoral mandate, it falls short of introducing transformative reform measures

Finance Minister Dr Yuba Raj Khatiwada presented the first full federal budget and fiscal plan for 2018/19 (FY2019) to the parliament on May 29. It outlines a narrative that is consistent with policies and programs, and election manifesto of the communist party. Dr Khatiwada wants this budget to be seen as a solid base against which performance of the government should be evaluated in the coming years. However, considering a strong electoral mandate for this government and the opportunity to introduce transformative reforms and projects to change the course of the economy, public service delivery and budget-making, it is a disappointing fiscal plan.

Budget overview

Bound by the constitutionally mandated provision to share a portion of total revenue generated with subnational governments and the outsized fiscal budget of the previous year, the Finance Minister could not increase the size of budget as was expected by some of his party colleagues, especially in increasing direct cash-based social security allowances and local-level pet projects to cater to the core voter base. Hence, FY2019 expenditure outlay increased by just 2.8 percent compared to FY2018 budget estimate. However, the Rs1,315.2 billion expenditure plan is still 25.7 percent higher than the revised expenditure estimate for FY2018. Of this, 64.3 percent is allotted for recurrent spending (which includes fiscal transfer to subnational governments as well), 23.9 percent for capital spending and 11.8 percent for financial provision. The budget amounts to about 38.7 percent of the gross domestic product (GDP).

The government is planning to meet 63 percent of total expenditure by mobilising domestic revenue, 13 percent from domestic borrowing and the remaining 24 percent from foreign grants and loans. Overall, the total revenue target is Rs945.6 billion— including Rs114.2 billion revenue sharing with subnational governments—which is about 30 percent increase over the FY2018 revised estimate. The government has to share, based on monthly collections, 30 percent of VAT and internal excise duty, and 50 percent of royalties from natural resources with subnational governments.This amounts to an estimated 12 percent of projected total revenue in FY2019.

In addition to direct revenue sharing, almost three-fifth of the recurrent budget (or 47.7 percent of the total budget) is set aside for subnational governments in the form of fiscal equalisation, conditional and unconditional grants (no matching and special grants for now). The total fiscal equalisation and conditional grant for provincial and local governments is Rs113.4 billion and Rs195.1 billion, respectively.These are substantial revenue sharing and fiscal transfers, which the subnational governments will incorporate in their budgets before the start of FY2019 (ie, mid-July 2018).

Mixed picture

In terms of macroeconomics and policy direction, the budget gives a mixed picture. Overall, Dr Khatiwada has presented a manageable budget compared to its size and growth in the previous years. However, his budget has fallen short of notably departing from the past and setting a new trend in terms of budget-making, outlining priorities given the available resources and capacities for budget execution, and introducing transformative reform measures and projects.

First, the government has given continuity to most of the projects and programs of the past. It prioritises control of revenue leakages, agricultural development, tourism, and infrastructure development, especially pushing forward with preparatory work for large-scale projects, development of sports facilities, hospitals and industrial estates. It provides tax relief by doing away with educational and health services taxes and value added tax in the case of private hospitals (which should ideally lower health and educational costs); tax concession for project reinvestment in tourism and productive sectors; reduction of income tax by 50 percent on tea, clothing and dairy production; and seven year income tax holiday for woman-run businesses, among others.

Second, the finance minister has tried to observe fiscal discipline by resisting the temptation, or pressure, to introduce a bloated budget without ascertaining revenue sources. He has tried to rationalise spending by not increasing salary and allowances, which already constitutes about 15 percent of total recurrent spending, and direct cash-based social security spending. However, like previous finance ministers, he has given continuity to pet projects of populist nature: continuing the federal constituency development fund under a different name and governance structure but increasing its budget to Rs40 million (making lawmakers project managers as well), spreading subsidies and grants too thin across too many sectors and programs, and open-ended loan waiver for small farmers and loan provisions based on educational certificates, among others.The failure to notably depart from this nature of budget-making and setting of priorities (usually prone to spending inefficiencies) is an example of opportunities squandered by a finance minister from a party with such a strong electoral mandate.

Third, a major disappointment is the lack of a credible reform plan to reinvigorate the private sector so that industrial production rises above the peak reached around 1997. The business community is disappointed by the singular focus on raising revenue as opposed to robust economic planning and accelerating industrial activities by rolling out time-bound reform plans in key strategic sectors. The finance minister does not have a good rapport with the private sector—at times for good because he is against inefficient private operations but at times bad because of his communism-inclined ideology that sees private sector as revenue leakers and rent-seekers only. Furthermore, the budget lacks a viable implementation plan, which raises suspicion over its timely execution (note that the government expects just 70 percent of planned capital budget to be actually spent in FY2018).

Fourth, if the government fails to meet the revenue target in addition to securing projected foreign grants and loans, then there is a likelihood of deterioration of fiscal and overall macroeconomic balance. Revenue growth target of over 30 percent is too ambitious when considering business-as-usual revenue administration operations and marginal tinkering of import tariff on some non-essential items. The fact that GDP growth of 8 percent itself is overly ambitious and the private sector find themselves less enthused than they were before the budget was unveiled means that it will be very challenging to meet the revenue target. Additionally, fiscal deficit is estimated to be about 7 percent of the GDP in FY2018 and is projected to be around 10 percent of the GDP in FY2019, which means that the government will heavily borrow internally (net internal borrowing is about 4 percent of GDP already), exacerbating interest rate volatility, inflationary pressures, current account deficit, outstanding public debt and crowding out of the private sector. Net foreign borrowing is projected to jump over 6 percent of the GDP (up from about 1.5 percent of the GDP in FY2018), which again is difficult to achieve with current trend of budget execution. Note that our interest payment to service debt is already excessively high (1 percent of the GDP).
In a nutshell, the budget is a good expenditure and revenue plan under normal times. 

However, given the sizable electoral mandate and strong backing for the prime minster, this budget is more a case of squandered opportunities than setting a base year for evaluation in the coming years.

बजेटका सात महत्वपूर्ण पाटा

सेतोपाटीको प्रकाशित लेख, ३० मे २०१८।  टुईटर  थ्रेड  यहाँ   

अर्थमन्त्री युवराज खतिवडाले आर्थिक वर्ष २०७५/७६ का लागि १३ खर्ब १५ अर्ब रुपैयाँको वार्षिक बजेट मंगलबार संघीय संसदमा प्रस्तुत गरेका छन्।

यो लेखमा बजेटका सात महत्वपूर्ण पक्षबारे चर्चा गरिएको छ।

पहिलो, अर्थमन्त्रीले बजेटको आकार विगतमा जस्तो अवास्तविक ढंगले बढाएका छैनन्। आकार नबढाएर खर्च व्यवस्थित गर्न खोज्नुमा दुई कारण छन्। राजस्व संकलनको निश्चित हिस्सा प्रान्तीय तथा स्थानीय सरकारलाई बाँड्नुपर्नेछ र अघिल्ला सरकारले ल्याएको ठूलो बजेटले यो सरकारको हात बाँधेको छ। तर, विगतका अर्थमन्त्रीले जस्तै खतिवडाले चालु खर्च संघीय राजश्वभन्दा बढी राखेका छन्।

दोस्रो, विनियोजित रकम खर्चको विश्वसनीय र समयबद्ध कार्यान्वयन योजना बजेटमा छैन। यसले विनियोजित रकम सदुपयोग हुनेमा शंका उत्पन्न गराएको छ।

अघिल्लो सरकारले समयमै बजेट कार्यान्वयन हुने बाचा गरेको थियो। व्यवहारमा त्यस्तो भएन। आर्थिक वर्ष सकिँदासम्म विनियोजित रकमको झन्डै ७० प्रतिशत मात्र खर्च हुने अपेक्षा छ।

विनियोजित बजेट खर्च हुन नसक्नुमा आयोजना तयारी तथा कार्यान्वयनको संरचनात्मक कमजोरी, आयोजना व्यवस्थापन तथा ठेकेदारको कमजोर क्षमता, प्रान्तीय तथा स्थानीय तहमा आयोजना कार्यान्वयन गर्न सक्ने जिम्मेदार व्यक्तिको अभाव र योजना तथा सञ्चालन तहमा राजनीतिक हस्तक्षेपलगायत कारण छन्। बजेट कार्यान्वयनमा देखिएका

यी समस्यालाई अर्थमन्त्री खतिवडाले खासै सम्बोधन गरेका छैनन्। यसले विनियोजित रकम समयमै खर्च हुन्छ भन्नेमा शंका छ।

प्रधानमन्त्री नेतृत्वको परियोजना कार्यान्वयन समिति यसमा नयाँ अवधारणा होइन। राष्ट्रिय योजना आयोग र लगानी बोर्डको अध्यक्षका रूपमा प्रधानमन्त्रीले अहिले पनि यो भूमिका निर्वाह गर्दै आएका छन्।

त्यस्तै, आयोजना सचिव तथा निर्देशकहरूको सशक्तीकरण र खरिद ऐन संशोधनले मात्र बजेट कार्यान्वनका अवरोध हल गर्न सक्दैनन्। यी नयाँ अवधारणा होइनन्।

तेस्रो, अर्थमन्त्रीले निर्माणाधीन आयोजनाहरूका लागि पर्याप्त बजेट विनियोजन गर्ने प्रतिबद्धता गर्नुका साथै सरकारका केही पूर्वघोषित पूर्वाधार आयोजना (रेल्वे, वाटरवे, रोपवे आदि) को तयारीका लागि प्रारम्भिक रकम विनियोजन गरेका छन्। यति हुँदाहुँदै यथार्थमा कुल ग्राहस्थ्य उत्पादन (जिडिपी) को अनुपातका आधारमा पूँजीगत खर्चमा बजेट विनियोजन घट्दो छ।

अघिल्ला दुई अर्थमन्त्रीले पूँजीगत खर्चका लागि जिडिपीको ११ प्रतिशतभन्दा बढी बजेट विनियोजन गरेका थिए। वास्तविक खर्च भने जिडिपीको करिब ७.९ प्रतिशत थियो। यस वर्ष विनियोजन जिडिपीको ९.२ प्रतिशत मात्र छ।

सरकारले अहिलेको पूर्वाधार अभाव पूरा गर्न सार्वजनिक पूर्वाधारमा मात्र कम्तिमा जिडिपीको ८ देखि १२ प्रतिशत खर्च गर्नुपर्नेछ।

चौथो, नयाँ आयकर सीमाले कम आम्दानी गर्नेलाई कम कर (१५ प्रतिशतको सट्टा १०) र बढी आम्दानी गर्नेलाई बढी करको नीति सुनिश्चित गरेको छ। यो प्रगतिशील कर संरचना हो। तथापि, यो नीतिको मुख्य समस्या भने, हामीकहाँ १० लाख जना मात्र भ्याट र आयकरमा दर्ता छन्।

पाँचौं, राजस्व वृद्धिको अनुमान अति महत्वाकांक्षी छ। अर्थमन्त्रीले २९.८ प्रतिशतको राजस्व वृद्धिदर हासिल गर्ने लक्ष्य लिएका छन्। यो भनेको चालू वर्षको संशोधित अनुमानभन्दा बढी हो। पछिल्लो नौ वर्षदेखि यो वा योभन्दा बढी दरमा राजस्व बढेको छैन। बाबुराम भट्टराई अर्थमन्त्री हुँदा मात्र राजस्व उच्च दरमा बढेको थियो। त्यतिबेला बैंक कर्जा खुकुलो हुनु र रेमिटेन्स आम्दानी बढ्नुले आयात उच्च थियो। यसले राजस्व असुलीमा सकारात्मक प्रभाव पार्‍यो।

यसपालि स्थिति फरक छ। राजस्व असुली बढाउन नयाँ स्रोत फेला पर्ने गरी अर्थतन्त्र विस्तार भएको छैन। यसको निम्ति बढीभन्दा बढी व्यवसायीलाई करको दायरामा ल्याउनुपर्नेछ। राजस्व असुली बढाउन सबभन्दा कठिन यही हो, जुन प्रत्येक अर्थमन्त्रीले आफ्नो कार्यकालमा प्रयास गर्छन्।

छैठौं, ८ प्रतिशत आर्थिक वृद्धिको अर्थ आर्थिक गतिविधिमा विस्तार र राजस्व परिचालनमा वृद्धि हो।

यो वास्तविक भने छैन, किनभने जिडिपी वृद्धिको लक्ष्य नै अवास्तविक छ। चालू वर्ष निर्वाचनसँग सम्बन्धित खर्च र निर्माण कार्यमा वृद्धि भएका बेला पनि अर्थतन्त्र ५.९ प्रतिशत बढ्ने अनुमान गरिएको छ। अर्को वर्ष मनसुन अनुकूल छ। यसले कृषि उत्पादनमा सकारात्मक प्रभाव पार्ला, तर चुनावको बेलाजस्तो थप सरकारी खर्च हुने छैन। बजेटले निजी क्षेत्रलाई लगानी गर्न प्रोत्साहित गर्ने गरी नयाँ योजनाहरू पनि ल्याएको छैन, जुन विगतका अर्थमन्त्रीले गर्थे। यसले सार्वजनिक पूँजीगत खर्च अहिलेकै अनुपातमा रहने देखिन्छ।

यति मात्र होइन, विप्रेषण (रेमिटेन्स)  आम्दानी घट्दो छ, जसले आयातमा आधारित राजस्व र उपभोक्ताको माग दुबैमा असर पार्नेछ। त्यसैले, अनुकूल मनसुन, भुइँचालोपछिको पुनर्निर्माणमा निरन्तरता, विद्युत आपूर्ति र उत्पादनशील गतिविधिमा सुधार र स्थानीय तहमा हुने खर्चका बाबजुद् आर्थिक वृद्धिदर ५.५ प्रतिशतदेखि ६.५ प्रतिशत हाराहारी रहने देखिन्छ।

सातौं, वित्तीय घाटा बढ्दै जानुले देशको समष्टिगत आर्थिक सन्तुलन खल्बल्याउन सक्छ। चालू वर्ष वित्तीय घाटा जिडिपीको ७ प्रतिशत रहने अनुमान थियो भने अर्को वर्षको अनुमान १० प्रतिशत छ।

पछिल्ला केही वर्षमा सरकारले यति ठूलो परिमाणमा ऋण लिएको छ, जसको ब्याज नै जिडिपीको झन्डै १ प्रतिशत पुगेको छ। यसमा आन्तरिक ऋणको हिस्सा करिब ८४ प्रतिशत छ। खुद आन्तरिक ऋण अघिल्लो वर्षको तुलनामा जिडिपीको २ प्रतिशत बढेर ४ प्रतिशत पुगेको छ।

यसको अर्थ, सरकारले बैंकिङ क्षेत्रबाट ठूलो परिमाणमा ऋण उठाइरहेको छ, जसले तरलता अभाव बढाउनुका साथै ब्याजदरमा अस्थिरता ल्याएको छ। सरकारले आन्तरिक ऋण जति उठाउन सक्छ, लगभग त्यो सीमा बराबरको रकम उठाइसकेको छ।

त्यसैले, खुद वैदेशिक ऋणमा ठूलो वृद्धि हुने अनुमान छ। यो चालू वर्ष जिडिपीको १.५ प्रतिशत थियो भने अर्को वर्ष ६.८ प्रतिशत पुग्न सक्छ। यो पनि वास्तविक होइन, किनभने वैदेशिक ऋणको अधिकतम हिस्सा (खासगरी दुई ठूला बहुपक्षीय विकास बैंकबाट प्राप्त हुने रकम) सरकारी खर्चमा निर्भर छ। यसको निम्ति सरकारले पनि पूँजीगत खर्च बढाउनु पर्नेछ।

Wednesday, May 30, 2018

Quick thoughts on Nepal’s FY2019 budget

Here are my quick thoughts on FY2019 budget.

On 29 May 2018, Finance Minister Dr. Yuba Raj Khatiwada presented FY2019 budget (mid-July 2018 to mid-July 2019) to a combined session of the federal parliament. The budget is more or less in line with the left alliances’ policies and program approved by the parliament, and touches upon some of its distributive as well as pet projects mentioned in their election manifesto. 

This budget and the targets set in it form the basis to evaluate the government’s progress in the coming years. Considering this claim and the strong position of Nepal Communist Party (NCP) at all the three tiers of government— especially with respect to its ability to usher in transformative projects as well as reforms, and change the nature of budget making—, it is a disappointment fiscal plan. That said, good things about the budget are that it focuses heavily on infrastructure development, plugging revenue leakages, and implementation of federalism. 

The budget is unique in four ways:

First, for the first time, grants to provincial and local governments consist of revenue sharing as mandated by the constitution, NNRFC Act, and Intergovernmental Fiscal Management Act. The central government needs to share 30% of VAT and excise duty (15% each to local and provincial governments) mobilized in a given year. Similarly, it has to share 50% of royalties generated from natural resources (mountaineering, electricity, forests, mines and minerals). In addition, on expenditure side, it categorically allocates fiscal equalization and conditional as well as unconditional grants. 

Second, compared to FY2018 budget, the total budget outlay is not increased by much given that the central government needed to share about 12% of projected revenue mobilization with provincial and local governments. This along with an outsized FY2018 budget bound the government’s hands. However, compared to FY2018 revised estimate, total budget outlay has been increased by 25.7%. 

Third, it focuses on controlling revenue leakages, agricultural development, tourism, and infrastructure development, especially pushing forward with preparatory work for large-scale projects, development of sports facilities, hospitals and industrial estates. However, the finance minister has squandered an opportunity to change the course of budget-making, especially by including numerous pet projects that are of populist nature; allowing the parliamentarians to have a say over project selection (NRs40 million for each federal constituency), which makes them project managers rather than lawmakers; spreading grants and subsidies too thin across too many sectors; and not rolling out private-sector specific reform or incentive measures. In effect, expenditure rationalization and fiscal prudence are mildly adhered to, but could deteriorate fast if revenue mobilization falls short of the target. 

Fourth, there is hardly any concrete reform plan to reinvigorate private sector; a time-bound implementation framework is missing (usual MOF directives to speed up spending won’t cut it); and GDP and revenue growth targets are ambitious. The budget looks like a continuation of previous structure of budget, not a departure from it considering the high hopes people had from a finance minister with technocrat-cum-policy making background

More on these later, but first let’s look at the macroeconomic specifics:

Budget outlay

The total expenditure outlay for FY2019 is NRs1315.2 billion (an estimated 38.7% of GDP), which is 25.7% higher than the revised expenditure estimate for FY2018. The government expects to spend 81.8% of NRs1279 billion allocated in FY2018. 

FY2019 budget overview
GDP growth target (%)

Inflation target (%)

Budget allocation for FY2018

Rs billion
Budget allocation
Financial provision

Projected total revenue
Foreign grants
Revenue sharing

Projected budget surplus (+)/deficit (-)

Projected deficit financing
Foreign loans
Domestic borrowing

FY2019 budget outlay comprises of NRs845.4 billion as recurrent expenditures (64.3% of the total outlay), NRs314 billion as capital expenditures (23.9%), and NRs155.7 billion as financial provision (11.8%). This pattern is pretty much the same as last year. 

As a share of GDP, total budget amounts to 38.7%, including just 9.2% for capital spending. As per FY2018 revised estimates, the government now expects to spend just 87.1% of planned recurrent budget and 71.2% of planned capital budget. Compared to the revised estimates, recurrent spending is up by 20.8% and capital spending by 31.6%. However, compared to FY2018 budget allocation, it is opposite: capital spending is down by 6.3% but recurrent spending is up by 5.2%. This is somewhat consistent with the finance minister’s commitment that he will reduce allocation for some non-preforming projects (especially those projects that are not ready for implementation). However, he has given continuity, under different name, to wasteful programs such as the ones run by parliamentarians. May be party politics was too overwhelming for his to resist. The government has allocated NRs151 billion for post-earthquake reconstruction.


A total revenue target of NRs945.6 billion (27.8% of GDP) has been set for FY2019, including projected foreign grants of NRs58.8 billion (1.7% of GDP). It also includes NRs114.2 billion revenue sharing with provincial and local governments. The government will share, based on monthly collections, 30% of VAT and excise duty, and 50% of royalties from natural resources with subnational governments. The revised estimate for revenue mobilization (including grants) in FY2018 is 25.4% of GDP. Compared to the revised estimate, revenue growth target for FY2019 is 29.8%, which is ambitious and was achieved just once in the last decade.  Given that the GDP growth target itself is overly ambitious, and revenue administration reforms along with tinkering of import tariff on some non-essential items have its limit in increasing import-based revenue, it needs to be seen how this government will achieve the revenue target.

Specifically, in order to achieve the high revenue growth target, the finance minister is relying on: (i) increasing excise duty on alcohol and tobacco, and mandating VAT registration for sales within metropolitan and sub-metropolitan cities; (ii) increasing excise duty on motorcycles with above 150 cc and vehicles above 1000 cc engines; (iii) increase internal taxes on sugary products and refrigerator production; (iv)  income tax slabs of 10%, 20% and 30%, and an additional 20% tax on those earning above NRs2 million taxable income annually; (v) revision of application of capital gains tax on real estate transaction (now transactions above one million— earlier it was three million— will attract CGT as well); and (vi) revenue administration reforms. 

There is some tax relief as well: no education and health services tax and VAT (in the case of private hospitals); tax concession for tourism and productive sectors on profit reinvestment, reduction of income tax by 50% on tea, clothing and dairy; and seven year income tax holiday for woman-run businesses, among others. 

Nepal’s revenue mobilization is already one of the highest among low-income countries and about 45% of it comes from taxes on imports. Tax revenue is projected to be around 21.9% of GDP in FY2018 and 24.7% of GDP in FY2019.

Deficit financing

Considering federal expenditure and its share of revenue in total revenue mobilization, the budget deficit turns out to be NRs425.8 billion, which is financed by foreign loans equivalent to NRs253.8 billion and domestic borrowing of NRs172 billion. This year the finance minister has done away with using last year’s estimated cash balance to finance expenditure. There was a tendency to bloat government savings (amount the government raised but could not spend) and use that to make a case for higher deficit financing in the previous years. The government is planning to increase net foreign borrowing by 24.7% to NRs229.4 billion (6.8% of GDP) and net domestic borrowing by 9.6% to NRs136.9 billion (4% of GDP). Overall, fiscal deficit is projected to be about 10% of GDP. Fiscal deficit is the difference between revenue including grants and expenditure including net lending. 

Where is recurrent budget going?

Almost 59% of planned recurrent budget of NRs845.4 billion is going to provincial and local governments in the form of fiscal transfer (fiscal equalization and conditional grants) and unconditional grants. This is where pet projects of politicians are usually embedded in as these grants are to cover both recurrent and capital spending at subnational level. The other big ticket item is the compensation of employees, which takes up about 13.9% of total recurrent budget. The government has earmarked NRs113.1 billion for social security spending and NRs86.8 billion for use of goods and services. Use of goods and services consists of (i) rent & services; (ii) operation and maintenance of capital assets; (iii) office materials and services; (iv) consultancy and other services fee;(v) program expenses; (vi) monitoring, evaluation and travel expenses; (vii) recurrent contingencies; and (viii) miscellaneous.

Compared to the revised estimate, the largest increase is in social security, which together with subsidies was one of the highlights of the NCP’s election manifesto and white paper.

Where is capital budget going?

Almost 54.2% of the planned capital budget of NRs314 billion is going for civil works, 22.3% for constructing building, and 32.2 for land. Compared to the FY2018 revised estimate, capital spending has been increased by 31.6%, but compared to FY2018 budget estimate, it has decreased by 6.3%. Some of this expenditure also include post-disaster related reconstruction activities. 

What about subnational governments?

The provincial and local bodies are getting NRs499.4 billion. Of this NRs190.9 billion is unconditional grants and NRs308.5 fiscal transfer, which includes fiscal equalization and conditional grants. The government is not allocating matching and special grants in the budget. The total fiscal equalization and conditional grant for the seven provincial governments is NRs113.4 billion (the largest amount NRs19.9 billion going to province one). The total fiscal equalization and conditional grant for the 753 local governments is NRs195.1 billion. Here is the breakdown for local governments:
  • Metropolitan cities: NRs6.7 billion
  • Sub-metropolitan cities: NRs8.0 billion
  • Municipalities: NRs88.3 billion
  • Rural municipalities: NRs91.9 billion 

Apart from these grants, the government is also sharing an estimated NRs114.2 billion revenue (based on monthly collections), with the subnational governments. These are substantial fiscal transfer and revenue sharing with subnational governments, which now will have to pass their own budget before the start of FY2019. Except for revenue sharing, the fiscal transfer by central government is clubbed under recurrent spending and they constitute about 59% of total planned recurrent spending. The subnational governments will be able to use the grants, without re-approval, for projects listed in the budget/Red Book.

Grants to sub-national governments
Rs billion
Total grants
Fiscal transfer
Fiscal equalization
Local bodies
Fiscal equalization

Major takeaways from FY2019 budget

First, the finance minister has tried to rationalize spending by not increasing the federal budget like in the past for two reasons: (i) a certain portion of revenue need to be shared with subnational governments; and (ii) the previous government’s bloated budget pretty much bound this government’s hands. However, like previous finance ministers, he has allocated recurrent spending more than total federal revenue (i.e, total revenue mobilization minus the portion that needs to be shared with subnational governments). Therefore, there is revenue deficit in FY2019 (likewise in FY2018 budget estimate but in revised estimate federal revenue is higher than projected recurrent spending). 

Second, a robust, credible and a time-bound implementation plan to spend the earmarked money is missing, arousing suspicion over allocative efficiency in budget allocation. The last government also promised timely budget implementation, but as it turns out barely 70% of capital budget is expected to be spent in FY2018. The core issues for chronically low capital spending (structural weaknesses in project preparation and implementation, low project readiness, bureaucratic hassle in approving and reapproving projects, poor project management and contractor capacity, high fiduciary risk in project implementation at subnational level, and political interference both at planning and operational levels) and bunching of spending in the last quarter (note that over 40% of actual capital spending happens in the last month of fiscal year) are hardly addressed in the budget. This raises doubt over timely budget execution. The Prime Minister-led project implementation committee is not a new thing as he has been fulfilling that role in the capacity of chairman of National Planning Commission, federal cabinet, Investment Board Nepal, and numerous other committees. Furthermore, empowering secretaries and project directors and amending procurement law are also not new. That said, commitment to rollout a separate law for large-scale, strategic infrastructure projects is a good thing. 

Third, the finance minister has committed adequate budget for performing projects and has allocated initial funding for project preparatory work (mainly feasibility studies) of the government’s pet infrastructure projects (railways, waterways, ropeways, etc). However, in reality budget allocation, as a share of GDP, for capital spending is decreasing. The previous two finance ministers allocated over 11% of GDP for capital spending (but actual spending is around 7.9% of GDP). This year it is just 9.2% of GDP. It signals either the government could not find new shovel-ready infrastructure projects or it just wanted to restrain spending in capital projects as well. Note that the government needs to spend at least between 8-12% of GDP in public infrastructure to bridge the infrastructure gap. 

 Fourth, the new income tax slabs ideally ensures that those earning less will be paying less taxes (10% instead of 15%) and those earning more will be paying more taxes—which makes it a progressive tax scheme. However, we need to note that in Nepal hardly one million have officially registered for VAT and income tax. The government will have to bring more people inside the tax net, for which both carrot and stick (punishment and incentives) are necessary.  

Fifth, related to the previous point, the revenue growth is too ambitious. The finance minister is aiming to increase revenue by 29.8% over revised estimate for FY2018. Revenue has not grown at or above this rate since FY2009, when Dr. Baburam Bhattarai was the finance minister. Imports began to surge with generous bank credit and high remittance inflows, leading to large increases in tax revenue, particularly trade related revenues. This time it is different, as the economy has pretty much reached its limit in terms of finding new sources for revenue growth (unless more people and businesses are brought inside the tax net). This is also the most difficult reform, which every finance minister has tried to do. 

Sixth, one argument is that 8% GDP growth target means more economic activities and hence more revenue mobilization. This is not realistic because the GDP growth target itself is unrealistic. In FY2018, the economy is projected to grow by 5.9% on the back of higher elections related spending and pick up in construction activities. However, this year despite the forecast of favorable monsoon, there won’t be extra government spending (like elections). The budget doesn’t have much to offer to the private sector expect for assurances of business-friendly regulations, which every other finance minister has done. Public capital spending will likely remain around the present level given that not much is there in the budget to tackle the core issues for chronically low capital spending. Workers’ remittance is decelerating, affecting both import-based revenue and consumer demand. Hence, GDP growth— with favorable monsoon, continuing post-disaster reconstruction works, improvements in electricity supply and manufacturing activities, and local level spending— might at best hover between 5.5% and 6.5%. 

Seventh, fiscal deficit is getting too large and this trend may jeopardize whatever sound macroeconomic balance Nepal has been having so far. It is expected to be about 7% of GDP in FY2018 and 10% of GDP in FY2019. The government is borrowing so fast in the last few years that interest payment amount has increased to about 1% of GDP. Of this, about 84% is for internal loans. Net domestic borrowing has jumped from about 2% of GDP in FY2017 to about 4% of GDP now. This means the government is raising too much money from the banking sector— exacerbating liquidity shortages, interest rate volatility and crowding out private sector. The government has nearly reached its limit in terms of how much it can borrow internally. Therefore, it is expecting very large increase in net foreign loan (from 1.5% of GDP in FY2018 to 6.8% of GDP in FY2019). This is not realistic because a major part of foreign loans (at least from the two big multilateral development banks) are on disbursement basis, which means the government needs to accelerate capital spending—an uphill task as of now.

Eight, increasing cash incentive for exports up to 5% (from current 2 to 4% based on value addition) will hardly increase exports. What Nepal needs is an improvement in price competitiveness, facilitative infrastructure, and resolution of NTBs. Cost subsidization does not necessarily result in price competitiveness. Other significant issues include:
  • There is also no basis or work plan to provide employment to 500,000 people. Loan at 5% interest against education certificate is not new (existed when KP Sharma Oli was prime minister previously). It could end up like Youth Self-Employment Fund, which after much political interference is barely operating as it was envisaged. 
  • The government also is aiming to increase tourism inflows to 1.2 million by FY2019 and 2 million by 2020— a very uphill task. So is the target of doubling agricultural output in the next five years. 
  • There is also a line on waiving source requirement if invested in national priority hydroelectricity, international airport, road network, railways, industries with 300 domestic employment, and 50% use of domestic raw materials. This is politically-motivated investment plan designed to benefit a select few associated with NCP. A similar voluntary income disclosure scheme and investment plan was launched in FY2008.
Overall, a good budget and plan compared to previous year, but it falls short on departing from the past and setting a new trend. Fiscal prudence is mildly adhered to and it’s an achievement given the temptation of communist leaders to spend without ascertaining sources.