Tuesday, July 5, 2011

Nepal’s policies and programs for 2011-2012 (FY 2068-2069)

The Ministry of Finance has released Nepal’s policies and programs for the next fiscal year starting July 16, 2011 and ending July 15, 2012. The fiscal budget in the past three years have come late. It stresses that real change can only happen through economic prosperity, which can then sustain the political gains achieved so far. See my brief comment at the end of the summary of the document. I will write a detailed one later on.

Major priorities:

  • Peace process and constitution writing to be high priority.
  • Socio-economic transformation through high economic growth, controlling inflation, just distribution of the fruits of growth with a view of reducing poverty and inequality, inclusive development, increase employment, and production and productivity increase in agriculture and industrial sectors.
  • Prioritize those projects that yield fast return; accelerate completion of ongoing infrastructure projects
  • Allocate enough resources to implement the programs outlined when the government announced energy crisis
  • Promote cooperatives to utilize unutilized personal, natural and economic sources
  • Priority to increase capital accumulation and productive capacity
  • Improvement in services delivery and governance
  • Programs aimed at women, indigenous communities, and marginalized groups and communities.

Economic appraisal (till Baishak 2068—May 14 2011-- of the fiscal year):

  • GDP targeted at 4.5% but will be only 3.5-4%. Performance of non-agricultural sector is below expectation.
  • Inflation targeted at 7% but will be above 10%.
  • BoP deficit is around Rs 11 billion.
  • Total exports amounted Rs 52.67 billion, but total petroleum imports amounted Rs 59.53 billion.
  • Foreign exchange reserves can sustain 7.1 months of imports.

Upcoming budget and principles

  • Public, cooperatives, and private sectors to be the foundations of economic prosperity.
  • To be focused on Interim Three Year Plan, particularly employment focused and inclusive growth.
  • Relief package to civil war victims, martyr, and disappeared households.
  • Agriculture sector to be commercialized and modernized.
  • Supervisory, governance and facilitator roles to be strengthened.
  • Cooperatives to be a solid foundation of the economy. Marginalized communities and groups to be promoted thorough cooperatives.
  • Special efforts to enhance confidence of private sector and to create investor friendly climate.
  • Big infrastructure projects to be prioritized. Private sector to be encouraged to participate through BOOT principle.
  • Concessions to be given to investors investing in energy sector.
  • Import substitution for petroleum imports by promoting alternative sources of energy.
  • Take advantage of rising neighbors—India and China—by accelerating expansion of infrastructure, industry, service, and trade sectors.
  • Budget deficit to be limited within a certain limit. Unproductive government expenditure to be curtailed and capital expenditure to be increased.
  • Implement monetary policy to curb rising prices. Public goods delivery system to be structured and carteling to be banned.

Policies and programs of the upcoming budget

  • Budget to implement comprehensive peace agreement and constitution making.
  • Relief, reconstruction and rehabilitation of martyrs and disappeared people and destroyed infrastructure.
  • Ease public service delivery system: food security in rural areas, decrease in power outages, normal supply of petroleum products, proper management of  urbanization in Kathmandu valley, water supply and traffic jam.
  • Employment focused inclusive high economic growth: additional labor intensive economic activities, vocational training, youth self-employment program, foreign employment, channeling money into productive sectors
  • Physical and economic infrastructure development: roads network to be expanded, rural infrastructure, all district headquarter to be linked by roads within two years, Mid-Hill highway to be opened by 2069, accelerate work on Kathmandu-Terai Fast Track highway
  • Electricity generation and transmission line expansion: accelerate ongoing works, promote small and medium sized projects to increase supply in short and medium term, expansion and repair of transmission lines, reduce electricity leakage, rural electrification, Energy Development Bank to be established, reform of NEA
  • Commercialization and modernization of agriculture: food security, employment, exports, import substitution to be the focus; commercialization of self-reliant agriculture; increase subsidies in fertilizer, seeds and supply; establish agricultural farm with the help of cooperatives; ‘one village, one product’ program to be launched as; livestock development; herbs farming in all development regions
  • Land reform; expansion of irrigation facilities
  • Cooperatives development and expansion: launch ‘cooperatives in every village, employment in each household’ as national program; livestock development; meat and fish products focus; herbs production and processing; vegetables and fruits farming;
  • Social development: education, health, water supply; primary health care to be made free gradually, health insurance to be launched, primary education to be made mandatory (gradually); water supply to all citizens
  • Tourism development: infrastructure development, training in this sector; NTY 2011 to be prioritized and effectively implemented; second international airport in Nijgarh, Bara under BOOT principle; upgrade existing airports
  • Private sector development, investor friendly climate and industrial revival: attract private sector investment to stimulate high economic growth; investment security, illegal trade, and investor friendly taxation regime to be addressed; resuscitation of sick industries and industrial peace;
  • Export promotion and import substitution: special programs to be launched to increase exports and encourage import substitution; incentives (cash and others) given for export promotion to be systematized and further encourage exporters; pass law regarding SEZs
  • Rural infrastructure and model village: at least one model village in each district (all facilities and infrastructure to be provided)
  • Various party related pet projects (afno gaun, afai banau) to be made effective by addressing shortcomings
  • Rural focused programs: Continuity to ‘one household, one employment’ program in Karnali; marginalized groups and communities focused programs
  • Communication: increase access to communication (TV, telephone, radio, and internet); accelerate laying of optical fiber in rural areas
  • Financial sector reform and increase financial penetration: special program to resolve liquidity crisis; enhance regulatory and supervisory roles; encourage merger; increase financial penetration in rural areas; deposit insurance of small depositors
  • Foreign aid: effective mobilization of foreign aid; no aid to be accepted without compliance with the government’s rules and regulations
  • Fiscal stability: limit budget deficit within a limit; enhance capacity of revenue department by establishing Revenue Board; increase tax base, decrease leakage, administrative reform; 

Comment: Seriously, there is no concrete agenda and acknowledgement of the major economic problems—low economic growth and high youth unemployment, surging trade deficit, BOP deficit, high and sticky inflation, liquidity crisis, slump in manufacturing sector, proper management of remittances and foreign employment sector, and disruption in supply chains– faced by the nation. The binding constraint to economic growth, i.e. infrastructure is not getting adequate and specific attention, though some long term programs in expanding road network is mentioned.

Most of the programs on employment will yield little result as they are designed to distribute money to party loyalists and local contractors that are faithful to a given party. Cooperatives in everything and in every village is a joke of the very concept of having cooperatives in the first place. It will actually legitimize doling out easy money to loyalists in every VDC. The role of private sector is very minimal in the whole list. Importantly, there is no mention of the fact the Nepali economy is seeing manufacturing slump and without it sustainable growth and employment are unimaginable. I have very little confidence that the budget will address the major economic challenges faced by the nation.

The size of the budget and expenditure programs are ever-increasing. The expected size of the budget is around Rs 385-390 billion (up from Rs 337.9 billion last fiscal year). Development budget (capital expenditure) is expected to be Rs 150 billion  (up from 129.54 billion last fiscal year). Recurrent expenditure is expected to be Rs 210 billion (up from Rs 190.32 billion last fiscal year). The government plans to mobilize about Rs 246 billion in revenue, Rs 75 billion in foreign grants, Rs 26 billion in foreign loans and about Rs 35 billion in domestic borrowing to finance the next fiscal year´s spending. The figures were Rs 216.64 billion, Rs 65.34 billion, Rs 22.23 billion, and Rs 33.68 billion last fiscal year. Education sector (Rs 61 billion) will get the highest amount, followed by infrastructure (Rs 44 billion), local development (Rs 43 billion), and health sector (Rs 25 billion).