‘Budget Traditional, Economic Growth Target Unrealistic’

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‘Budget Traditional, Economic Growth Target Unrealistic’

The Federal Budget for FY2020/21 has drawn mixed reaction from former finance ministers, economists and private sector leaders. In a post-budget virtual interaction programme organised by the Society of Economic Journalists – Nepal (SEJON) on May 29, they describe the budget for the upcoming fiscal year as ‘traditional’ and ordinary which cannot fulfill the needs of the extraordinary times and take the country’s economy out of the crisis. They also said that the economic growth target of 7 percent as unrealistic to achieve. According to them, the targets of economic growth, revenue collection, foreign assistance and public expenditure are ambitious.

Commenting on the budget, former Prime Minister and finance minister Dr Baburam Bhattarai said, “The budget should have long term plans for socio-economic development. But this year’s budget is nothing more than ‘traditional’. The pandemic presented a right time for the finance minister to turn challenges into opportunities. But his divided loyalties stopped him to do so. The budget has failed to give priority to economic sectors that need significant investment to revive.” Dr Bhattarai said that the budget is directionless which is neither socialism-oriented nor market-oriented. According to him, government to take responsibility to ensure education and health to all citizens which won’t be possible through a traditional budget.

“Budget for the Prime Minster Employment Programme (PEMP) has been increased. But neither the targeted group will benefit nor the money from state coffer will be utilized if the earmarked budget is spent in activities such as cutting of grasses like in previous years,” said Dr Bhattarai. He suggested the government to increase foreign borrowing to manage finances for economic recovery. “Foreign debt accounts for 32 percent of Nepal’s GDP. It can be increased to 60-65 percent. The government must not hesitate to take loans in these trying times,” he added. He claimed that the budget won’t be able generate employment as targeted due to the scattered allocations.

Former finance minister Dr Ram Sharan Mahat said that the budget for the upcoming fiscal year is filled with promises and promotional programmes. According to him, the assurances given for employment generation, agriculture and industrial sector development are very difficult to implement at the moment. Dr Mahat objected the internal debt target set by the government in the budget. “In the past, the government use to take internal loans not more than 2-3 percent of GDP. But this time it has been set at 5 percent. If the government increases internal borrowings, it will reduce the liquidity in the financial market and will affect generation of jobs and expansion of industrial and business activities,” he said. He criticised the government for not lowering corporate tax and increasing customs duty on import of electric vehicles even seeing possibility of excess of electricity in the country.

Another former finance minister Surendra Pandey, however, defended the budget saying that the government has announced arrangements by properly evaluating the country’s economic situation and public health. “Slashing of public expenditure and increase of budget in public health are positive steps. However, there are challenges to keep the hospitals operational,” said Pandey. According to him, there can be difficulties for the government to sustain recurrent expenditures as the revenue target of Rs 900 billion set the upcoming fiscal is relatively low. Similarly, he viewed the 7 percent economic growth target for the upcoming fiscal year as challenging.

Targets Unachievable: Economists

Speaking at the interrraction programme, economists said that many targets in the budget won’t be unachieved. Dr Shankar Sharma, former vice chairman of National Planning Commission (NPC) said, “The target to increase foreign assistance by 125 percent compared to the current fiscal year is impossible to achieve. Given our capacity, I think foreign assistance will be 40 percent less than aimed. On the other hand the 7 percent economic growth target is challenging because of protracted halt in industrial and business activities, and decline in remittance inflow which has already gone down by 20 percent and could further decrease by 50 percent in the coming months.”

Prof Dr Govinda Nepal said that the size of the budget is appropriate to deal with the current situation. According to him, the budget was unveiled with a broader consensus and the government’s priority to the health sector development and prevention and control of coronavirus is positive. “However, the relief measures announced for various economic sectors are not sufficient. The government needs to form separate task force comprising of all stakeholders to review the measures,” he mentioned.

 Not a stimulus package, scattered relief: Private Sector

The country’s private sector, which had demanded that the government to come up with stimulus package 5 percent of GDP, has expressed its displeasure over the measures announced in the Federal Budget for FY2020/21. Speaking at the programme, private sector leaders said that the measures announced by the government cannot be called stimulus package and that the scattered relief won’t be helpful to revive economic activities. Shekhar Golchha, senior vice president of Federation of Nepalese Chamber of Commerce and Industries (FNCCI), commented , “At a time when economic loss has reached 2-3 percent of the country’s GDP and 1.5 million Nepalis have lost their jobs, the budget has indicated that the government has remained conservative rather than becoming liberal to take the economy out of the crisis.” According to him, the private sector had demanded that the budget incorporate appropriate measures for liquidity management, bank interest rate, labour management and concession in demand charge of electricity. “Among them, the budget has failed to address our demand of labour management which has become the most challenging issue for us at present,” he said.  Golchha mentioned that the government also did not addressed private sector’s demand to ease labour management for those looking to close their industries, archiving of assets and VAT concession.

Kamalesh Agrawal, vice president of Nepal Chamber of Commerce (NCC) said that the government did not meet the expectations of business community as it was under political pressure. “The stimulus package suggested by the private sector was not taken seriously. Refinancing and stimulus package differ in scope and features. We have demanded stimulus package worth 5 percent of the country’s GDP, but the relief measures announced in the budget are just 1.5 percent of GDP,” said Agrawal. According to him, the target to raise Rs 225 billion through internal borrowing will result in shortage of liquidity and affect bank interest rates.

Vishnu Agrawal, senior vice president of Confederation of Nepalese Industries (CNI) commented that the budget has failed to incorporate measures to increase the aggregate demand in the market. “The scattered relief measures will not be much helpful in the economic recovery,” he remarked. Agrawal said that the revenue target of the government is challenging as demand will remain low in the next fiscal year, hence impacting collection of VAT and income taxes.

 

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