Budget 2021: Making promises the government can’t keep

Nishant Khanal

  • Read Time 5 min.

This budget is a continuation of an annual tradition in Nepal’s seven decades of budget history where the policy makers fail to learn from the past budget performances and experiences but promise a lot.

Finance Minister Bishnu Prasad Poudel has put in all his efforts to make the fourth budget very appealing and pleasing to hear. This budget is continuation of an annual tradition in Nepal’s seven decades of budget history where the policy makers fail to learn from the past budget performances and experiences but promise a lot. Seldom delivered, hardly fulfilled on time.

Carrying over the legacy of his predecessor, a technocrat, Poudel, as a political actor, has successfully addressed the major issues and concerns of a common man in the budget, which his predecessor had failed to do, or comfortably omitted, in the past three budgets.

The government’s expenditure and income account has been presented as an ordinance by the present cabinet, because of the forced amputation of the legislative arm. It is highly likely that there will not be any discussion over this budget unless parliament is reinstated by the Supreme Court. The government has already announced elections for November.  So, it is no surprise that the budget is distributive and populist. The focus is disoriented. The budget has undermined the challenges posed by Covid-19 pandemic on Nepal’s economy, health care, life, wellbeing and livelihood. There’s no concrete plan of action for recovery from the ongoing pandemic.

Aiming high

Understandably, because of the covid pandemic, health care and health services have been a priority in Nepal’s budgetary system since last year.  But it does not appear that the government has learned from last year’s health budget and the experiences. Despite a record allocation of healthcare budget last year, our healthcare system failed at coping with the deadly second wave of the pandemic. Apart from allocation of 26.55 billion to procure the vaccines and 4 billion to procure Covid-19 related medical supplies, the rest of spending on healthcare is just a continuation of what it was in the last year. Subsidies to install the oxygen plant in hospitals with over 100 beds might be something that we will be seeing as an immediate positive impact on the health care system in Nepal.

Nepal’s economy has been ruptured by the pandemic. Earlier on Friday the Finance Minister accepted that it’ll be difficult to meet the targeted economic growth of 4.01 percent in the current fiscal year. But he set the targeted growth for the upcoming year at 6.5 percent in the budget which is grossly ambitious and appears unrealistic. This budget, along with the previous one came in the midst of the global pandemic. Thus the focus solely should have been to mitigate the impact of the pandemic on the economy and lives of the people. Yes, there is something about saving the lives and economy from the pandemic but the budget fails to keep this pandemic and its impact in center, while allocating expenditure and forecasting the plans for the upcoming year.

The budget treats the pandemic only as an unprecedented event to address, and has overlooked its far-reaching impacts the country is facing and will be facing in the days to come.  Our policy makers once again failed to keep foresight during this crisis.

Positive steps, populism

The government looks confident in the budget document, and has incorporated a wide range of issues in it. There are quite a number of issues which will directly have a positive impact on people—tax subsidy on the electrical cars has been reinstated, VAT rebate for industrial diesel and LPG consumption has been reinstated, the taxpayers now don’t have to go through the cumbersome process of validating the VAT ledger books, senior citizen allowance has been raised to NRs. 4000, salaries of civil servants raised by Rs 2000, income tax waiver is from 50-90 percent and so on. Likewise, there are quite a number of tax and VAT rebates for the entrepreneurs, especially on transportation service, machinery and raw materials. Removal of taxes on electrical home appliances is also a welcome and a positive move. The focus on start-ups would benefit budding entrepreneurs, from the full discount on the income tax for the initial five years and seed capital to start-up ideas allowed as deductible expenses.

The widely criticized Local Infrastructure Development Partnership Program—which also goes by the name of Member of Parliament (MP) Development Fund—has been scrapped. This is a progressive step.

If the Supreme Court does not reinstate parliament this will be the election budget. Objective of this budget will not be achieved, as the priority will either be the pandemic or the election.

The budget has a few unrealistic programs like free visas for all the incoming tourists in the country. The policy will not help to attract more tourists as visa fee has not been an issue for the tourists traveling to Nepal. Providing free SIM cards for the students is another populist idea. Loan to procure laptops for students at one percent looks very promising, however, from a practical point of view this is another populist idea put forward. The generous allocation of the budget to the religious sites across the country, allocation of special projects to almost all the districts in the country confirms that this budget has been designed by keeping the upcoming elections in mind.

The budget ordinance for this fiscal year came at a very uncertain time. In the next couple of weeks, if the Supreme Court reinstates parliament there might be a different scenario with this budget and we can expect some major changes to the programs. Otherwise, this will be the election budget of the country. Either way, the objective of this budget will not be achieved, as the priority will either be the pandemic or the election.

That aside, despite being criticized for not knowing much about economics, the Finance Minister with his team has prepared quite a holistic budget with a very positive outlook. This is a kind of budget the ruling party should have brought in their first year.

As usual this budget will also face skepticism over its implementation and delivery from the bureaucrats. There are no noble ideas or actions that will ensure the timely delivery and efficiency. There are no answerable authorities who will take ownership of this and assure the public that they’ll get what they have been promised.

Highlights of the Budget:

1.  Total Budget Amount : Rs 1.647 trillion

a.   Rs 1.024 trillion will be raised through revenues and Rs 63.77 billion through foreign grants; remaining will be covered through foreign loans and domestic borrowing.

b.  Rs 678.610 billion will be spent on recurrent expenditure

c.   Rs 347 billion will be spent as capital expenditure

d.  Rs. 279.7 billion will be used for fiscal transfer and management

Nishant Khanal is a student of Economic policy at National University of Singapore.