Covid-19 and budget: Where is the road to recovery?

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At a time when the onslaught of the second wave of the Covid-19 has ravaged the nation, the budget unveiled for this year fails to address some major issues facing the country. The efforts to flatten the ‘infection curve’ through lockdown have restricted flow of goods, capital and labor which has resulted in loss of jobs and incomes along with defaults and bankruptcies, triggering a macroeconomic ‘recession curve’. This has generated a need to address the Covid crisis through investment in health as well as laying out a path for a smooth economic recovery. Overall, the budget tries to strongly tackle both a health and an economic crisis. Nevertheless, it falls short on several fronts.

Survive, revive and run

Surviving, both economically and physically in terms of preventing and recovering from Covid-19, is perhaps the most important goal at present. At the economic front, the budget makes some positive strides towards this—subsidizing necessities such as rice, gas, and sugar; offering income tax concession across various income slabs; waivers on drinking water and discounts on electricity (100 percent for 20 units and 50 percent up to 50 units), along with offering a one percent income tax for hotels, travel, transport, cinema among others. However, it falls short in terms of assisting daily wage earners and the poor. For instance, unconditional cash grants such as the universal basic income (UBI) would have been an ideal way in mitigating severe cash constraints among the poor. While adhering to a complete version of UBI—an unconditional grant to every Nepali—is expensive for Nepal, a basic income to a targeted set of population would have been arguably affordable. Resources that were previously used for the Poverty Alleviation Fund (PAF) could have been mobilized here. Nevertheless, the Prime Minister Employment Program (PMEP)—which offers guaranteed employment for 100 days—can still come to rescue. PMEP can be used to achieve the twin goal of offering jobs and incomes to those who need it along with mobilizing human resources in fighting the pandemic. For example, jobs could be created at vaccine centers to manage the crowd, or in sanitizing busses and public areas.

Remaining afloat during this pandemic has been challenging for firms. This hardship trickles down to its workers through loss in jobs and income. According to a study of 700 businesses and 400 individuals firms by IIDS (2020), one in every five employees lost their jobs during the lockdown last year, while six to 21 percent of firms cited pay cuts as their strategy to stay alive. In the tourism sector, 17 percent of the firms have been permanently shut, leading to 65 percent of workers in the tourism sector jobless, according to a survey by Kathmandu Living Labs (2021). While concession for several industries in the form of one percent income tax has been included in the budget, other schemes such as concessional loans to firms, which were cited as firms’ preferred assistance in the survey by IIDS have been missed out. Nevertheless, it would be good to see the monetary policy that tends to complement the budget and offer schemes in this regard.

Surviving, both economically and physically in terms of preventing and recovering from Covid-19, is perhaps the most important goal at present.

In the medium term, once the pandemic subsides, the goal would be to revive and run the economy. On this front, several plans have been rolled out. For instance, a free one month visit would most likely be a pivotal policy in attracting tourists early on as people try to regain trust in international travel. Likewise, aligning with the international path to ‘green recovery’, the government has planned to replace petrol with electric vehicles in 10 years. Additionally, addressing the problem of exporter and producer mismatch, it has also made export subsidy available at the producer level. Likewise, despite implementational challenges, the plan of “Make in Nepal, Made in Nepal” also seems promising. Similarly, the budget has also vowed to formulate new laws on e-commerce along with creating a national payment switch and encouraging online payments.

Yet, despite the Covid-19 catalyzing low-touch and online services such as online learning, home delivery, and related services, the budget misses out on leapfrogging into digitization. For instance, making a move towards formalizing digital freelancing, rolling out digital KYC, certifying digital learning, along with a longer-term vision of aligning skills that are future proof such as IT literacy skills, creativity and critical thinking skills, among others would have aided in capitalizing the changes brought by Covid-19. Likewise, the budget could have done more in addressing long standing problems in doing business such as access to finance, anti-competitive practices, infrastructure bottlenecks (both hard and soft) and lack of skilled labor.

Vaccination and health infrastructure 

On the health front, the current need is two-folds—vaccination and equipping hospitals with necessary infrastructure. The second wave of infections have exposed the glaring loopholes of the healthcare system in Nepal. The country’s responses to the rapidly rising cases were crippled by an acute shortage of medical staff, beds, medical oxygen, ICU beds and ventilators. As the country still battles this “deadly” wave, there are concerns about the possibility of a third wave during the latter part of this year. The budget has addressed this possibility by earmarking an additional 10.58 billion rupees towards Covid preparedness, containment, and treatment. But again, the adequacy is irresolute. This amount is earmarked to set up oxygen plants, procure ventilators and other medical equipment, provide concessions on medications, ramp up testing, provide allowances to interns and healthcare workers, set up medical camps, among others across the entire nation. While Nepal’s best shot at countering future waves is to vaccinate as many people as possible, the need of the hour is to confront the emerging (possibly more contagious) variants with sufficient resources. This includes adequate nationwide testing followed by contact tracing, degree of preparedness during the early days of the pandemic to lower Covid-19 cases and death rates, and finally the evident, investment in the capacity of public health infrastructure well ahead of time to fortify the country against the worst effects.

The budget could have done more in addressing long standing problems in doing business such as access to finance, anti-competitive practices, infrastructure bottlenecks and lack of skilled labor.

More importantly, with regard to vaccines, 122 billion rupees allocated for the health sector, out of which, 30.76 percent worth 37.53 billion rupees is designated towards Covid preparedness, 71.27 percent of this amount is earmarked to procure vaccines worth 26.75 billion rupees. While the amount is undoubtedly significant, is it adequate to vaccinate the majority of the population? For instance, let us consider two scenarios. Scenario (i): Cent percent of the vaccines procured are Astrazeneca (Covishield) worth USD 4 (approx NPR 468) per dose (cheapest option). Scenario (ii): A more realistic approach given the current obstacles in obtaining the Covishield vaccines, proportionate allocation amongst all available vaccines. A back of the envelope calculation shows that while in scenario (i) the earmarked amount is enough to procure vaccines for 143 percent of the eligible population, scenario (ii) would vaccinate less than 30 percent of the eligible population. In order to vaccinate the majority of Nepalis, the government needs to negotiate with companies and governments abroad to procure vaccines at the lowest possible prices or else the allocated amount runs the risk of being inadequate.

Way forward

With funds being channelized to Covid-19 relief along with likely revenue shortfalls given loss of income, jobs and lower levels of economic activities, curbing conspicuous consumption such as buying expensive vehicles, renovating offices along with expensive foreign junkets would help in managing government revenue. Likewise, earmarking the NPR 26.75 billion for vaccines is a job half done. Negotiation deals with companies and foreign governments would still be a requisite in order to vaccinate all Nepalis. Similarly, leveraging existing plans such as PMEP by improving its execution and aligning it with the efforts to tame Covid-19 would entail efficient allocation of resources.

Abyaya Neopane and Binisha Nepal are Program Specialists at the Institute for Integrated Development Studies (IIDS). The views expressed here do not necessarily reflect the position of IIDS.