The government unveiled the budget of Rs 1,647.57 billion for fiscal year 2021-2022 on May 29. The budget was brought without necessary parliamentary scrutiny. It was brought through an ordinance disregarding the pre-budget discussion that had to take place before May 29. This rule has been flouted, which is a condemnable step.
The budget is too big in size. Rs 1.6747.57 billion is more than 50 percent of the current fiscal year’s capacity to spend. It is almost certain that the unstable government won’t be able to spend it in one year. The government is trying to hold elections which already limits its capacity to spend on other projects. It had the political leverage to conduct small scale projects in previous years. The ruling party had its own governments in nearly all provinces and the local units. Now it does not have that leverage due to the conflicts in Nepal Communist Party (NCP) and now in CPN-UML. This conflict will make it impossible to implement local programs.
The government has failed to spend even on the most ambitious and ‘infamous’ program like the Prime Minister Employment Program (PMEP) because there needs to be political consensus at the community level. The government is in no position to facilitate the process in the current situation.
Bad points to note
The government has allocated Rs 1004.34 billion as total recurrent expenditure, which is too big and almost equal to the revenue generated by the government in fiscal year 2020-21. That means the rest of the development expenses need to be financed by loans. The government has sourced Rs 309.2 billion from foreign loans and Rs 250 billion from domestic borrowing which is detrimental to the long term financial health of the country.
The budget deserves to be condemned because of the way it was brought. It also focuses on the wrong metrics and has not set its priorities right.
Like any other financial planning, the government has to be able to speculate and predict concrete returns from its investments. If it invests in education, it needs to have a concrete plan for the return it wants to see. The same goes for other sectors. But the government, while preparing this budget, seems to be heavily focused on distributing money in the local levels to influence elections. Salary increment, allowance increment, social security allowance increment are the examples. This is not to say that elderly people and single women shouldn’t be compensated but when Rs 100 billion is allocated just for social security without any substantial emphasis on capital formation and production, it shows how short-sighted the government is and how it cares only about populist programs.
The government has allocated almost Rs 435 billion for development expenses for federal and provincial levels. But if we look at the expenses of the fiscal year 2020-21, we find that only 37 percent of the fund—around Rs 133 billion—has been used. The crucial conundrum here is the rise in the cost of development projects that a lack of spending capacity brings into existence. If projects are announced, or started and then not completed, the costs continue to rise every year. This takes a toll in the country’s economy and creates problems in financial planning in the future as well.
The budget deserves to be condemned because of the way it was brought. It also focuses on the wrong metrics and has not set its priorities right. Instead of production, it blatantly emphasizes distribution doing nothing substantive to increase the capacity to spend money on projects and complete them. This leads to a haphazard continuance of incomplete projects from previous years, which will take toll on the nation’s economy.
Proper management of the bureaucracy is crucial to the proper implementation of the budget. However, when we look at past trends, we find that the government has been meddling with the bureaucracy. Secretaries have been transferred several times in five years. We see a similar trend in the transfers of the State Secretaries as well. With the proclaimed elections approaching, we can expect a similar trend in appointments and transfers.
It is not the case that we don’t have the funds required for the projects that the country needs. The problem lies in our inability to spend and complete the projects. The government has ignored this aspect. There are no substantial plans for capacity building on the horizon.
The government has allocated a total of Rs 37.53 billion for the Covid-19 response. It has allocated Rs 26.75 billion for the vaccination campaign. It also plans to build hospitals throughout the country. Announced plans include constructing a 300-bed infectious disease hospital in the capital, and 100-bed hospitals in the provinces. These are welcome steps. However, implementation of the plans is a subject of both hope and skepticism as such allocations had been done the previous fiscal year as well. One can only hope that the vaccination campaign won’t be politicized and spoiled by the middle-men.
The budget is highly distribution-oriented and lacks proper framework to solve the real problems related to spending capacity and completion of projects.
The budget has failed to address the establishment and promotion of large-scale industries. It has brought packages for small-scale industries but if the government really wants to achieve its target of economic growth, it is equally necessary to focus on large-scale industries. Capital formation and production in large scale can be possible only through investments in the large-scale industries. It is important for employment generation and to check brain-drain as well. Honestly, large-scale industries and infrastructural projects have remained the most neglected sectors. The budget is highly distribution-oriented and lacks proper framework to solve the real problems related to spending capacity and completion of projects.
The government predicts 4.1 percent growth rate for the current fiscal year and 6.5 percent for the next fiscal. This is an unachievable target given the budget and programs the government has come up with. The government seems to be clueless about the fact that economic growth is possible only through capital formation. Summing up, the budget is a long list of failed attempts of ‘prosperity’ the government claims to bring to the country but in which it has terribly failed.
Raju Nepal is a former banker and financial analyst. Nepal tweets as @rajunepal