Kathmandu: The Sher Bahadur Deuba-led government on Sunday came under heavy criticism from the main opposition over its failure to manage the economy.
Three former Finance Ministers from the opposition Communist Party of Nepal (United Marxist Leninist) Bishnu Paudel, Dr Yuba Raj Khatiwada and Surendra Pandey accused the ruling alliance of being focused on fulfilling its own vested interests instead of uplifting the economy which is under serious crisis.
At a time when the country is already in the grip of economic slowdown, the opposition party has warned of more pain if the course correction measures are not taken immediately.
Currently, Nepal is reeling under a serious crisis as the overall indicators paint a bleak picture of the country’s economy: the remittance inflow has declined, the current account and the balance of payments are in the deficit, the foreign exchange reserve is depleting, and the trade deficit is widening.
Nepal Rastra Bank, the central bank of Nepal, has recently decided to tighten the import of luxurious goods given the sharp decline in foreign currency reserves. Amid the uncertainties, the government on Thursday has decided to suspend the governor of the bank citing the reason of leaking information about a possible import ban of luxurious goods to the business communities.
The opposition party has dubbed the move a “deplorable” and said that “the Prime Minister took the wrong decision under undue pressure from the anarchist Finance Minister”.
Here is a brief synopsis of the statement issued by former finance ministers representing CPN-UML:
1. Economy at the time of UML-led government
The economy was in better shape before the formation of the Nepali Congress-led coalition government. The inflation rate was below four percent and prices were under control. The trade deficit was in balance. Annual remittance had increased by 10 percent. Balance of payment was at one billion 230 million rupees annually. The foreign reserve was at Rs 14 billion, enough to import goods for the next 11 months.
Public finance was in balance. By the end of the fiscal year, treasury saving was Rs 195 billion. Banking savings had increased by 21 percent and thus there was no lack of investment sources in the banking sector. Since there was no liquidity crisis in the banking sector, the investors would easily get the capital. The interest rate of the loan was in the single digit.
2. Financial irregularities
Financial irregularities started right after the formation of the coalition government. The government meddled with financial ordinance. The government altered the budget unveiled by the UML-led government for its vested interests. By not endorsing the budget on time, the state was pushed to the budget-less situation for the first time in history. Two months after the start of the fiscal year, the budget system was misappropriated through the replacement bill. Today capital expenditure is at an all time low. With the delay in bringing the budget and finance minister preventing monetary policy, the central bank failed to address the problems of the financial sector. All this has pushed the country to the verge of economic crisis. The coalition government has either discontinued with or abrogated the popular programs introduced by the UML-led government.
The government has paid no attention toward resolving the economic crisis. Government ministers are in a money-making spree and contract setting. Ministers are found to be openly asking for bribes for election expenses. The private sector has been given no opportunity to find the solutions to economic problems, they have not even been given the opportunity to raise their business-related issues.
The government failed to minimize the economic crisis resulting from the Russia-Ukraine war. Even while the serious concerns were being raised about the economic crisis, the government watched unconcerned.
The Finance Ministry took no measures to stem the crisis but the Central Bank started to take some initiatives. To hide its own incompetence, the government started to put the blame squarely on the previous government and the governor of Nepal Rastra Bank.
3. Economic crisis after the formation of coalition government: Now the inflation has increased two times higher than during the time of the previous government. Prices of essential daily commodities such as food, ghee, oil, and transportation have sky-rocketed. The price of petroleum products has increased by over 50 percent. The government has failed to monitor the market and due to the wrong policies of the government, the prices of construction materials have risen disproportionately, making the development works of the private and public sectors extremely costly. The government has not done anything to address these problems. People are worried that the country is headed toward the fate of Sri Lanka.
Imports have risen uncontrollably in the last eight months to Rs 15 billion. If this trend continues, by the end of this fiscal year, imports could escalate to over Rs 22 billion.
The foreign trade deficit has increased in such a way that the country cannot manage it. While the trade deficit amounted to Rs 863 billion during the eight months period during the UML-led government, it has reached Rs 1161 billion for the same period since this government came to power. If this trend continues the trade deficit might reach as much as Rs 2000 billion by the end of this fiscal year.
The current account has reached beyond a manageable point. Illegal transactions such as Hundi are on the rise and remittance is not coming through formal channels. The current account deficit has reached 414 billion.
Up until the end of the previous fiscal year, during the time of the UML-led government, the balance of payment was in proper shape. After this government came to power, the balance of payment deficit is on the rise. By March, the balance of payment deficit has increased to Rs 260 billion. This government is creating the largest balance of payment deficit in the country’s economic history.
Foreign Exchange Reserve is suffering a big imbalance. The foreign exchange reserve was Rs 14 billion at the time UML exited from the government. In eight months since the coalition government came to power this reserve has declined by around three billion and it is still declining. If this trend continues, foreign reserves will surely face an unmanageable strain.
4. Unhealthy completion in banking sector and state of liquidity: The liquidity crisis is in a frightening stage. There is no money for investment in the banking sector. The business sector has not been able to open Letter of Credit; they are not able to obtain loans even at a high-interest rate. Hundi, smuggling, bribery, revenue leakage and rent-seeking are thriving. Banks have no money for investment. The outflow of money from the banking sector has not been reverted to the banking sector itself.
The government has failed to control tax evasion and illegal investment in cryptocurrency, hyper fund and digital property. It has failed to take action against Hundi operators.
5. Financial mismanagement
In nine months, the government has only been able to spend 26 percent of its capital budget. To save the coalition, the government has also formed unnecessary structures at the provincial levels. The number of ministries at the provincial level is almost the same as at the federal level. A huge amount has been spent on luxury items.
6. Conflicting economic policy of the government: The main opposition has said that the economic policies of the coalition government are conflicting. The government, according to CPN-UML, just wants to save the coalition and has no will to improve the economy of the nation. The parties in the coalition have differences in accepting grants to increase private sector investment by improving the business environment. As a result, the private sector, donor agencies, bureaucrats, and civil society are pessimistic about the economic prospects.
7. Government losing trust of development partners: Commenting on a commitment letter signed by Prime Minister Sher Bahadur Deuba and CPN (Maoist Center) Pushpa Kamal Dahal to MCC, the main opposition has said the government failed to convince its coalition partners. On the one hand, a coalition partner signed a letter to ratify the MCC compact, while on the other hand, the same party took to the streets to protest against the grant. The development partners lost their trust in Nepal.
Likewise, the CPN-UML also said that the government failed to move ahead with the BRI project during the visit of the Chinese Foreign Minister to Nepal.
8. Economy in the wrong hands: The government has supported land mafias, black marketeers, and smugglers. The government, rather than working to improve formal trade, has been working with these mafias and encouraging the black market, further depleting the external sector of the economy, it said, adding that remittance is being sent to Nepal through the illegal channel. The remittance inflows increased by 10 percent during the pandemic, but after the coalition government was formed, the inflows decreased by five percent, it said.
9. Business sector losing trust: There is no proper coordination between the government authorities like Nepal Rastra Bank, Finance Ministry, National Planning Commission, and Commerce Ministry. As the economy is at risk, a question has been raised: Is the economy on the path to becoming the next Sri Lanka? The government has failed to gain the trust of the private sector and the development partners.
10. Government’s inaction on money laundering activities: The opposition has slammed the government for taking the opposite direction in the issue of money laundering investigation and control. The government’s primary role should be in controlling illegitimate assets. But the incumbent government itself is involved in legalizing such assets, which clearly suggests its involvement in money laundering activities. These activities by the government have increased the risk that Nepal will be on the list of international monitoring with regard to money laundering.
11. Projection of economic growth is impossible: The government has projected economic growth of 7 percent in the current fiscal year. The opposition party has concluded that there are worries about whether the economy will collapse and the growth projection has become meaningless. The opposition has accused the government of protecting mafias and black marketers resulting in a natural price hike [of goods and services]. Agricultural production has depleted, banks are not in the position to lend more, the private sector has lost its confidence, and the government has become unable to mobilize the capital expenditure, states the statement. In this context, according to the opposition, it is impossible to achieve the projected economic growth.
12. Deplorable action against NRB governor: The opposition has said that the biased action against the central bank governor is illegal and the Nepali Congress government has repeated the same mistake. Nepali Congress has made such a move in the past too and that has led the economy into a crisis, reads the statement. “The government has suspended the governor to cover up its incompetence. The action against the central bank governor is not only objectionable but also deplorable.”
The statement has fiercely criticized the finance minister. “There is no doubt that the action against the NRB governor is taken to cover up the failure.” The action came after the finance minister’s move to become an accomplice to financial embezzlement, and fulfill the vested interest of a business coterie was foiled, said the statement.
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