Uncertain promise

  • Size and nature of NCP govt’s budget isn’t in sync with the transformation its envisages

May 31, 2018-

The new budget, presented by Finance Minister Yubaraj Khatiwada on Tuesday, is an ambitious document. With a projected expenditure of Rs1.31 trillion over the next year, it is 2.82 percent bigger than the current budget. But it envisions a grander transformation of Nepal’s economy. The budget aims to achieve 8 percent economic growth in the upcoming fiscal year. It promises to protect domestic industries and, within two years, it looks to make the country self-sufficient in a dozen products, including sugar, medicine, iron rods and cement.

Critics, however, have argued that the size and nature of the budget is not suited for the type of transformation that it envisages. For its part, the government is banking heavily on the reforms that it has decided to launch, which it hopes will change behavior sufficiently for even smaller investments to have a much bigger impact. For example, the budget plans to introduce strict discipline in programme implementation through the Prime Minister-led Project Implementation Directive Committee. There is also a plan to formulate separate laws to make the implementation of large projects effective.

It is clear that the government will face significant challenges in fulfilling the budget’s lofty goals. It will require raising revenue collection by almost 30 percent. There are some plans to alter the taxation regime so as to achieve these goals. For example, instead of two tax slabs of 15 and 25 percent respectively, there will now be three slabs of 10, 20 and 30 percent. Those with taxable incomes of over Rs. 2 million will be charged 20 percent more. The system of providing tax returns has been scrapped. Even with these changes, however, raising revenue significantly will be an uphill task.

And for a government which has emphasised on fiscal discipline, the government has decided to continue with the practice of providing lawmakers with funds for running projects in their constituencies. And this despite widespread public criticism of the control on—and corruption over—national resources enjoyed by the political class. Under the heading, Rs40 million has been set aside for each federal constituency. The budget has guidelines whereby lawmakers can only run five projects selected by a committee comprising of provincial lawmakers and chiefs of local governments. Still, the potential for abuse of these resources exists and this programme needs to be strictly monitored for transparency.  

Some goals mentioned in the budget appear almost impossible to achieve. As mentioned by former Finance Minister Ram Sharan Mahat, meeting the budget’s target of doubling agricultural output in five years would mean an increase of 50 percent each year— something which no country has ever managed to achieve. Similarly, plans to create 500,000 jobs and achieve 100 percent literacy in two years also appear excessively ambitious.  

A final problem with the budget is that a very large share of revenue is to be collected by Kathmandu, with little space given to provincial governments. The Rastriya Janata Party (RJP) has complained that this appears as a deliberate attempt to weaken provincial governments. This is an oversight and the government would do well to distribute revenue in such a way as to empower provincial government control.

Published: 31-05-2018 08:20

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