analysis: ‘Architect’ Mahat misses reforms bus


Jul 13, 2014-

As one of the main architects of economic reform in the 1990s, Finance Minister Ram Sharan Mahat’s seventh budget is disappointing at best. Riding on a comfortable parliamentary majority, Mahat could unleash second-generation reforms that he unfailingly discussed in pre-budget interviews.

But he missed a great opportunity to go down in history as a bold reformist, with a Constituent Assembly where Mahat’s Nepali Congress party has a consolidated position, and at a time when the country in transition hopes to reap post-conflict dividends.

Instead, the budget talks of amending various legislations and policies that were part of the first leg of reforms for, what Mahat claims, undertaking the second phase of reforms. And most of these legislations are already in Parliament awaiting endorsement.

“With the government backed by a two-thirds majority, this was a great opportunity for Mahat to take hard decisions,” said economist Biswhomber Pyakurel.

Mahat does earn some brownie points for his focus on energy and agriculture, though. The much talked about unbundling of the Nepal Electricity Authority comes in the budget. He also initiates some good initiatives such as commercialisation of agriculture by providing incentives to youths in order to take up farming. However, much was expected in strengthening the regulatory framework, especially to check market anomalies. The finance minister could have introduced measures to safeguard consumer interests especially in education, health and cooperative sectors. Former finance secretary Rameshore Khanal says Mahat failed to score here.

Mahat was unable to remove barriers for investment too. Starting a business in Nepal is frustrating for investors, as they have to make rounds of a number of government offices for registration, while aspiring entrepreneurs struggle to gather resources. “The budget could have simplified the process, from firm registration to fund management,” said Khanal.

However, the budget provisions some good measures

such as liquidating public

enterprises struggling to pay their staff, scrapping and blacklisting associations promoting syndicate and Rs 500 million ‘Start Up Fund’ for aspiring entrepreneurs. Mahat, known for fiscal discipline, succumbed to pressure from lawmakers in agreeing to provide Rs 10 million to an electoral constituency. His team had taken considerable amount of time preparing ways to address their demand for the Constituency Development Fund. In a please-all tactic, the budget becomes an accommodative package and Mahat is no exception. For the middle class, the finance minister has raised the income tax exemption limit, while for civil servants he has increased salary by a flat 10 percent.

Promising new Labour Act, 50 percent loan exemption in mechanised farming and operationlisation of the Bhairahawa Special Economic Zone, Mahat has addressed some crucial demands of the private sector.

He has increased capital expenditure by 30 percent but the document, except for bringing in Fiscal Responsibility Act, is silent on addressing structural problems in implementation. “From this budget, we can’t expect a quantum leap in economy,” said Khanal.


Published: 14-07-2014 09:49

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