Shooting in the dark
- This budget has little to offer in the absence of political consensus on a roadmap for economic prosperity
Jul 16, 2014-
The ‘bleeding’ of Nepal’s economy has become alarmingly grave. So it is impractical to expect the budget of a single fiscal year (FY) to completely redress it. Nonetheless, the budget for the FY 2014/15, unveiled on Sunday, should not have missed the opportunity to lay the foundation for this ostensibly long process of healing the multiple wounds that are gradually turning septic. With Ram Sharan Mahat, an unflinching advocate of a free market economy at the helm of the Finance Ministry, it was natural to expect some meaningful measures that had become inevitable after years of policy deflections, faux pas and the naivety of novice ministers. Unfortunately, Mahat, too, did not venture into a much-needed departure from the routine of a ‘what’ to-do list in the guise of a national budget, without prescribing the ‘how’.
Nepal’s budget, for almost a decade now, has lacked political ownership in the absence of broader consensus among major political parties on the national roadmap for economic prosperity. Without such a consensus, issues like assigning a leading role to the private sector, accelerating divestment, privatisation and liquidation of state-owned enterprises (SOEs), attracting foreign direct investment, reforming labour laws, identifying major pillars for public investment and creating an enabling business environment, among others, are impossible to resolve once and for all. The lack of political willpower constricts policy predictability, the key to investment and growth.
Therefore, given the fact that broad national consensus is still elusive, ambitious policies or institutional reforms, such as the implementation of mega projects, mainly in hydropower, or the faster growth aimed for by the budget are extremely difficult, if not impossible to attain. As such, any programme or size of allocation becomes largely irrelevant. It is high time for Nepal to consider mechanisms like an all-party National Economic Council, which could prove useful to frame a common economic agenda in a politically divided country. But we missed that boat yet again.
A recalcitrant level of growth, which has seldom exceeded five percent for decades, is a major bottleneck to our economic prosperity and economic justice for the masses. The growth constraint is paradoxically not caused by the lack of financial resources at our disposal but our institutional inability to spend. Reasons for this range from a lack of elected bodies at the local level to hassles related to public procurement. The contribution of the manufacturing sector to the GDP has now dwindled to six percent. This budget sadly lacks any convincing incentive for private sector growth, which hit rock-bottom primarily during the post-conflict years of irresponsible trade unionism. This budget failed to cast off these shackles. In addition, the predicted bad rainfall this monsoon is sure to take a toll on agricultural output during the harvest season. In view of these realities, the six percent economic growth rate dreamt of by this budget is clearly too ambitious.
The main bastion of Mahat’s much touted ‘second generation reforms’ hinges on the ratification of some six dozen new bills by Parliament. Political earnestness to enact such legislations, however, has been found to be near zero for years. There are about three dozen similar bills meant to facilitate economic growth, which have been in limbo for the last four to five years. So it again boils down to the ever-elusive political consensus on the economic interest of the country.
Undoubtedly, reforms of various degrees, both in institutional and policy frameworks, have been pending for long. But the Finance Minister took a half-hearted approach even to propose the privatisation or liquidation of SOEs. The reform priority for privatisation should not be relative to the profit or loss of a particular SOE. Instead, the policy should based on a broader philosophical paradigm of whether the state itself should continue to meddle in the market with its products and services, causing a price distortion at the expense of taxpayer money. By not taking a decision, Mahat blunted the reform edge he had sharpened in the 1990s.
The divestment proposal, particularly of two large state-owned banks—the Agricultural Development Bank and Nepal Bank Limited—is no doubt a welcome sign. We have heard similar claims with regard to Nepal Telecom and Nepal Airlines Corporation for years, without any progress even at the level of initiating basic processes like the completion of a due diligence audit of the company in question. These efforts need policy consistency for many years, which again has suffered due to frequent changes in government and even faster alterations in policy priorities.
All is questionable
The burgeoning trade deficit of a whopping Rs 600 billion in the current FY, exactly the size of the national budget for the FY 2014/15, by all means, should have been the prime national concern. This crisis warrants a dispassionate national debate at least to start reversing the trend. Its backward and forward linkages need meticulous scrutiny. For both export promotion and import substitution, there is no alternative to reviving the manufacturing sector.
Nepal has failed to carryout any market feasibility study, particularly in neighbouring countries, for products with emerging export potential and identify domestic products that can substitute their import in the short or medium run. These issues are missed points in the budget. The belated review of the trade policy framework, which is proposed to begin next year, will take another couple of years to even have a marginal impact. The dimensions of foreign employment, remittance receipts and the social and economic cost of youth migration deserve a separate in-depth study, which the budget has perhaps deliberately evaded.
This budget, in a nutshell, shoots in the dark against the unavailability of any credible data on anything—unemployment; the learning outcome of the education system; the amount of remittances flowing through non-banking routes; the amount of capital flight; and even straightforward numbers like what percentage of School Leaving Certificate graduates enroll for jobs or higher studies. Economic research in the country is almost non-existent. Therefore, all numbers are questionable; any target is flimsy and all analysis is guesswork. This is the reason the numbers in the budget have deceived us, not only for years but for decades now. This budget too did not dare to propose one such credible institution for economic research and analysis, which indeed would have been a true departure towards planned development.
Wagle is former editor of Arthik Abhiyan, an economic weekly
Published: 17-07-2014 08:56