FinMin warns quakes could reverse gains

- POST REPORT, Kathmandu
FinMin warns quakes could reverse gains

May 18, 2015-

Finance Minister Ram Sharan Mahat on Monday warned the country’s gains in human development could reverse as a result of the recent earthquakes that caused huge property damage and many deaths and hindered economic activities.

The UN Human Development Report 2010 had lauded Nepal’s performance, placing it in the third position behind China and Oman among 10 star performers since 1970.

Nepal has made significant progress in the human development index despite a modest growth in the income level. “We were on the trajectory of meeting almost cent percent targets under the Millennium Development Goals (MDGs),” said Mahat, speaking at an interaction on “Post Disaster Economy” organised by the Nepal Economic Association. “There are risks we could head towards reverse trajectory following quakes.”

Nepal has made significant progress in key goals such as eradicating extreme poverty, achieving universal primary education, reducing child and maternal mortality, and combating HIV/AIDS, among others.

Due to damage to many school buildings, students might be deprived of getting education this year, while damage to health facilities could hamper achievement in the health sector.

Mahat said the disaster struck the country at a time when the economy was heading towards “higher growth trajectory” and investment climate was improving. “The economic revival could get into the reverse gear now,” said the Finance Minister.

The government has admitted the projected economic growth of 5 percent will not be achieved this year.

Mahat said the quakes not only destroyed physical property, but also damaged the economic prospect of the country, hitting hard tourism, real estate, banking, insurance and industrial and trading activities. “Industries are not running due to the shortage of manpower,” he said. “Activities in the market have slowed and the government’s revenue collection has come down drastically, with collection from Birgjunj Customs remaining less than 40 percent of the target.”

In this context, Mahat said generating resources for reconstruction efforts would be challenging. “The silver lining is we have fiscal space because we have very low debt against the gross domestic product (GDP), below 30 percent,” he said.

The government is confident this space gives it opportunity to borrow within the country and from outside. By announcing Rs200-billion reconstruction fund, the government aims to receive most of the amount from the donors.

However, economists suggest the government could raise more through domestic borrowing as it appears the donors are not much interested in channelling aid through the government mechanism.  

“Due to low debt-to-GDP ratio, you have space to raise more money within the country,” former Nepal Rastra Bank (NRB) Governor Tilak Rawal told the Finance Minister. “You can also draw overdraft from the NRB.”

He suggested the government should consider offering stimulus packages for the private sector to accelerate economic activities and create internal demands.

The economists also suggested given the urgent need of funds for reconstruction, the government could better tell the donors to relieve existing debts as getting funds from donors through negotiation takes a long time.

“By doing so, the government can utilise the resources it has allocated for debt servicing for reconstruction,” said Posh Raj Pandey, an economist. He suggested raising income tax on big taxpayers by 5-7 percent as well as levying duty on the imports of luxury items.

The economists stressed on the need for more transparency in the government machineries to earn donors’ confidence.

Former National Planning Commission (NPC) Vice-chairman Prithvi Raj Ligal said there is a lack of confidence among donors in the government.

But the Finance Minister said it was not due to the lack of trust, but it was a tradition of the donors to spend the budget through their own agencies across the world.

NGOs ‘should sign pact’

Finance Minister Ram Sharan Mahat said on Monday non-government actors would be allowed to be involved in reconstruction only after signing an agreement with the government.  The government said non-government organisations (NGOs) did not coordinate with the government agencies in distributing relief materials which resulted in duplication. “We compromised the non-coordination because rescue and relief was the need of the hour,” said Mahat, speaking at an interaction on “Post Disaster Economy” here on Monday. “We will not allow such a practice to repeat during the reconstruction phase.” He said the government would make it compulsory for both the government agencies and non-government sector agencies to use the same design of the houses for all quake victims. “It is necessary that all the victims are treated in same manner to maintain social cohesion.”

Published: 19-05-2015 08:03

User's Feedback

Click here for your comments

Comment via Facebook

Don't have facebook account? Use this form to comment