Sunday, 14 April, 2024

Increase Capital Expenses

The economic health of Nepal has gradually been deteriorating for the past few months. While the initial three months of the current Fiscal Year 2021/22 were occupied by political transition which took time to replace the budget announced by the erstwhile government, development ministries were not up to the mark to mobilise the capital expenses. Just 7.88 per cent mobilisation of Rs. 439.6 billion capital allocation by Tuesday points to scale of the problem. Total receipts of the federal government have reached about 39 per cent of the total target but expenditure stands at 26.4 per cent. In monetary terms, revenue collection is Rs. 48.26 billion higher than the total expenditure. This phenomenon coupled with decreasing inflow of remittance and inflating imports has negative impact on the liquidity in the financial system of the country.

The sudden growth in the imports in the aftermath of the second wave of the COVID-19 pandemic has hit the foreign exchange reserves which reached a record low in years to US$10.47 billion by the end of the fourth month (mid-November) of this fiscal year. The reserve is enough for imports for just seven months. Remittances decreased by 7.5 per cent and tourism businesses battered by the coronavirus pandemic are still struggling for revival amidst low tourist arrivals. On top of these economic woes, the central bank's recent move to ask 100 per cent cash margins for the Letter of Credit (LC) while importing beverages, spirits, sugar, footwear, shampoo, artificial flowers, stone, cement, silver, cars, motorcycles and tobacco, has irked the business community. Experts and business community are wondering where the money has evaporated. The central bank has maintained that the tightening of the imports of luxury goods was implemented to curtail the growing imports of unnecessary goods and lessen the pressure on the foreign exchange reserves. But the business community is not ready to digest the move.

The government should mobilise the development budget to send money to the market and financial system. Reforms are needed to discourage the imports of passenger cars and motorbikes. It will not only decrease the imports of vehicles but also petroleum fuel, spare parts and lubricants. Checking the imports of luxury goods is a good idea, it saves the foreign exchange reserves from unnecessary pressures but it also hits the tax collection since the luxury goods have significant contribution to the customs and excise duty. For example, diesel is the largest import commodity in the first five months of the current fiscal while petrol and cooking gas make the fourth and fifth largest import. Hence, the government should devise some strategy to utilise the domestically produced hydroelectricity in domestic, industrial and transportation uses. Likewise, there is a need of promoting the remittance inflow by formal channel with some incentives such as tax discount, insurance, or other welfare facilities to the migrant workers and their families. Migrant workers are the most ignored group of people despite their huge contribution to the economy.