Tuesday, 3 October, 2023

Priorities For The Upcoming Budget

Dibyeswar Prasad Shrestha


Nepal is preparing the budget for FY 2077/78 in an unusual context of COVID-19 pandemic. The pandemic has already affected various sectors of economy, causing billions of rupees in loss to the nation. This has a direct bearing on the growth rate. The country had maintained a very encouraging growth rate of more than 6% per annum for the last three fiscal years until FY 2075/76. However, according to the Central Bureau of Statistics (CBS) projections, due to the ongoing lockdown put in place to contain COVID-19, the GDP growth rate will be 2.27% in FY 2076/77. Earlier the World Bank had projected the growth rate to be between 1.5% and 2.8 % in 2020 and the recovery was expected only in FY 2022 with a growth rate between 2.7% to 3.6%. In view of the changed context, it is desirable to allocate resources according to the following priorities during the formulation of the upcoming budget.

Revival of the economy in view of the projections of decline in remittance, internal revenue and foreign aid will be challenging. Remittance plays an important role but it is expected to decline by 10% and 14 % respectively, according to Nepal Rastra Bank and the World Bank projections. According to the CBS, the country will receive only Rs.716 billion in remittance this year compared to Rs.879 billion received last year. The contribution of remittance to GDP will also decrease to 19.01%. In these circumstances, it is desirable to reduce the size of the budget by assigning the top priority to bring the economy back into normalcy. The present economic situation is also interpreted as a V-shaped recession by the economists.
The government is doing everything possible with the available resources to save lives of people. Fortunately, no news of COVID-19 related death has been reported within Nepal even as the number of infected persons has crossed 100. That means, every effort should be made to prevent and control the coronavirus pandemic by mobilising more health workers, security personnel, essential equipment and medicines and attractive incentive packages, such as insurance policy, to all involved in the frontline of the fight against the coronavirus pandemic. This will naturally demand substantial budget this year compared to previous years under heath sector.

The damage caused by the pandemic in tourism sector is more serious than in other sectors. For instance, according to CBS, hotels and restaurants are estimated to witness a loss of 16.30 per cent during this fiscal year compared to the growth of 11.06 per cent last year. A former CEO of Tourism Board has estimated that coronavirus affected 1.3 million people, causing a loss or damage of Rs.160 billion. This suggests the urgent need to formulate and implement tourism revival plan in the budget.

Mega projects
There are currently 21 projects categorised as the ‘projects of national pride’ by the government. In view of the likely shrinkage in resources, it is desirable to assign priority to the pride projects nearing completion, namely, Upper Tamakoshi, Melamchi, Chure Conservation and Lumbini, and allocate the resources for the remaining projects for their continuation rather than taking up new infrastructure projects for the year ahead.
The government is making every possible effort to mobilise the resources from all potential sources such as IMF, World Bank, ADB and EU. In this context, it is desirable to explore and mobilise resources from NRNA as well, by creating an investment-friendly environment through changes in the existing policies, rules and regulations, if required, to attract their investment. In addition to this, efforts can also be made to bring more Foreign Direct Investment (FDI) in the country. Excluding Bhutan and Afghanistan, the FDI in Nepal was the lowest among the South Asian countries in 2018, according to an UNCTAD report.

Strengthening the agriculture sector is expected to fulfill the twin objectives, the reduction of rural poverty and creation of employment opportunities. Employment opportunities need to be generated in other sectors of the economy to accommodate the huge labour force, which is planning to return to Nepal. However, the conventional approach in terms of policy, plans and programmes to tackle this additional labour force returning from abroad may not be adequate in the changed context and some new innovative ideas and thoughts are required to attract these youths in agriculture. To some economists, the subsistence agriculture system will not work. There should be drastic measures to revive the agriculture sector. 
And implementation of new plans and programmes requires additional resources, which need to be provisioned in the budget.
Small and medium scale industries, along with business enterprises, which have little or no cushion to withstand the unexpected shock of the coronavirus pandemic, will have to struggle hard for their existence in the prolonged lockdown. Thus, some kind of rehabilitation packages might be required in the coming days for them to be able to stand on their own. This could be a financial support in cash, tax relief/holiday, subsidy on interest payment of loan and refinancing. In this regard, the government has decided to increase the size of refinancing fund to Rs.100 billion from Rs.60 billion. The interest rate on refinancing loan will be reduced. Similarly, concessional loans will be provided to small and cottage industries for working capital to run the industries. The Nepal Rastra Bank has already announced the second relief programme for the entrepreneurs and industries, directing the BFIs to reduce the interest rate by 2% and barring them from any raise in interest until the end of the current fiscal year.

Relief packages
The government has recently announced relief packages for workers who have lost their jobs due to lockdown and directed the organised sector to pay 50% salary/wage of Baishak to their employees. In addition to this, the government has made a provision to give these workers jobs that local, Pradesh or federal governments have on offer. This is a commendable decision.

(The author is a former senior economist at the Department of Urban Development and Construction.)