Some Comments on Budget for F Y 2011 of Nepal

The budget for the fiscal year 2011 presented by Finance Minister Bharat Mohan Adhikari on July 15, 2011 amidst the controversy of publishing it before presenting it to the legislature-parliament is the regressive in the sense it would not contribute to the development rather to stagnation in the best case. The well wishers including the private sector people have overwhelmingly opposed it without any success to correct the worst part of the budget. Obviously most of the parliamentarians don’t understand the budget. So, most of them have focused on the publication of the budget and have demanded to punish the Finance Minister for his worse deed.

The budget is regressive because it has placed the private sector on the back burner and focused on the cooperatives. More than 80% of the Gross Domestic Product (GDP) comes from the private sector but the government has neglected it and has not made any provision for fast growth of the private sector. Consequently, the private manufacturing sector, trade, service and other sectors of businesses would have difficulty to survive in the environment not conducive to run properly. So, the growth of economy the government has projected even the lowest possible of 5% would not be achieved in the FY 2011.

The private sector people have rightly opposed the cooperatives because the government has been focusing on the cooperatives for small enterprises and job creations. Nobody would have opposed such cooperatives if the government has made them competitive based on the principles of market but the government is providing cooperatives with all sorts of benefits for running the business making the private sector difficult to compete with them.

The budget has been regressive in the sense that Finance Minister Adhikari has completely failed in making provisions for attracting foreign direct investment. Mr. Adhikari has completely forgotten what his counterpart comrades in the People’s Republic of China, and Vietnam have done to put their economy on the fast track. Unfortunately, Mr. Adhikari has not only failed in putting the Nepalese economy on the fast track but even in the right track not giving due importance to the foreign investments in the Nepalese economy.

The finance minister needs to spend a large chunk of the budget on developing infrastructures such as roads, electricity and drinking water supply. However, the finance minister has distributed small amounts of the budget to different projects. For example, the Kathmandu-Hetauda Fast-track project has received the amount just enough to open the track. Nobody could move fast on this track. This fast-track project is a multi-trillion-rupee project. So, the small amount thrown to this project will be just enough to grease the palm of the project people. This notion is applicable to all other large water and electricity projects, too.

The finance minister does not feel guilty in saying all Nepalis will have the access to the safe drinking water in the coming five years when the reality is even the people living in the capital city called Kathmandu have once a week water supply, what will the people living in villages not to mention the people living in remote districts have? Will they have access to the safe drinking water in the coming five years? Certainly, not, even the Kathmandu will need to face the severe shortage of water if the finance minister works on such a budget. For example, the finance minister has said in the budget that the Melamchi Drinking Water Project will complete on schedule. What is the schedule? The finance minister has failed to say. This mega project is supposed to provide the people in the Kathmandu Valley with water even in the 1990s but the government has failed to do any concrete work. So, when the project will complete remains to be seen.

Speaking to the reporters on Saturday, July 16, 2011, Mr. Adhikari has boasted that his budget will show its impact on the economy. This means the stock market will change positively but it has failed in reacting to his budget. So, Mr. Adhikari has been unable to prove the positive impact of his budget.

Mr. Adhikari has allocated a large chunk of the budget to the Nepal Army and the public order security in other words the Nepal Police and related security agencies. The Nepal Army has received 5.2% of the total budget of Rs 384.9 billion. The public order security has received 8.5 %.

The Nepal Army has not faced and is not facing any invasion from any hostile country but nobody disagree it needs to be kept up-to-date. Even for keeping the Nepal Army ready for any combat, it does not need such a large amount of money. So, the question is why the finance minister has allocated so much money to the Nepal Army.

The public order security does not need 8.5% of the total budget of Rs 384.9 billion. The country is comparatively secured and no forces have been challenging the state. In this case, the government needs to keep the Nepal Police and other related security agencies smart and capable to tackle any possible disturbance and security breach. To this end, the government does not need to spend so much money on the public order security.

The education sector has received the highest percentage of the budget. It has received 16.7% of the total budget of Rs 384.9 billion. The primary education has received 5.6%, secondary has 2.5%, and education not defined by level 5.7%, subsidiary education 2.7% and another educational sector has received the remaining portion.

The finance minister has completely neglected the youths going to work and working in foreign countries. In view of the Nepalese youths going to foreign countries to work for making better incomes than in the country and earning 25% of the GDP, the finance minister needs to allocate certain amount of the budget to providing the Nepalese youths with the better opportunities of vocational education so that they could get better vocational jobs and earn more.

Not allocating any budget to the welfare of the Nepalese youths working in foreign countries, the finance minister has grossly neglected the Nepalese youths going abroad and working in not so friendly environment and earning at least 25% of GDP. This is the official amount of remittances but the remittances coming unofficially might be quite high; nobody has any records of such unofficial flow of money to Nepal. The finance minister needs to allocate certain amount of the budget to compensate to the youths coming back home for not finding the appropriate jobs or tricked by some unscrupulous manpower companies to ultimately landing in foreign jails, and unfortunately dying in foreign countries. Victims themselves or their family members need to receive compensation for such undesirable events.

The budget is certainly distributive as some politicians and economists as well have labeled it. The budget allocated to cooperatives, and so many populist programs such as self-employment of youth, build your village, one village one nursery, one household one employment and one model village in each district is certainly for distribution only. Nobody will be accountable to the success of such programs. The finance minister can keep his political cadres happy through these programs but not the people.

Model village is in fact the village service center. Nobody would object building one village service center in each district but Nepal has numerous market towns. The finance minister needs to add certain state-providing services to these towns rather than building one model village or village service center in each districts. A single village cannot provide all services required by so many people living in different villages scattered throughout each district. So, market towns will be the best places for the state-service delivery, too

The government can open cooperatives in each village but they will not be able to create the number of jobs required to meet the demand. The finance minister does not want to see the record of 2.1 million Nepalese youth by the World Bank statistics and 6.1 million by the government statistics working in foreign countries. This record alone shows the needs for creating millions of jobs in villages not a single job to a household. What the finance minister needs to do is to energize the private sector to create jobs in millions. Unfortunately, Mr. Adhikari has ignored this fact and has made the budget as populist as possible.

The budget has many funny slogans such as cooperatives elsewhere in villages for employment in every house, light to every village, bright towns and so on.

The budget has listed so many hydropower projects but the government has not been able to meet the 250 MW of power needed during the dry season. What the finance minister is for listing so many large hydropower projects if he could not meet even this small amount of energy required to run the country?

The finance minister wants to see every village lighted when the country has no light for more than 12 hours. The government needs to build 250 MW diesel plant to keep the light going in every towns and some villages. However, ignoring these facts, the finance minister wants to provide every village with light and every town with bright. Is it not funny if we take it lightly?

The finance minister is just like a clown in the circus juggling the budget amounts to keep his political cadres happy. Such a budget is certainly not for forward moving but for keeping the country economically stagnant and backward.

The finance minister is not strengthening the so-called three pillars such as state, cooperatives and private sector on which he wants to build the national economy but weakening them all distributing the budget to various programs. This budget will not strengthen the private sector that is for sure. Consequently, the Nepalese economy will not grow, as the private sector the backbone of the economy will not flourish and the private capital will flow out of the country. The state will keep going doing bits and pieces of large projects but not completing any one of them in the near future. So, Nepalis cannot anticipate any such projects giving positive results except for draining the taxpayers’ money. The cooperatives will also drain the taxpayers’ money but none of the cooperatives will give any positive results to the people.

Despite all these facts, Finance Minister Adhikari told the reporters that his budget would boast the investment and productivity. He has not told the reporters how the investment will be made and how the productivity will be increased. If Mr. Adhikari were sincere he would never say such things. He has lost his credibility when he has involved in easing the VAT (value-added tax) defaulters. If he were a good economist he would say that the budget is inflation-and-consumption-oriented.

The finance minister has increased the subsidy on fertilizers to Rs 3 billion from the Rs 2 billion the most unscrupulous Prime Minister Madhav Nepal has introduced in 2009. This amount is for greasing the palm of the politicians and the bureaucrats working on this sector. In the past, the donor community had worked for several years to stop the government from providing the subsidy on fertilizers. The government has gone back to providing subsidy on fertilizers. If it is not regressive then what is it?

The government has just imported fertilizers from Morocco but the rice-transplantation season has been completed for this year. Farmers have complained that fertilizers have not been available at the time of the rice-planting season. However, the government has failed in doing any concrete things to meet the demands of the farmers for fertilizers. The government has kept the monopoly on buying and selling fertilizers. The state monopoly and subsidy on fertilizers are the two main ways of making money for ministers and concerned state employees. This is one of many visible budgets that go for consumption.

Most of the parliamentarians either don’t understand what is budget or don’t want to understand it but want to focus on the mistakes of the finance minister. Most of the parliamentarians speaking by interrupting the budget speech of the finance minister have complained the budget leak to the press and then posting on the website of the Ministry of Finance. Some of them want to fire the finance minister then and there for such a grave mistake defined by them. However, none of them is concerned for such a lengthy but non-productive budget.

The finance minister could have cut the budget document by half and he would need fewer efforts on reading out the budget. However, he chose the lengthy way of presenting the budget. His budget has been one of the most unproductive budgets. This budget certainly does not favor the private sector to flourish. This budget is regressive as it has gone back to the most unproductive programs that former finance minister have already tested. Mr. Adhikari has put the interest group of his part at the forefront rather than putting the country on a sustainable fiscal path.

ENDS

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