Finance Minister Bishnu Paudel failed to come up with a supplementary budget, despite its necessity for a number of reasons. First, the regular budget presented for the fiscal year 2020-21 on May 28 last year was preposterous in its very design, thus, the majority of its allocations had become redundant in the significantly altered post-Covid-19 economy. Second, capital expenditure reached only Rs50.82 billion out of Rs352 billion in the capital budget, or barely 15 percent of the allocation, until the first half of the current fiscal year. Third, the development priorities and fiscal policies not only needed significant reorientation to revive the growth rate from an estimated near-zero percent, but also due to the fact that the national exchequer is compelled to finance costly elections for the federal Parliament; that is, unless the Constitutional Bench of the Supreme Court restored the dissolved House of Representatives.

Instead, Paudel last week presented a mid-term review of the budget of the current fiscal year with about nine percent downward revision on expenditure—from Rs1,474 billion to Rs1,344.6 billion—and almost twenty percent reduction on capital expenditure targets—from Rs353 billion to Rs283 billion—while projected revenue collection is down only by 1.39 percent (to Rs886 billion from the original target of Rs950 billion). This review in essence was only a window-dressing to deep-rooted problems of the economy, both old and new.

Nepal for decades has been suffering from an unlikely paradox of underinvestment on the one hand and severe capacity constraints even to spend whatever limited financial resources are available on the other. The finance minister's priority, above all, to disproportionately chop-off the capital expenditure among other targets partly explains this chronic predicament and country's extremely tardy pace of development as its resultant effect. Despite the federal restructuring of the state, the absorption capacity of the sub-national governments, too, still remains suboptimal. The ballooning of the consolidated funds in the coffers of all three levels of government for their inability to generate demand for capital intensive developments and effectively formulate and implement plans in respective jurisdictions is the clear testimony to this sad reality.

Ominous beginning

The present finance minister blamed the Covid-19 for gross underperformance of the economy in the last and current fiscal years, which somehow sounded convincing given the severity of the pandemic and subsequent disruptions in all economic and human activities. But such underperformance does not appear exceptional. His predecessor Khatiwada had also effected a similar downward revision of his own projections a year ago, much before the arrival of Covid-19, where there was not a single convincing reason present to justify his inability to put the economy unequivocally on the growth path by implementing his own plans and programmes.

All this has happened despite the Oli government inheriting a fairly healthy economy from its predecessor. But Khatiwada began his tenure with a very ominous note by presenting a so-called whitepaper on the economy in April 2018, which was full of exaggerations of the problems prevalent. The tone was fundamentally anti-private sector. He put unnecessary efforts to portray that the economy the new government inherited was in complete tatters. The policies of erstwhile governments, like privatisation, were deemed to be against socialism. Such a self-righteous approach had then invited obvious political backlash. But this communist-like posturing left irreparable scars on the economy. It raised apprehensions about the real intentions of the government, particularly with regard to the future of private property rights which in turn impacted both domestic and foreign investments. The capital market suffocated throughout Khatiwada's tenure.

Even while presenting the budget for the current fiscal year in May last year, against the backdrop of the coronavirus pandemic, Khatiwada set implausible targets like achieving seven percent growth and proposed usual capital budgeting and revenue targets. On the contrary, the current finance minister irresponsibly and, perhaps, fearing a political backlash on telling the truth, even failed to divulge a new growth estimate in his half-yearly review of the budget in question. The three-year average economic growth rate looks to hover at less than two percent in the best-case scenario.

Eclipsing the failure

The meagre economic performance of Oli government defied the hypothesis that political stability positively contributes to economic growth. That is if political stability means the same government is in power for the entire term. There was fortified stability in this regard for three long years until the prime minister himself chose to dissolve the Parliament. Oli was voted in as prime minister by more than two-thirds majority in Parliament and was free to handpick his most loyal lieutenants, Yubaraj Khatiwada for two and half years and now Bishnu Paudel, as finance ministers. Despite the very favourable atmosphere, the administration miserably failed to translate the opportunity provided by both political strength and stability into better fiscal governance and improved delivery of development.

On fiscal governance, the absence of transparency in public procurement became a ubiquitous issue of public concern. At the federal level, instances of massive corruption in procuring Covid-19 related health and protection equipment came to fore. Communication Minister Gokul Baskota, an insider in the Oli camp, was forced to resign when an audio recording of him negotiating a hefty commission from an agent trying to sell a security printing press to the government became public. The prime minister himself stood between the possible prosecution and potential culprits in many of these high-profile corruption cases. Instances of widespread corruption in subnational governments are also regularly reported in media.

These failures of the Oli government on the economic front seem to be eclipsed by overwhelmingly obsessive and rather crude political agenda entrenched by Prime Minister KP Sharma Oli's extra-constitutional move to dissolve Parliament. But a thorough evaluation of economic governance of this government shows that it has more severely failed the nation on its economic interests than in politics. The finance minister in his review also failed to capitalise on highly favourable indicators in the economy like the healthy growth of remittances, robust foreign exchange reserve, availability of loanable liquidity in the financial sector, the balance of payment situation, among others, before they dissipate.