A budget without economic objectivesEvery government has tried to launch schemes to stir up the public for election gains.
The federal budget for the fiscal year 2021-22 recently unveiled by the Oli administration has a very weak and fragile foundation. The annual financial plan has been increased by 12 percent when the economy has shrunk by approximately 3 percent. Second, the budget is going to put more pressure on the private sector and individuals. Taxes account for 62 percent of the projected government revenue. It doesn’t matter whether you increase the tax rate or expand the base, it is the public that has to pay. The budget is also likely to expand the loan burden to finance recurring expenditures.
The budget is based on political and election-oriented objectives: It has tried to please everyone. For ordinary people like senior citizens, government employees and UML cadre, the budget may seem wonderful, particularly in the short run. But it is harmful in the long run. For example, the allocation of Rs12 billion to a fiasco such as the Prime Minister Employment Programme is nothing but a white elephant in the name of creating 200,000 jobs.
The government has also bestowed a significant amount to social security, and the monthly allowance to elderly people has been hiked to Rs4,000. It is not that elderly people should not be helped. Of course, they should be. But this shouldn’t be done by putting an unnecessary burden on naive taxpayers; it should be done by implementing development-oriented affirmative actions. The government should analyse their needs first: Is it health care? Shelter? Food? Education? Or what? These needs can be fulfilled by investing in infrastructures that are going to benefit all. As far as the allowance is concerned, it will not create much of a burden when the country is in a good financial position. The question is when. And the obvious answer is not during a national health crisis and not when the administration is on its way out. Therefore, the need is not free distribution, but distribution through capital expenditure.
Recurring expenditure (41.2 percent) is twice the amount of capital expenditure (22.7 percent). We know that this government doesn’t have the ability to spend the capital expenditure budget. This year it was hardly 70 percent for the federal government and much less in the case of provincial governments and local units. The government has increased the benefits for all government employees by Rs2,000 when the private sector has been stifled by Covid-19. Employees in the private sector have either lost their jobs or are selling their labour at lower prices. This will put a greater burden on the people who are already suffering more than others—the private sector employees. The distributive nature of the budget is also going to push up inflation which is already soaring—especially on food and raw materials. This will put more pressure on interest rates to go up and have a long-term influence on development.
Besides, the budget is not only irrational from the economic aspect but also from the aspect of the political structure of Nepal. While making this budget, the federal government seems to have forgotten the federal structure of Nepal. If the federal government is going to be involved in every small project, what is the federal structure for? The federal government should not be involved in small and district or local-level projects which are abundant in this budget.
Most critics have praised the budget allocations for health and education, and the provisions made for the private sector economy. The budget set aside Rs122.77 billion for the health sector. Though this amount is higher than last year and accounts for about 7 percent of the total budget, it is not sufficient to deal with the pandemic. The current budget was expected to be a breakthrough in the health sector. Nepal needs vaccines, infrastructure and health insurance. But the government's preparations seem to lack vision. Though most of the money will be distributed to buy vaccines, there is no planning about when, where and how many people are to be vaccinated. This raises a question about the government's ability to spend the budget allocation. The remaining budget in this sector seems to be recurrent expenditure. From the viewpoint of health infrastructure development—which is very important given the dilapidated infrastructure and its long-term positive influences—the budget allocation seems to be small.
The government has prioritised education with the utmost importance by making the largest budget allocation this time too. But most of the priorities and policies are reruns from last year which shows the government’s inability to fulfil such tasks. For the private sector, when the current lockdown and pandemic has hit businesses, mostly in the tourism and hospitality industry, the budget has made some provisions ranging from tax holidays to reduced custom duties. It has also withdrawn the visa processing charge and offered loans at low interest rates to start-ups and other businesses. This obviously has pleased the private sector, at least for this season. However, unless the pandemic is controlled, none of these policies is going to work. On this front, the government is still as confused as it was when the pandemic started.
It can be argued that this budget has everything but economic objectives. The budget has got nothing new and specific economic goals even though Oli had every chance to create them. If a government, that does not have to face Parliament and has every power to formulate a budget the way it wants to, cannot come up with significant structural changes and breakthroughs, and repeats the same old thing, there is no need to spread the dream of ‘prosperous Nepal, happy Nepali’.
This is a vivid example that the budget in Nepal has nothing to do with development and economic goals. This budget too seeks to distribute as much money as possible and woo the public with an eye on the election slated for November-December. This is not new in Nepali politics; every government has tried to introduce popular programmes to stir up the public for election benefits. However, the harm is perpetual. Such popular programmes not only hinder capital expenditure but also put a huge burden on the government, and slow down the development of the economy.