The Nepal government on Tuesday revised downward its budget expenditure for this fiscal year by nearly 9 percent based on slowed economic activities and consequent plunge in revenues due to the Covid-19 pandemic.

Presenting the mid-term review of the annual financial plan on Tuesday, Finance Minister Bishnu Prasad Paudel announced that the budget expenditure had been trimmed to Rs1.34 trillion from the Rs1.47 trillion announced on May 29 last year.

He said that the government had earmarked Rs7 billion to hold the general election. The KP Sharma Oli administration has called for snap polls for April 30 and May 10.

The budget presented by Paudel's predecessor Yuba Raj Khatiwada had set aside Rs948 billion for recurrent expenditure, Rs352 billion for capital expenditure and Rs172 billion for financing provisions.

Following the budget revision, Rs914.78 billion has been allotted for recurrent expenditure, Rs283 billion for capital expenditure and Rs146.86 billion for financing provisions.

More than Rs69 billion has been slashed from the capital spending budget.

The Finance Ministry said it would raise Rs1.07 trillion through revenue and domestic loans, and Rs270 billion from foreign loans and grants. The budget had targeted to raise Rs889.62 billion from revenues and Rs225 billion from domestic loans.

The government has not estimated the economic growth rate for this fiscal year, only saying that it would be average without giving any figures.

“Economic activities were badly affected by Covid-19 at the start of the fiscal year, and this was vividly reflected in the country’s economic growth,” said Paudel. “As economic activities have rebounded to their usual level, we expect our economy to recover gradually,” he said. “Based on the existing scenario, the country will see average growth.”

Nepal was under a total lockdown from March 24 to July 21. Even after the stay-home order was withdrawn, the government announced other restrictions to contain the spread of the coronavirus.

After the pandemic struck and most countries began slashing their growth projections as their economies ground to a halt, Nepal had boldly held out with then finance minister Khatiwada setting a highly ambitious 7 percent growth target in the budget statement issued on May 29, 2020.

In October, the World Bank’s South Asia Economic Focus projected Nepal’s economy to register a negligible growth of 0.2 percent in 2019-20.

The report estimated the economy to grow by just 0.6 percent in the current fiscal year, on the basis of periodic and localised lockdowns and disruptions to tourism which were expected to persist.

Finance Minister Paudel said that inflation was under control. According to Nepal Rastra Bank's macro economic report, year-on-year inflation remained at 3.56 percent in the first six months of the current fiscal year.

The central bank said that imports fell by 4.8 percent and exports rose by 6.1 percent. Remittances swelled by 11.1 percent. The balance of payments showed a surplus of Rs124.92 billion, and gross foreign exchange reserves totalled $12.78 billion.

Private sector credit from banks and financial institutions expanded by 11.4 percent in the first half of the current fiscal year, compared to a growth of 8.6 percent during the same period in the previous year.

Former finance minister Ram Sharan Mahat said it had become a tradition of the incumbent communist government to bring an 'artificial budget' with a high outlay, but low spending capacity and low revenue bases.

“Even the spent budget is unwise. It has been spent on political hirings and unproductive sectors. There are many leakages.” For the economy, the threat even after Covid-19 is not over, said Mahat.

He said that the global economy might see a gradual recovery; but in Nepal’s case, it will be slower than expected because of the current political crisis. “The political situation is uncertain, and it has become a major threat to the economy after the Covid-19 pandemic.”

Nepal is in the midst of a political crisis and renewed instability after President Bidya Devi Bhandari dissolved Parliament on December 20 under the recommendation of the KP Sharma Oli-led government.

Minister Paudel said that only 15 percent of the budget allocated for national pride projects had been spent as of the first sixth months of the current fiscal year.

The 456-megawatt Tamakoshi Hydropower Project in Dolakha district, which has reached the final phase of completion, has been impacted by Covid-19. A number of transmission line projects have been completed, but the completion of two international airports by this fiscal year remains uncertain.

The tourism sector does not know what the future will bring, and is still undecided about its next move.

Travel trade entrepreneurs said that excepting mountaineering expeditions, advance booking for the spring season still had not picked up due to travel-related restrictions.

Nepal launched a nationwide Covid-19 vaccination drive in January, and plans to immunise 72 percent of its 30 million population in three months.

A day after starting the inoculation campaign, the government decided to re-open 16 border points with India and China, allowing citizens of the respective countries to travel to Nepal.

Paudel said they expected capital expenditure to increase in big projects. “The economy will recover on the back of economic activities after the Covid-19 vaccination drive and reduced infections.”