A bloated budget of Rs1.64 trillion through ordinanceWith some focus on fighting the coronavirus, the financial plan of Oli administration carries lofty promises which observers say are aimed at the uncertain elections.
Prithvi Man Shrestha & Sangam Prasain
A week after dissolving the House of Representatives, the caretaker government of KP Sharma Oli presented the federal budget for the next fiscal year 2021-22, through an ordinance, in the midst of a second wave of the pandemic.
Finance Minister Bishnu Prasad Paudel on Saturday presented a bloated budget of Rs1.64 trillion, which is 12 percent bigger than that for the ongoing fiscal year, giving a semblance of focus on the pandemic, but the funds earmarked to fight the virus barely scratch the surface.
Paudel said he has set aside funds for vaccine procurement and Covid-19 prevention and control.
For Covid-19 control, the government has allocated Rs37.53 billion, less than 3 percent of the total budget. Paudel said he allocated an additional Rs 26.75 billion for vaccine procurement. The overall budget allocated to the Health Ministry stands at Rs122.77 billion, a rise of 35 percent compared to the ongoing fiscal year.
The document mostly makes lofty promises, appearing, prima facie, aimed at elections the Oli government has declared for November 12 and November 19 after dissolving the House on May 21. The fate of the polls, however, hangs in the balance, as the dissolution move is currently at the Supreme Court.
The Rs1.64 trillion financial plan has earmarked Rs678.61 billion [41.2 percent] for recurrent expenditure, Rs374.26 billion [22.7 percent] for capital expenditure, and Rs207.97 billion [12.6 percent] for financing provisions. The remaining Rs386.71 billion [23.5 percent] will be mobilised for provinces and local governments.
Paudel aims to generate Rs1.02 trillion—around 62 percent of the funds—from revenue and Rs63.37 billion will come from foreign grants. According to Paudel, the resource deficit of Rs559.30 billion will be financed through foreign loans of Rs309.29 billion and domestic loans of Rs250 billion.
Even though the government had no constitutional obligation to present the budget on May 29 with the House dissolved, it decided to present the financial outlay for the next fiscal year, which starts from mid-July, without delay.
Last year, then finance minister Yubaraj Khatiwada presented the budget amid a lockdown imposed in the wake of the first wave of the coronavirus pandemic. But to the surprise of many analysts, Khatiwada had projected an ambitious 7 percent growth target.
Paudel’s projection is a little less but still looks too ambitious given the uncertainty created by the pandemic and Nepal’s inability to procure vaccines.
Paudel has estimated a 6.5 percent growth, hoping that the vaccination drive, budget spending and development activities would enable the country to achieve the target.
He said the budget will encourage a rebound in consumer demand and investment to put the economy on track to recovery in the next fiscal year from the projected slow growth rate this fiscal year.
Nepal’s economy faced headwinds, technically recording an economic recession for the first time in almost 40 years with the country witnessing negative growth rates for two consecutive quarters because of the pandemic-induced supply and demand shock on the economy.
According to the Central Bureau of Statistics, in the fourth quarter of the last fiscal year 2019-20 ending mid-July, the country’s economic growth rate, or output of the gross domestic product, plunged 15.4 percent compared to the same period in 2018-19, which resulted in a year-on-year negative growth rate of 2 percent.
The negative growth rate continued in the first quarter of the current fiscal year 2020-21. The economy was on the road to recovery, but the second wave hit the country in April and subsequently, coronavirus cases surged at an exponential rate. Then the second lockdown was enforced.
Paudel admitted that the severe second virus wave will slow the economic recovery and it could weigh on longer-term growth dynamics.
When the second wave of the coronavirus began, the Central Bureau of Statistics in late April had projected a growth of 4 percent, provided that prohibitory orders were lifted in early May, but these measures continued till the end of May with 75 out of 77 districts under lockdown, according to the Home Ministry.
“It will be challenging to meet the 4 percent growth as envisaged this fiscal year as things became uncertain,” said Paudel, who read out a more than 100-page budget for nearly three hours.
Khatiwada, while presenting the budget on May 29 last year, had promised a separate 300-bed infectious diseases hospital in Kathmandu Valley, additional 250 intensive care unit beds at government hospitals of the Valley and provincial capitals, and separate infectious disease hospital in the capitals of all seven provinces.
They haven’t all been built.
In December last year, the government had laid the foundations for the construction of 300 basic hospitals with capacity of 5 to 15 beds each in various local units on a single day as a part of an inauguration drive. None of them has been completed.
Paudel on Saturday said the government is committed to protecting all Nepalis from the Covid-19 pandemic and his budget is aimed at that.
Paudel said he has made arrangements for free Covid-19 tests and treatment at all government laboratories and hospitals.
“I have earmarked a budget for buying oxygen plants, cylinders and liquid oxygen,” said Paudel. “I have made arrangements for constructing oxygen plants of their own at all the hospitals that have more than 100 beds.”
He said the government will give 100 percent waiver on customs and value added tax on importing equipment needed for establishing oxygen plants.
“I have allocated Rs4 billion for procuring ICU, HDU [high dependency units], ventilators, test kits and others required in the treatment of Covid-19 patients,” said Paudel.
Experts and observers say from the outlook of the budget, the Oli administration appears to be laying the groundwork for the elections.
Ram Sharan Mahat, a Nepali Congress stalwart and six-time finance minister, called the budget “excessively large”, wishing to spend money to make people happy from various walks of life.
“The expenditure measures unashamedly reflect the party’s manifesto for the election,” said Mahat. “There are incentives, tax rebates, increases in allowances for elderly people, a hike in civil servants’ salary… all these look like the party's election manifesto.”
According to Mahat, there are two key issues with the budget—implementation and whether this financial plan of the government will stand in the coming days, as the House dissolution move is currently being heard by the court.
“This budget hangs in the balance as the Parliament dissolution move is currently being tested by the Supreme Court. If the court reinstates Parliament, then the situation will reverse. The party that forms a new majority government will bring [a new] budget,” said Mahat, who represents the second largest party. “The ordinance will be automatically null and void if the House is reinstated.”
Paudel in his budget talks about quite some issues that many say could directly impact the elections.
The government has increased the social security allowance to all the beneficiaries by 33 percent including the elderly to Rs4,000.
The government has decided to waive the demand fee and tariff on electricity consumed by domestic and small consumers up to 20 units per month during the period of prohibitory restrictions. Paudel said that the government has decided to give a 50 percent discount to those consuming up to 50 units monthly and a 30 percent discount up to 250 units.
Paudel said that up to 20,000 litres of water will be distributed free of cost.
The government has decided to provide seed money up to Rs2.5 million at 1 percent interest rate for startup businesses by keeping their projects as collateral to motivate the youth in entrepreneurship.
The government has announced concessional loans of Rs80,000 for a period of two years at an interest rate of 1 percent for the purchase of laptops to support alternative education.
To the students who have completed the bachelor’s or higher level, the government has offered a loan up to Rs 2.5 million against their certificates as collateral at a 5 percent annual interest rate.
To promote domestic tourism, the budget has announced implementing “Leave Travel Concession”. Under the scheme, civil servants and employees of public enterprises will be given 10 days of travel leave with allowances equivalent to the salary for the said days. The budget has announced a waiver of visa fee for foreign tourists for a month.
The government has allocated Rs45.09 billion for agriculture and livestock development. The government has allocated Rs12 billion to provide subsidies in chemical fertilisers, up from Rs11 billion in the current fiscal year.
The government has decided to set up a challenge fund of Rs1 billion to help new entrepreneurs financially, said Paudel.
Barsaman Pun, another former finance minister, said the government’s focus is on those issues which can influence elections, if they happen.
“By making announcements like salary hike of government employees, increasing social security allowance and salary for the teachers of primary child development centres and school staff, the government has sought to influence the elections it has called for November,” said Pun. “The motive is loud and clear now, as no such measures were taken by the government which has been in place since 2018.”
No matter what its components, according to Pun, the budget itself is not going to get implemented.
“If the House is restored, a new government will be formed and this ordinance will be scrapped,” said Pun. “A new government will bring a new budget.”
According to Pun, Oli seems to be trying to turn every event to his favour. If the House is restored, he would claim that he tried to do things, and if elections happen, he will use the distributive programmes to earn votes, said Pun.
“A caretaker government does not have the right to take decisions like increasing social security allowance and changing tax rates,” said Pun, who represents the Communist Party of Nepal (Maoist Centre).
Pun, however, said the decision to allocate a separate budget for Covid-19 control is praiseworthy.
“We have been saying that we have no issues if more money is allocated to fight Covid-19,” he said.
Shanta Raj Subedi, a former finance secretary, described the budget as populist.
“It is essentially populist,” Subedi told the Post. “It is aimed at pleasing all by targeting the planned elections. Various schemes for people including senior citizens, government employees, the private sector, security agencies and students and farmers clearly look like they have been included with the elections in mind.”
According to Subedi, introduction of several programmes, including a hike in social security allowance, will increase the state’s long-term liability.
Indigent citizens, incapacitated and helpless citizens, helpless single women, citizens with disabilities, children, citizens who are unable to take care of themselves and citizens belonging to the tribes on the verge of extinction are also the beneficiarities of social security allowances.
At a time when the number of people receiving cash transfers as social security allowances has nearly doubled in the last decade, a rise in social security allowance might substantially add a heavy burden on the national coffers, according to officials and experts.
According to the Department of National ID and Civil Registration, the government agency responsible for coordinating the transfer of cash for beneficiaries of social security allowances, the number of beneficiaries reached 3.06 million during the last fiscal year 2019-20 from to 1.56 million in the fiscal year 2010-11.
Subedi said the government, however, has not announced any programmes for industrial development.
“The budget has failed to introduce any effective measures to increase capital expenditures and reduce recurrent expenditures,” he said.
Subedi, however, called scrapping of the Local Infrastructure Partnership Programme, under which lawmakers get funds, a good move. However, continuing the fund could have earned Paudel a lot of criticism, as people would have argued there was no point doling out money in the name of lawmakers when there is no House. The programme was criticised in the past as a misplaced priority.
Even though the government has declared elections, Paudel did not announce any budget for the same.
However, as much as Rs83.37 billion has been set aside under the “miscellaneous heading” under the Finance Ministry from where the budget could be allocated for the elections, if they happen.