Policy paints rosy picture of economy amid fiscal troubleGovernment claims of improvements in revenues, foreign aid and investment contradict official statistics.
Prithvi Man Shrestha
The government has overstated the country’s economic performance at a time when its main statistics body has painted a gloomy picture of the economy.
Presenting the government’s policies and programmes for the fiscal year 2023-24 in a joint session of the House of Representatives and the National Assembly on Friday, President Ramchandra Paudel said all the sectors were witnessing positive outcomes as a result of the government’s policies and reform measures.
“The achievements of the government in a short period are encouraging. Economic indicators are becoming positive,” the President stated. “Remittances have increased significantly. With the economy catching its natural rhythm, there has been a positive impact on revenue, foreign aid and foreign investment. Foreign exchange reserves have increased.”
The government’s claim comes at a time when the National Statistics Office projected the country’s economy to grow by just 1.86 percent in the current fiscal year 2022-23, far below the projections made by international agencies like the World Bank, the Asian Development Bank and the International Monetary Fund. Their projections are that Nepal’s economy will grow in the range of four percent in the current fiscal year.
“We have presented what our findings showed. Our results show that the country’s economic situation is not good. We urge the press to disseminate this information to the people and all three tiers of government,” Ram Prasad Thapaliya, chief statistician at the National Statistics Office, said earlier this month.
Economists say a tight monetary policy introduced to maintain external sector balance, especially to narrow down the current account deficit and to increase foreign exchange reserves, and to lower public spending had dampened the demand for goods and services overall.
That led to a lower-than-expected real GDP growth, which at 1.9 percent is the lowest since the fiscal year 2015-16, the year Nepal was hit by twin earthquakes, except for the Covid-induced contraction in 2019-20.
The National Statistics Office projection showed that manufacturing, wholesale and retail, minings are among the sectors to see contractions in the current fiscal year.
Even though the government claimed in the policies and programmes that there have been improvements in revenue collection, foreign aid and foreign investments, its own data show otherwise.
The government collected a revenue of Rs764 billion as of May 18, a sharp decline from Rs870 billion gathered in the same period last fiscal year, according to the Financial Comptroller General Office (FCGO). Even after the government lifted import restrictions, there has been little improvement in customs revenue.
The Department of Customs had set the target of collecting revenue of Rs57 billion for the Baisakh (mid-April–mid-May) but could only raise Rs33 billion, according to Punya Bikram Khadka, information officer at the department. “It was given a target of collecting Rs548 billion as of mid-May this fiscal but it met only 58 percent of the target,” Khadka said.
Inland revenue collections were also lower by mid-May of the fiscal year than the amount collected in the same period last fiscal. According to the Inland Revenue Department, collections as of mid-May stood at Rs371.59 billion against Rs378.32 billion in the same period last fiscal.
Contrary to the government’s claims, foreign direct investment (FDI) that Nepal received in the first three quarters of the current fiscal year slumped sharply compared to the corresponding receipts last fiscal.
According to Nepal Rastra Bank, the country received FDI amounting to Rs.2.62 billion, which accounts for nearly 16 percent of total FDI the county received in the same period last fiscal year 2021-22. Nepal had gotten Rs16.51 billion during the first three quarters of the last fiscal.
Likewise, foreign aid received by the government as of mid-April stood far below the target. According to the Public Debt Management Office, the government received Rs64.99 billion in loans from the donors against the target of Rs242 billion in the current fiscal year.
With the government failing to collect enough revenue, compounded by its failure to bring in more external resources, public finance has been under severe stress. As a result, the government has failed to pay salaries and pensions of its staff and retired workers in a timely manner in recent months.
Economist Keshav Acharya said the overall economy has been in peril and economic indicators are poor, even though there has been improvement in external sectors such as balance of payments and foreign exchange reserves.
“The government’s fiscal position is precarious, inflation is on a higher side, there is little demand for credit, banks are reluctant to offer loans, and investor confidence has gone down,” said Acharya. “This is not a normal situation for the economy.”
He said that the government’s finances were under severe strain as it is struggling to collect revenue and mobilise foreign resources. “This constrained the government’s ability to spend capital budget,” he said.
As of May 18, capital expenditure stood at 34 percent of the total allocations, according to the FCGO. “When you cannot spend the capital budget, how can you give the needed stimulus for economic growth?” he asked.
Acharya said the monetary tightening imposed by the central bank and increased inflow of remittances helped to bring a turnaround in the external sector of the economy as the country achieved a balance of payment surplus of Rs.180.17 billion by mid-April, as per the NRB data.
From early in the fiscal year, economic activity has suffered badly, with a meagre 0.8 percent growth in the first quarter and negative growth of 1.1 percent in the second quarter year-on-year, according to the National Statistics Office.
According to Hem Raj Regmi, deputy chief statistician at the National Statistics Office, prohibitions on crusher plants in early 2023 had affected construction activities, leading to a contraction in the sector. “Banks not giving loans affected the manufacturing and wholesale and retail sectors badly,” he said.
While projecting the growth of 1.9 percent for the current fiscal year, the National Statistics Office estimated an improved capital spending, more tourist arrivals and increased trading activities.
“But it will be difficult to meet even the low projected growth if the government fails to spend the capital budget due to the lack of resources,” said Regmi.
Key highlights of the policies and programmes
The 2080s BS to be marked as “Visit Nepal Decade” and 2025 AD as “Special Tourism Year”
Work in two shifts at infrastructure projects
Radio Nepal and Nepal Television to be merged
Transitional justice process to be concluded in two years.
The resources will be mobilized by prioritizing Karnali Province, Far West Province and Madhesh Province, which are lagging behind in the human development index
Arrangements will be made to allow Nepali citizens abroad to cast their vote in periodic elections
Self-reliance will be enhanced in the production of ammunition, explosives, uniforms used by security personnel and other military materials required for security and defense
The remaining work on the peace process and transitional justice will be completed within next two years.