Contrary to the expectations of political pundits, the Communist Party of Nepal (Maoist) emerged as the largest party following the Constituent Assembly election in 2008. Maoist Chairman Prachanda refused to support the then prime minister Girija Prasad Koirala to become Nepal’s first president. This mistrust between two signatories to the peace accord left a huge impact on the country’s politics and economy. The conflict between the Maoists and the Nepali Congress (NC) delayed the formation of a new government. The NC would not leave government and the Maoists would not accept Koirala as president. There were no signs of consensus between the two parties even till mid-July when the government had to present the budget statement to Parliament.

Even as the political stalemate continued, the parties had no problem agreeing to make changes to the budgetary system to suit themselves. They quickly amended the interim constitution allowing the government to spend one-third of last year’s budget and collect taxes based on the last fiscal year’s rate. This incident left a negative impact on the country’s fiscal system which continues to be felt till today. It also marked the beginning of political intervention in the budgetary system. The government has been able to present a complete budget only twice between 2008 and 2013. As a result, the average growth rate remained at around 4 percent in the last decade.

Learn lessons

A number of memorable incidents regarding the budget have taken place since then. The then finance minister Surendra Pandey was thrashed by a Maoist parliamentarian in the House as he was getting ready to present the budget for fiscal 2010-11. Barshaman Pun served as finance minister for more than 15 months but couldn’t present a complete budget. Since then, the budget has become a tool to gain power for the political parties. Even after the promulgation of the new constitution, most member of Parliament have not been serious about how they should spend taxpayers’ money effectively.

The constitution requires the government to present the annual budget to Parliament on May 29. Successive budgets have seriously breached fiscal discipline. The Ministry of Finance has misrepresented the government’s expenditure and savings to increase the size of the annual financial plans every year. Former finance minister Bishnu Poudel raised the size of the budget significantly. As a result, the budget deficit increased sharply. The money allocated for small programmes was withdrawn and the implementation of big projects remained poor. Former finance minister Krishna Bahadur Mahara played with the amount of savings of the previous year. Mahara and his team showed a budget surplus of Rs102 billion while presenting the budget. But at the end of the fiscal year, the country had a deficit of Rs48 billion. Due to this kind of political interference and indiscipline, both the economy and the people have suffered.

Parliamentarians are at the top the list of beneficiaries of the budget. They receive Rs30 million per constituency and Rs5 million individually. They are allowed to spend this money for various development projects in their constituencies as they see fit. Despite all the anomalies, former finance ministers did not have to face serious money problems, thanks to the poor expenditure capacity of big projects. This year, the country needs more money in order to implement the federal system. Hence, Finance Minister Yubaraj Khatiwada faces the burden of correcting the impunities of the fiscal system.

Challenges ahead

There are a several challenges that the finance minister needs to address. First and foremost is fulfilling the growing aspirations of the people with limited resources. There is a huge syndicate of business people who have been evading taxes for a long time. Under-invoicing is another big problem. This lies at the root of tax evasion, gold smuggling and other related crimes. Fiscal discipline at the provincial and local levels is extremely important. Local and provincial leaders are increasing expenditure for personal benefit and for the benefit of their parties. People should not be made to pay high taxes so that politicians can indulge their desires. The message ‘Politicians and bureaucrats are there to serve the people, not to rob them’ should be disseminated among politicians.

The upcoming budget should not allocate a single rupee for parliamentarians. There is a full-fledged development mechanism at the provincial and local levels to deal with the people’s expectations and needs. The government must study the report of the auditor general where misuse of such funds is clearly detailed as corruption. When parliamentarians find out that they will not get such a large amount of funds anymore, they might threaten not to pass the budget. Finance Minister Khatiwada should convince the prime minister and other top leaders about it. If the finance minister allocates funds for parliamentarians, it will be a big failure in terms of fiscal discipline.

A rocketing trade deficit and almost stable remittance flow is another challenge that the new budget should address. However, the Ministry of Finance will have to be very careful about imposing duties to discourage imports. Protectionism alone is not the solution to increase production. It will help to increase, revenue but at the same time, it increases the cost of living for the people. Curbing smuggling across the open border with India will be another challenge.

Foreign investors and donors are still trying to invest in Nepal’s development process. Nepal needs Rs17.7 billion to achieve the sustainable development goals (SDGs) by 2030. The government should welcome partners by filling funding gap. The national accounts report recently published by the Central Bureau of Statistics shows that the economy has not gone off track yet. There are problems in the fiscal and external sectors. The government, with the support of 80 percent of the House, has the capacity to not only correct past mistakes but also shape the future. 

Awasthi is the Business Editor of Kantipur Daily and former President of SEJON