The new budget offers nothing newFor the last 50 years, Nepal’s economic priorities have remained the same—with no noticeable improvements.
Despite the frequent political disruptions, Nepal’s economy has increased significantly over a period of 50 years. As such, the budget size has surged by 2,857 times to Rs1.534 trillion in 2019 from Rs540 million in 1967. However, the overarching priorities of the budget are still the same, and that includes promoting agriculture, encouraging industries, and prioritising exports. While these five decades have brought significant changes globally, as Germany and Japan have emerged from the wretches of World War II, Vietnam has healed the pain of war by achieving unprecedented economic growth and even a recent state, Bangladesh has graduated from the status of a least developed country (LDC), Nepal is still struggling to achieve the economic goals of 1967. The fear is that while the world would be aspiring to start the civilization in the moon, export-led growth and modernisation of agriculture could still be the pillars of our budget.
On 29 May 2019, Finance Minister Dr Yubaraj Khatiwada presented the federal budget of Rs1.534 trillion for the fiscal year 2019-20. While the budget definitely echoes the ethos of 1967, the contours of the current budget could have looked very different today had the country been able to achieve the goals set five decades ago. The focus could have been on fostering artificial intelligence and promoting clean energy. Nonetheless, keeping the consternation aside, the current budget attempts to heal the injury by addressing the basic fundamentals of the economy. Accordingly, the budget provides economic space to promote the manufacturing industries. For instance, the budget has made a provision to provide a 50 percent discount on the electricity bill and 5 percent interest subsidy to the apparel industries. Likewise, the budget also has made a provision of a challenge fund for suitable industries.
A substantial budget of Rs83.49 billion has been allocated for the development of hydro energy. As such, from the current fiscal year, Nepal is poised to enter into unchartered landscape of energy surplus as 1000 MW of electricity is expected to be added to the national grid. While access to electricity is a definite sign of prosperity, it could, however, wane the revenue source of the government by distorting consumption behaviour. Over the years, access to energy could transfigure the domestic consumption, notably with the surging import of electric utensils and decrease in the import of petroleum and fossil fuel vehicles. If the state becomes unable to export surplus energy or promote manufacturing industries (as such industries are a heavy energy consumer), the new consumption paradigm could invite a revenue conundrum for the government. If we analyse the source of revenue over the past five years, the tax contribution of fossil fuel vehicles and petroleum products is significant. Fundamentally, the data of the first ten months of the fiscal year 2018-19 reveal that fossil fuel vehicles and petroleum products (including LPG) contribute to 39 percent of the total import revenue.
In this regard, considering the paucity of other sources of income, the government could subsequently revert to imposing heavy taxes on electric vehicles as well. A brief look at the economy of Latin countries provides a fair reflection on why their economies are still in a nascent stage despite having abundant natural resources. Given the buoyant electricity export to neighbouring countries, in the long run, it will also be interesting to observe the impact on non-booming sectors—often termed as Dutch Disease.
The budget has also prioritised the development of infrastructure. In fact, approximately 24 percent of the budget has been allocated for the development of infrastructure including railways, roadways, and airports. While the development of infrastructure is a must, the budget should also focus on quality. It is usually observed that most of the capital expenditure is disbursed in the last quarter of the fiscal year. In fact, if we consider the trend of the last 5 years, approximately 54 percent of the capital expenditure has been spent in the last 3 months of the fiscal year.
In conclusion, promulgating the budget cannot be justified as an economic crusade to liberate Nepal from poverty. Equal attention should also be given to its implementation, or else we will still be focusing on the same things in the next half-century.
KC is the coordinator of Nepal Economic Forum.