An economic slowdown automatically leads to a decline in revenue. This results in a budget deficit. Now we are going through this situation. This situation has not only made it difficult to maintain public expenditures, but has resulted rather in excessive increment in socio-economic inequalities.
There has been uncertainty about expenditures used for providing health services and food for protecting lives of people, and the budget allocation for the investment in physical infrastructure and education. Devaluation of Nepali currency against the US dollar has increased loan obligations, and financial space has shrunk. Foreign assistance has decreased due to a global crisis.
Unemployment and poverty have soared due to increasing recession. Allocating the budget for social security in the context of shrinking economic sources has become questionable. This uncommon situation caused by the financial scarcity has added to policy complexities.
On the other hand, it is not less challenging to propose the annual budget for the fiscal year, 2023/24 amid challenges posed by the macroeconomic indices and the economy advancing towards a crisis. It is the responsibility of the government to fulfill the immediate needs and keep the dream of future prosperity intact amid these practical things. Amid these situations, there is a need for making plans with caution and taking the guiding policy-related initiatives.
To resist recession, the government should increase expenditure under the financial incentives in physical infrastructure, health, education and social security. Providing financial incentives is not a recommendation that takes credits at a time when there is a lack of money, but it is inevitable that such investment would help create employment opportunities, boost economic activities and provide assistance to the group that has been hit by recession.
It is much needed to reach an understanding with the central bank although the monetary policy is not within the scope of the budget. The country may fall into crisis if the Ministry of Finance and the Rastra Bank move ahead independently in a traditional way in the present situation. There is a need to save the economy through a mutual understanding, forgetting political ideologies and interests.
Initiatives have started to decrease bank interest rates. It requires reviews in these policies in accordance with the latest indicators. It is because it helps increase consumer spending by boosting trade activities.
As we are so far within the capacity to take loans to avoid the long-term financial instabilities and boost financial incentives, there is a need for the budget to get a provision for additional loans under the management of loans. It seems it is essential to manage the provision of reward and punishment as there is a complete failure in conducting surveillance on the prioritisation and productivity of increasing loans every year in the name of loan management.
Budget should prioritise tax reforms at a time when there is a delay in economic rehabilitation and the prolonging recession. It is envisioned that such reforms may become able to collect required revenues while taxes becoming progressive and efficient do not affect economic activities. Strengthening the private sector is limited to rhetoric only.
We lack even a single exemplary project that is based on the public-private partnership. There is a need for bringing in the programme directed by the budget for the group affected by recession for their livelihood by reducing administrative hurdles, and carrying out and implementing required reforms in major obstacles facing drawing business. These groups are such that they cannot speak up by themselves, and there is no one to speak up for them.
The thing that we pretend not to understand even after understanding it is that we hesitate to invest in human capital in the name of the unavailability of resources. Factors like education, health service and social service not only bring qualitative reforms in the lives of people, they also increase the productivity of human resources.
It means investing in such sectors will help in economic development in the long term. Our economy is based on limited areas, and the credibility of these areas cannot be estimated. For instance, there is a lack of diversification in our foreign trade.
It means the main reasons for recession in Nepal are its structural shortcomings and incapability for work execution apart from other global challenges and complications. It can encourage regulatory reforms and budget directed investments by mentioning these things in the budget.
In the past few years, climate change has been a serious problem in Nepal. Factors like sudden flooding, rising temperature, soil erosion and glacier explosion have increased food insecurity and poverty. The budget this time should manage resources for the climate change adaptation strategy to reduce the losses taking place due to the climate change. For this, things like renewable energy, sustainable agriculture development and the reduction of disaster risks should be prioritised.
Budget is always brought with hard work and amid blames and accusations in the parliament. But, 60 percent of capital expenditures has remained unused. In this context, the budget this time should focus on some theoretical principles.
Evaluating the current economic situation of the country, there is a need to properly evaluate income sources, the tendency of expenditure, main financial index and the projections of the current socioeconomic status of the country. Apart from that, we should have a practical evaluation of possible political protests to increase capital expenditures.
While allocating a budget, there is a need to take information about which sector has more potential. The areas for which the budget is allocated should be such that they can help in economic development, create job opportunities and have far-sighted impacts on the country’s development.
There is a need to carry out a study on the ways of merits and demerits of the proposed sector to calculate returns on investments. This policy will ease the prioritisation of projects in the future. Besides, there is a need equally to bring the risk management plan.
Each investment involves some risks like political protests, economic changes and project failure. There is a need to prepare a plan to reduce problems by estimating such possible challenges in the process of preparing a budget.
As our experiences have shown, it requires creating the timeline for implementation if we actually want to increase capital expenditures. It will be easier to find and implement alternative solutions if possible political, economic and other challenges of the project are properly estimated.
Trust of service seekers in a project increases only when there is a manageable and proper consultation among the government employees, business leaders and concerned communities. For this, it requires public consultation, and talks with businesspersons and political leaders.
Things should be made transparent like why it is essential to increase capital expenditures, what is a plan to utilise income sources, what are substantial benefits of investment and what are the ways to manage required capital even by adding an index in the budget.
There is a need to mention in the index the methodology to monitor how effectively and with what efficiency the sectoral budget allocation as a whole can be spent.
It will be easier to get required help from international organisations, which have been providing technical and monetary assistance in need, by winning their confidence by keeping close relations with them. Our main aim is to increase people’s trust in the budget, and make people feel the results of its implementation.
Finally, the Ministry of Finance in the budget for the next fiscal year should bring a balance between the revival of the country's economy and the financial stability. The ratio of inflation and loans can increase by exceeding the limit of expenditures in the name of the productive sector.
There is a need to enhance the government's efficacy on the ways of how to increase effectiveness in the expenditures in the potential projects. There is a need to pay a 'special' focus on creating a technical and legal mechanism to control corruption in projects.
For the collaboration with the private sector, encouraging efforts like offering tax discounts and providing subsidies for certain projects cannot be entirely ruled out. It is necessary to clarify the provision for institutionalizing the state based on the rule of law and removing the bureaucratic red tape for strengthening a climate for investment. (Dr Pyakuryal writer is economist and former Nepali ambassador)
(Prof Dr Bishwambher Pyakuryal)
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