Three macro-economic variables that will give you overall outlook of this year's budget

First federal finance-minister, Dr.Yubaraj Khatiwada announced budget yesterday.We had looked at micro-economical aspects of budget but now it’s time to understand budget from broad perspective.

Government budget is composed of three elements,

1. Re-current Expenditure: It is an expenditure which is expected to continue in the similar way as previous year. Expenditure on depreciation, salary &wages, supplements, rehabilitation (reconstruction due to earthquake, flood etc.) etc. is recurrent expenditure.  It does not include expenditure for acquisition and creation of physical asset.
2. Capital expenditure: It is expenditure for creation and acquisition of physical asset, in short it is development expenditure for the country. Expenditure on construction of new roads, hospitals, schools etc. is current expenditure.
3. Financial expenditure: It consists of expenditure on debt, financial transaction, renting a property etc.

Take a look at the allocated amount on these three elements for fiscal year 2074/75 and 2075/76;

(*Only two decimals are considered, actual figures will have slight changes)

From above table, it is clear that budget size has increased by 2.89%, which is less than inflation rate of 4.48% in 2017. Budget size should increase by at least inflation rate, so as to meet all necessary expenditure as effectively as previous year. The employee salary hasn't increased, but the inflation allowance has increased and so as to meet that requirement higher expenditure is expected. Similary with the provincial governments, a huge number of new government employees have been appointed who of course will need to be paid. In regards to such increasing expenditures, the question is will the revenue be sufficient?

Similarly, capital expenditure has decreased by 6.56%, which means government is slowing down its development process and financial expenditure has increased by 10.71% which means government's dependence over debt has increased. 

There is plenty of room for justification of increased recurrent-expenditure as employees in government sector has increased and rehabilitation for flood & earthquake is still in progress. With the new employment opportunities coming up, the unemployment rate has decreased by 5.8% from 3.4% to 3.2% in 2017. 

However when we look at the capital and financial expenditures, there are lot of doubts. Given the history of past governments, we have been witness to a lot of promises and commitments of turning Nepal into a prosperous country which turn out to be nothing more than talks. This year things are different, we have a federal government with activated local bodies. We have new manpower added into the system. We have a celebrated and acaemically competent Finance Minister. Most of all we have a majority government. It's still to early to comment, but one thing we've learnt as Nepali is to not get our hopes too high.