Achieving 5.1 percent growth target a herculean task

KATHMANDU, NOV 22 -

The government did manage to avert the looming economic crisis on Tuesday with a two-third budget , but the country will struggle to achieve the economic growth of 5.1 percent as mentioned by the Finance Minister.

The delay in budget presentation (four-month behind schedule) and the government’s compulsion to limit the budget size to that of last fiscal year’s will hit hard the development work and economic growth.

There are multiple instances of the country missing economic growth target even after full budget presentation in the past. And now, when a two-third budget has cut down the capital expenditure and there are only eight months left for this fiscal year to conclude, achieving the growth target will be a herculean task.

Development projects may face shortage of resources as the government cannot spend more than the actual expenditure of the last fiscal year under the current budget ary arrangement. The development budget has already taken the beating with capital expenditure falling short by Rs 20 billion. The budget unveiled on Tuesday has allocated Rs 51.34 billion under capital expenditure head, against Rs 71 billion of the last fiscal year. Capital budget is basically the resources spent for development purposes. “All the existing development projects may not get the amount equal to what they spent last fiscal year as the resources will have to be spent on some new government initiatives started this year,” said Finance Secretary Shanta Raj Subedi.

According to Subedi, the government will have to arrange the budget for road expansion work in the Kathmandu Valley, spend additional budget for fertiliser imports and load shedding reduction plans, among others, that were started after the last fiscal year’s budget was introduced. “In such a scenario, all the existing projects will not get the budget equivalent to the amount they spent last fiscal year,” he said.

Every year, the government has to spend increased amount for salary, allowance and pensions due to promotion and grade increment of government employees. That’s why the limited budget allocated this year will make it difficult for the government to arrange funds for additional expenditure.

The recurrent expenditure allocated for the current fiscal is also less by Rs 20 billion compared to the allocation in the last fiscal year. “If the allocated budget is not sufficient to meet the increased cost under the recurrent head, we will have no other options, but to chop capital budget although capital budget is not transferred to recurrent head as per the existing mechanism,” said Subedi.

He said as managing necessary resources for paying salaries to the government staff is the most important factor and resources from the donors’ heading cannot be transferred for the purpose, capital budget allocated under government’s resources may have to be utilised.

On the other hand, foreign-funded projects are also likely to be affected with the two-third budget arrangement. Although the budget has stated necessary counterpart fund

has been arranged for the foreign-aided projects, Secretary Subedi said it will be a tough job to manage such funds for projects finalised under new agreement.

However, some Finance Ministry officials say the allocated budget could be just enough to spend in the remaining eight months, given poor track record of capital expenditure. “There is limited time for development budget expenditure and we can transfer budget for major projects from other capital budget heads where expenditure is poor,” said another ministry official.

The official said as the budget for development projects that are added every year is not available this time, the allocated budget may be ‘quite enough’. “The government also has the option of introducing the ‘Ordinance to Recover Public Debt’, which allows the government to raise internal loans. The government can take overdraft five percent of last fiscal year’s revenue collection from the Nepal Rastra Bank,” said the official.

However, other ministry officials admit in the absence a full budget , economic activities will slow down, affecting economic growth and revenue collection. “We have not set the revenue collection target for the whole year, but we may have to keep it based on possible slowdown in economic activities,” said Subedi. “I have directed my staff to prepare for the possible impact of the absence of a full budget .” During the first four months, revenue collection has been impressive. But Subedi said that was due to small growth in the first four months of the last fiscal year.

Source: The Kathmandu post