Expect a 'game changer' in the economic and social sector: Finance Minister Dr Khatiwada

Sun, Jan 12, 2020 9:43 AM on Economy, Interview, Latest,

Finance Minister Dr. Yuba Raj Khatiwada has said the overall economic indicators of the country were healthy and the economy was moving ahead on the right trajectory.

Stating that implementation of federalism was on a successful course, he asserted that the confusions seen regarding the fiscal federalism have been 'cleared' within short period and it was under implementation.

Finance Minister Khatiwada said all sectors have entered to a new phase, he expressed the belief that there would be economic and social transformation in the country.

Finance Minister said this in an interview he gave to Rastriya Samachar Samiti (National News Agency)'s reporters Ramesh Lamsal and Ashok Ghimire.

Making an assessment of the country's economic indicators, Finance Minister Khatiwada said overall the economic indicators were positive and the the integrated form of all the economic indicators was the economic growth.

"Agriculture, industry, trade, banking, education, health all sectors are incorporated in the economic growth. We are constantly on the way towards high economic growth and this year also we will follow the same course. Several international agencies have projected economic growth rate of six to seven percent. There is a general decline in paddy production. Except that, the rest of the indicators are encouraging. We will achieve the economic growth close top the target," he explained.

Noting that the macroeconomic indicators were in track, he said these were on stability and hence were positive for economic growth. "Out of the rest of the indicators, commitment for foreign investment has drastically increased and the investment that has been coming in was also good. There is commitment for extra investment in some big projects. In this fiscal year, commitment for investment of over 100 billion would be maintained. The investment has reached closer to this even now," he shared.

According to the Finance Minister, overall investment is encouraging and the market is also stable and the economic indicators were sound in terms of the economic growth. He stated that there was no problem in the labor market and adequacy was there in electricity supply as well.

"The industrial relations have been getting better and since there has been policy reforms, I feel, the overall indicators are moving ahead towards the healthy course," he added.

Asked about what impact the economic growth has had on inflation, the Finance Minister said: "Yes, high economic growth results in inflation. In our case, the inflation is from seven to eight percent on an average in the past. But presently we are below six percent on an average. This means that inflation is also under control. Some people say that inflation has sky-rocketed, it is not the case. Sky-rocketing of inflation means the inflation that is above three digits. Some of our colleagues say that the inflation has sky-rocketed in a 'provocative' tone. Ours is a case of average inflation. On an average it is normal."

Responding a question whether the balance of payment and trade deficit were showing signs of decrease, Finance Minister Dr Khatiwada said for some years the country was facing a deficit of balance of payment but now has started going towards saving. "This fiscal year, we will have surplus BOP. This indication can be seen."

Regarding trade deficit, he said: "We have been hearing about trade deficit for a long time; or since 1975 when the trade figures were available. I have been looking at trade statistics from that time. This is also the topic which I have studied and there is no trade surplus. But still then the situation has become difficult when the trade deficit has reached 40 percent compared to the GDP. We imposed quantitative restrictions in trade to control this while we prohibited the import of certain goods. For some goods, the customs and evaluation has been increased while for certain other goods we controlled through qualitative restrictions and import substitutions.

The trend of increase of production of some goods within the country itself too has lessened import by overall 6-7 percent on a monthly basis. Imports will be under control throughout the current fiscal year. Exports have grown significantly. It is about 24-25 percent now. But then this growth will not be adequate as it is small in size. However, there will be improvement in the trade deficit. But we will have to wait for many years to say that we are in trade surplus through a notable improvement in reducing trade deficit.

Asked about the difficulties to achieve the revenue target when imports are curtailed, the Finance Minister accepted that there would be naturally some negative impact on revenue when the proportion of import decreased in trade as the revenue is mostly dependent on imports. "The revenue growth rate, especially of imported goods, has decreased to some extent but the internal revenue collection has been good. The internal revenue has increased more than 25 percent especially from income tax and VAT. The revenue based on imports will now shift towards revenue system based on internal revenue system based on internal production and income."

Making an assessment of the situation of government expenditure, he said: When seen in figures, the situation of public expenditure is low. But the payment of the completed projects still remained. Previous year, the budget released to the province and local levels was in the freezer. Because they have been spending that amount, the amount of expenditure does not appear to be much. But we are still in a position to spend as per the target.

Answering a question as to his evaluation regarding the fluctuations seen in the financial indicators and how fiscal stability could be maintained, he said: "We have been following the economic discipline. Our indicators in the financial sector are the best in South Asia. Mainly, fiscal stability means the liquidity of banks, the rate of interest, non-performing loans and public trust towards the banks. All these things are well maintained. The trend of the interest rate fluctuating in an unusual manner has stopped. Similarly, the non-performing loan of banks is below 3 percent. It is less than 1 percent in case of most of the banks, which is the best in the whole of South Asia. The banks have adequate capital and their professionalism is enhancing."

Stating the branches of banks and financial institutions has nearly doubled in this two years' period, he said the branches of banks and financial institutions numbered around 5,500 when he was appointed the Finance Minister and now it has reached close to 10,000. According to him, bank's services are yet to reach only 10 local levels now but all local levels will have access to banks services in few months hence. Similarly, he said, insurance coverage has reached more than 25 percent, including those going for abroad employment.

Asked whether the decrease in remittances would disturb the economic activities, Finance Minister said that the government discouraged foreign employment. He added that the number of people going for foreign employment decreased in the previous year after the government announced domestic job creation and providing opportunity for work within the country. He added that the number of people going for abroad employment has marginally increased at present, but overall it has decreased. "To wish that the number of foreign job aspirants should be decreased on the one hand and expect remittances to increase is not logical. So our efforts should be to bring the remittances sent by the people on foreign employment through banking channel. We still need to keep the economy dynamic and functional even when the remittance is declining."

Responding to a question why the government faced problems in implementation of this problems while the indicators are positive, Finance Minister Dr Khatiwada admitted that budget implementation was delayed. He argued there was no problems in budget implementation. Till the first and second weeks of Shrawan, the legal of the previous budget continues, he added. The budget implementation was delayed also because of the procedural steps, according to him.

The Finance Minister argued that the bureaucracy should be taken in confidence in terms of executing development activities. Although the Public Procurement Act is amended, the good intention of the works carried out by the government staffs needs to be well recognized.

He claimed that the government would overcome the difference in terms of inter-state activities within this fiscal year so that it would help propel development activities in cooperation and coordination among the three-tiers of government. As per the Minister, the adjustment of government employees would help reduce the expanse on federalism.

In response to the query relating to the State’s capacity to spending, Dr Khatiwada viewed it would not be logical to demand resources while not being able to spend the allocated budget. The federal layer of government gradually capacitate the lower governments and make them more responsible with the allocation of resources.

As he says, (limited) health services for senior citizens are free and none have to worry about buying paracetamol for their parents. It has caused an economic relief to them.

Programmes have begun for social security of children. People's housing programme is already in force. The government is committed to ensuring people's right to housing. Those who were earlier living under the thatched-roof houses have now roofs supported by corrugated zinc plates. For this, they were given Rs 50,000 each.

According to him, the government is preparing to provide education up to secondary level free and transform the current course of general education system to a technical one. It is being prepared to make a 'shift' in the education system. As he claimed these all are capable of changing the game.

Presenting his vision/ plans about bringing a game change in economic and physical infrastructure sector, he said all roads will be of at least two-lane facilities, highways will be upgraded to four/ six lanes and some will have eight lanes. "A single lane-road will be no more in our list of development endeavours. Road safety is our concern. We are not just limiting to roads, but are talking about railway, but it takes at least two year to prepare a DPR for railway and five/seven years for the completion."

We announced to construct six tunnel ways in the previous fiscal year's budget and some DPRs have been prepared and a couple of projects are likely to begin this year. The issue of cruise service used to be made a matter of joke, but an agreement to this regard has been signed with India. Motor boats are operating in our rivers.

Similarly, our focus has been shifted to big water-reservoir projects from the 'run-off-the river' projects. Our focus has been centered on solar energy and its use as well, the Minister adds.

However, a game-change in agriculture as expected is awaited. The use of technology is growing, agriculture is being mechanized. Arrivals of news industries in the industrial sector are awaited and more efforts are needed for the same. But it takes a bit time to see a full game change. Banking system has its own procedures of operation and an introduction of a new 'financial product' is awaited, the Finance Minister presents his views. The possibility of a game change in governance depends on the use of technology in the system.

When asked about plans for further progress in doing business, he says we did well in doing business this year. But, there are areas for further improvement. Company registration process should be further simplified. The provisions for closing industries should be further strengthened and the land acquisition and power facility issues should be made for effective. Provisions relating to bank loan should be made easier. The maximum use of information technology is vital for transparent and efficient management and administration. In overall, investors should have a ground to feel that the present is better than past.

In his response to a query about the possibility of impact of tension seen in the Middle-East and fluctuations in the neighbour's economy, he says, " We wish no war. We have already of a cold war. We wish both sides be able to find a solution to bilateral issues through a mutual understanding and the third party never be affected. But again we fear that tensions in the Middle East would hamper petroleum production and a rise in the prices of petroleum products. "

Second, the middle east nations offer job opportunities for us and we doubt that ongoing tension would cause adverse effect to that end.
In case of instability in foreign exchange rate in the Indian rupees, there is fear of economic instability at home as well. "Nepal and India not only share economic ties but also are connected psychologically and our efforts should be for maintaining undeterred confidence.

Giving his opinions about possible strategies for the building of a strengthened economy, the Finance Minister said structural change in economic is our strategy. The domestic production system is heavily relied on import. Industries are based on imported raw materials and technology. This should be transformed into internal source-based system.

There is a need to increase production to ensure people's need by keeping the market price under control. A sustainable development is required. Quality improvement is needed to reap maximum benefits from investment, according to the Minister who insists that job opportunities be increased to discourage the rising trend of seeking foreign employment ultimately.

Finally giving his views about the way possibility of utilising Millennium Challenge Corporation( MMC), he says The Millennium Challenge Corporation is our desired project and Nepal has already agreed to accept it and it will be utilised for the interest of the nation.