The Nepal government is constitutionally obligated to present the budget on Jestha 15. The government, which has been bringing a deficit budget every year, has not been able to fully spend the allocated budget for a long time. The government is obligated to reduce the budget in the mid-term review of all fiscal years. The government is also obligated to spend more than the income. A large part of the budget is being spent on ordinary expenses and foreign debt repayments rather than on development expenses. This upcoming fiscal year’s budget is being prepared amidst a huge imbalance between income and expenditure. There are many expectations in the upcoming fiscal year’s budget amid long economic turmoil and disappointment. In this context, Nepal has talked to economist Keshav Acharya about the budget for the upcoming fiscal year 2082/083. Here is an edited excerpt of the conversation with economist Acharya about the budget.
The government is preparing the budget for the coming year, The way the budget is being prepared now, Is this process correct?
The process is to form a resource committee after the mid-term review of the budget, the resource committee gives a ceiling and the ministries enter plans in the Budget Information System (LMBIS) within that limit and after the President brings policies and programs, the Finance Minister presents the budget document to Parliament. The process of preparing the budget is the same as before, there is not much difference there.
The national plan has given a ceiling of around 200 billion, which is ambitious. If we look at it continuously since 2074/75, the budget size has always been reduced by an average of 200 billion in the mid-term. Capital expenditure has been severely affected when the budget size is reduced. Revenue, grants, and foreign loans have also been reduced. Even now, no procedural reforms have been made. The ministries, agencies, and commissions that were there before still seem to be the same. After the budget had to be cut extensively in the mid-term for the past 5/6 years, trying to make a budget of around 200 billion is a big deal.
The budget spending system is very complex. The budget has been approved and allocated, but it is wrong to reduce the size of the budget in the middle and stop spending. When the budget is allocated, the Ministry of Finance should select the right projects and allocate them. Since they are in the place where the budget is implemented, their say, presence, and ownership are not visible in the budget preparation process and implementation process. Such a trend that has existed since before is still visible. The current budget preparation process is not correct and the budget implementation process seems to be incomplete. The procedural improvements that need to be made do not seem to be happening.
The government itself has said through the mid-term review that there are still problems such as complexity in land acquisition, lack of timely EIA, and lack of coordination between government agencies. Coordination is especially necessary before the budget is made. Secondly, wherever a project is being built, it should be checked whether or not it has been acquired, compensation, and whether or not the EIA and DPR have been approved. Even now, it was said that a project bank would be created and budget would be allocated only to the projects included in it, but it has not been implemented yet.
What should be the priorities and principles while preparing a new budget?
The priorities and principles of the budget have been specified in many ways by our constitution. There is also a directive principle of the state. It is said that priority should be given to the productive sector, especially employment. We have already brought the principles and priorities in the budget, but it is like tying a cat in a Shraddha. There does not seem to be much improvement in it.
The government’s revenue income does not look very encouraging and recently, donor agencies have started cutting even foreign resources, How to obtain resources now?
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## The potential for foreign aid is decreasing every year. Under the US aid, USAID has already cut its budget by 83 percent. Due to the deteriorating relationship with the US, Britain has said that it will increase its defense budget by 40 percent. It has already said that it will stop giving aid to foreign countries and increase its defense budget. France has also said that it will cut foreign aid by 25 percent. These countries, as well as other countries, are also making huge cuts in the aid they have been giving. Nepal is being upgraded to a developing country in 2026. At that time, donor agencies will ask not to seek grants, loans at concessional interest rates, and to take loans from international banks. Therefore, the aid coming from abroad will gradually decrease. Nepal can only claim on those that have already been agreed upon, after that period, no other measures will be taken.
Now, the size of the expenditure should be reduced in accordance with the essence of federalism. The government should be able to manage resources by ruthlessly implementing the report given by the Administration Review Commission led by Kashiraj Dahal, the report of the Expenditure Review Commission given by Dilliraj Khanal, and the report on reducing expenditure given by the National Assembly. There should not be more than 12 to 15 ministries in the federal government. The departments and their subordinate employees should be reduced. According to the constitution, when 60 percent of the state’s power has gone to the provinces and local levels, there is no need for a large manpower at the center. The federal government should now continue to strengthen the provincial and local levels. In a comprehensive manner, that is, from the upcoming budget, the government should adopt a strategy to reduce budget expenditure by 50 billion. This should begin.
27 national pride projects can no longer be built all at once. Now, we should move forward with one or two projects. We should allocate budget for a few projects and complete them on time. If Budhi Gandaki alone is built, it can earn trillions of rupees a year, postal highways and railways should be advanced. Those projects can earn trillions of rupees a year. If these projects are not advanced and all 27 projects are taken up at once, it is clear that they will not be completed for 50 years. Even transformative projects cannot be advanced immediately. The government should selectively advance them.
While current expenditure is increasing rapidly, capital expenditure seems to be declining further, Isn’t a larger budget being spent on debt obligations than on development?
Capital expenditure seems to be low from the federal government to the municipalities. Even if we look at the budget expenditure of Kathmandu Metropolitan City, it does not look positive. The reason for the lack of capital expenditure is the cumbersome legal process. The rapid change of employees has also affected the expenditure. The process is complicated and political interference has prevented capital expenditure. Even in the 9 years of federalism, the federal government has been planning a plan of one to one and a half lakh rupees, and various policies made from time to time have been violated. There has definitely been a greater expenditure on loans than on development. This year too, more budget has been allocated for loans than on development expenditure. It seems that the liability on loans will increase significantly not only now but also in the coming days.
How much budget does the country really need?
We need a budget of 500 billion rupees, but we do not have the capacity to spend it. Even now, the payment of interest subsidy for agriculture, corona, agricultural insurance, contractors, and dairy farmers 2/3 years ago has not been completed. Fertilizer is still a problem. If we look at the data released by the National Bank for the sixth and seventh months of the economy, it is seen that credit to the private sector has increased slightly, while inflation has decreased very little. Although there has been some improvement, it is not clear how long that improvement will last. The National Bank has drawn more liquidity. If there is no liquidity arrangement, it is not seen that new programs will be introduced in the revenue.
A budget of 57 trillion is needed for an economy of 50 trillion, but we do not have the capacity to spend it, so there is no option but to increase the capacity. The situation of spending the budget in Ashar and the country cannot get returns from it, it must be improved. The reason for the problem in budget formulation and expenditure is the lack of sensitivity of the political leadership. The country’s economic transformation is mentioned in the budget speech and election manifesto. But it has not been implemented in practice. If we look at the decisions made by the government spokesperson and the Council of Ministers recently, most of them seem to be appointments and foreign visits. Even though the government says that laws will be reformed, there is no hope that they will be implemented and improved. There is no stability at the staff level. The Finance Secretary is transferred at the very beginning of budget preparation. There is no basis for the budget to be effective by removing those who have worked in the Ministry of Finance and its subordinates since the past. Since the failure to provide stability to the staff system, institutional knowledge also seems to be declining among them.
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