First federal budget aims 8pc growth

May 30, 2018

Sangam Prasian, The Kathmandu Post, 30 May 2018

Finance Minister Yubaraj Khatiwada presented the first federal budget for the fiscal year 2018-19 in Parliament on Tuesday. The Rs1.31 trillion fiscal plan focuses on energy, infrastructure and proposes a string of reforms in social and agriculture sectors.


The budget, 2.82 percent bigger than the current fiscal plan, has an ambitious goal of achieving 8 percent economic growth in the new fiscal year beginning mid-July.

In his first budget, Finance Minister Khatiwada has tried to balance populism and fiscal discipline, economists said. Going against the past trend, Khatiwada presented a realistically sized budget.


Khatiwada gets brownie points on the budget implementation side, talking about introducing much-needed discipline in programme implementation. The prime minister-led Project Implementation Directive Committee will work on result-oriented monitoring of large projects.


It also promises a separate act to make implementation of large projects effective. The secretary concerned will be held responsible for budget implementation and the project chief for project enforcement.


Given past irregularities in the government’s procure-ment process, the budget promises amendment to the Public Procurement Act and a remodelling of mobilisation advances.


The annual financial plan allows the District Treasury Office to release funds by recognising programmes incorporated in the budget information system as approved schemes. Earlier, the National Planning Commission approved detailed programmes after the new fiscal year commenced, delaying programme launch.


Though Khatiwada did not increase civil servants’ salary, he did fall into the populist practice of lawmakers running development projects in their constituencies. Rs40 million has been set aside for each federal electoral constituency. However, some guidelines have been set whereby lawmakers can only run five projects selected by a committee comprising provincial lawmakers and chiefs of local governments.


The budget promises policy tools to protect domestic industries, with an aim to make the country self-sufficient in a dozen products including sugar, medicine, iron rods and cement within two years.


One of the key features of the budget is change on the tax regime. The budget has changed the structure of income tax slab from 15 percent and 25 percent to 10, 20 and 30 percent. Those having taxable income over Rs2 million will be charged 20 percent extra. It has scrapped the system of taxpayers enjoying tax returns. Responding to the recommendation of the Auditor General’s Office, the system of giving VAT return in mobile set import has been scrapped.


“The size of the budget has not increased much, but it will be very challenging for the federal government to increase revenue by 29.8 percent [including revenue sharing with provincial and local governments],” said economist Chandan Sapkota.


“Capital spending has been slashed compared to last year’s estimates, and most of the programmes are continuation from the previous budget,” said Sapkota. According to him, emphasis on infrastructure, revenue leakage control and commitment to easing regulations that deter investment are welcome.


“On implementation front, there is not much substance except for assurances. The GDP growth target of 8 percent is overly ambitious.”


Former finance minister and Nepali Congress leader Ram Sharan Mahat said the budget was full of promises and wishes. Capital expenditure is low at 23 percent, while there is a huge jump in allocation for subsidies. “It’s big. Allocation of nearly Rs100 billion in subsidies is huge,” said Mahat.


Some goals are questionable. Agriculture output growth rate in the past decade was around 3 percent while the budget has set an ambitious target of doubling output by five years. “It means a 50 percent annual growth requirement that no country in the world has achieved,” said Mahat.


“The goal of doubling per capita income in five years and the target of bringing 2 million tourists by 2020 is unrealistic.”


Internal borrowing envisaged by the budget is high. Mahat added that the government plans to borrow Rs172 billion from the country’s banking sector. “This could cloud out investment of private sector.”


Economist Swarnim Wagle wrote on his Facebook page that the budget does not hold bases for meeting the ambitious growth target of 8 percent, doubling tourist numbers in two years, agriculture output in five years, creating 500,000 new jobs and attaining 100 percent literacy rate within two years. “However, proposing a string of reforms for effective implementation of mega projects is good.”


“A short quick observation: it’s a good federal budget,” tweeted former finance secretary Rameshore Khanal. “It’s not a distributive budget. It’s target-oriented.”


In what looks like a controversial provision, the budget talks about not seeking source of investments made till mid-April, 2020 in hydropower projects of national importance, infrastructure development projects such as international airport, tunnel road, railway, manufacturing industries employing over 300 domestic workers and utilising more than 50 percent domestic raw materials.


Fails to empower provinces: RJP-N


KATHMANDU: The Rastriya Janata Party-Nepal responded that the annual budget would impede proper implementation of federalism, as the federal government had not empowered the provinces with financial resources.


RJP-N leader Rajendra Mahato said all the major revenues were accumulated at the centre, leaving little for the provinces. “The budget intends to make provinces worthless by not letting them become financially strong,” he said. Top leaders of the party had sought budget for the provinces on the basis of their population besides special allocation for districts lying at the bottom of the Human Development Index. (PR)