Budget & economic progress

Unexpected disruptions seen in announcing a full-fledged fiscal budget following the resignation of Prime Minister Madhav Kumar Nepal has once again proved that political uncertainty is the major obstacle to Nepal’s economic progress. As the Interim Constitution doesn’t allow a caretaker government to announce a full-year budget, officials are working almost round-the-clock to bring a vote on accounts bill, which will authorize the government to table expenditure bill equal to one-third of the actual expenditure needed for this year. Since the spirit of such a special bill is to arrange essential expenditures that are needed to run day-to-day administration of the country, it is clear that there be will no announcement of new polices and programs to address urgent issues to avert a possible financial crisis.



Nepal’s fragile economy is confronting a number of pressing issues for which there is an urgent need of new policy measures. Look at the alarming rise in trade deficit, which had risen by a whopping 50 percent by mid-May this fiscal year compared to the same period last year. The mismatch between imports and exports is so much that Nepal’s exports finances only 16 percent of imports. Trade deficit recorded till mid-May surpassed total remittance that the country received during the period.



There is an urgent need to address the issue of widening foreign trade deficit by boosting exports and curbing imports. Understandably, boosting exports is not possible within a short span of time mainly due to lack of readymade Nepali commodities that can compete in the international market. Though we do have a number of goods with high export potential, we need time to develop them. However, we can do a lot of things in a relatively short period to substitute imports particularly in the agricultural sector. If appropriate policies are put in place, we can substitute the Rs 35 billion imports of goats and buffaloes, vegetables, and cement mainly from India. What we need is appropriate policy announcements and some small start-up subsidies to farmers.



Similarly, unexpected rise in lending rates of financial institutions is another serious barrier to the possible revival of Nepal’s troubled industrial sector. Understandably, no industry can withstand the heat of a five percentage point increment in lending rates within less than a year. As a result, many industries have lost their financial viability before coming into operation. At this juncture, we need policies to ease liquidity to lower lending rates because survival of industries is not only important to check imports but also crucial to create jobs to thousands of youths who enter the job market each year. Alas, as political instability enters into a new phase, adopting new policies to put the economy back on track seems to have been pushed by at least a few months.

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