Why? As an economist, I felt very strange and awkward at NPC decision. As per the news, the budget ceiling is elevated by 42 percent as compared to the current fiscal and the figure reads Rs 841 billion. The resources committee, say the reports, expects to extract internal revenue of worth Rs 480 billion. Similarly, the committee anticipates generating about Rs 250 billion from foreign grants and loans and Rs 85 billion from internal borrowing and rest of Rs 51 billion, the committee supposes to generate deficit amount from the savings to be made in the current fiscal or may be printing new currency notes.Paradoxically, the same report suggests that the capital expenditure of the current fiscal year up to June 7 stands at only 38.9 percent of the budgeted figure. Various issues of Economic Survey depict the discrepancy between actual and targeted capital expenditure about up to 40 percent perennially. Most significantly, the Economic Surveys confirm that the public revenue is merely meeting the recurrent expenditure in the recent years that means all the capital expenditure is interest bearing liability of government which needs to be repaid sooner or later.
At the backdrop of these figures, I doubt our Finance Minister, policymakers, planners and high-ranking officials at the budget division of Ministry of Finance, are working in national interest. For whom are they working while drawing salaries and enjoying statutory entitlements from taxpayers' money? Are they working in the interest of taxpayers or creditors? Even if some call this act treasonous, I am not using such an offensive term and I am not blaming current office bearers only. However, the situation is alarming.
Making the budget so huge intentionally despite severe deficiency in quality expenditure is the absurd act of our planners, executers and the Minister. Let me explain. More than 70 percent budget for the capital expenditure comes from foreign loans. If you add the domestic borrowing to the foreign loan, the capital expenditure will be more than 80 percent of capital budget which will be interest bearing public liability.
The interest of the debt needs to be served by the taxpayers' money. Nevertheless, our office bearers have been perennially failing to meet the nearly 40 percent of the capital expenditure target. Moreover, this enhances the fiduciary risk.
I wonder if there is a tacit collusion between our Finance Minister, high-ranking officials at Ministry of Finance, member of the NPC and the officials of the bilateral and multilateral donors. Our policymakers gain privately from the collusion and multilateral and bilateral donors earn the highest rate of the return from their capital in the politically, economically, professionally and morally fragile nation.
Another important point I want to note is that the World Bank, Asian Development Bank and other multilateral and bilateral creditors in their high quality reports always suggest that the government severely lacks quality expenditure. Despite being mindful of the government inability, ineffectiveness and inefficiency, why do they pledge more loans over the time? Why are economists, who call themselves "rational people," doing such irrational things?
Here are my recommendations to the government for the upcoming budget. First, you should not make the budget unnecessarily big so as to add burden on taxpayers. Try to make it as realistic as you can really implement it. Avoid thinking that capital budget allocation is a political maneuvering. I will be the first to cheer your effort if your capital budget implementation exceeds 89 percent this time next year. So, downsize the budget by cutting one third of capital budget right now. Your act will be economically rational and it would be a real contribution to your country and compatriots.
Second, borrow money from the internal sources. If you pay very attractive premium for the domestic capital, you can easily raise Rs 300 to Rs 325 billion domestically. It is right time to borrow money because liquidity is nearly about Rs 100 billion. Still domestic borrowing with higher rate of interest will be cheaper than foreign credit if it is adjusted with the exchange rate fluctuation. The exchange rate fluctuates harshly in Nepal. Calculate that if you borrowed money from abroad at the exchange rate of 1US$=48 in 1993, the Principal Amount turns to Rs 102. It shows how taxpayers are bearing unnecessary burden of foreign debt and the government is cutting their pockets.
Third, prioritize to look for the grant but not loan from donors. However, I can imagine it is very hard to get grants these days. The statistics suggest that the grant is declining and loan is soaring year after year from both bilateral and multilateral donors. The vicious circle of grant works like drug addiction. Grant is a complementary dose of heroin that gradually turns you into a junkie and, as you will be severely addicted, you will be stopped giving that complementary dose. Then you need to purchase it at a very high cost. In matters financial it means there would be a higher interest rate and a harsh loan condition from creditors.
Fourth, insure the exchange rate fluctuation up to the mark of certain percent, say, if loan is for 20 years; insure it for the 30 percent of exchange rate fluctuation. This means if exchange rate fluctuates by 70 percent over the period then you are paying only 30 percent and insurance company pays rest of 40 percent amount resultant of exchange rate fluctuation.
Fifth, make clear policy and program and allocate budget to make economy more competitive which not only promotes exports but also contributes to abridge the exchange rate fluctuation and makes Nepali currency fully convertible to the major currencies that ultimately stabilizes exchange rate.
If you are working for your country and compatriots, you need to think the interest of your taxpayers. Your work need to be directed for the larger benefit for your taxpayers who curtail their expenses not only for debt service but also for your benefits and entitlements. Put the taxpayers first.
The author is an economist
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