FinMin ends long-standing trend of expansionary budget as coronavirus puts a dent in financial resources

Published On: May 29, 2020 12:25 PM NPT By: Sagar Ghimire  | @sagarghi

Scale of relief measures fails to satisfy private sector 

KATHMANDU, May 29: The government has introduced a budget of Rs 1,474.64 billion for the upcoming fiscal year 2020/21 with a focus on spending to shore up the health care system and reviving the economy adversely impacted by COVID-19. 

The new budget marks a departure from the long-standing trend of the government introducing an expansionary budget that often goes under-executed.  

The total expenditure estimate presented by Finance Minister Yuba Raj Khatiwada on Thursday at the joint session of the Federal Parliament is smaller than the budget size of current fiscal year 2019/20. 

Finance Minister Khatiwada has cut the size of the budget by Rs 58.33 billion from the initial expenditure allocation of Rs 1,532.97 billion for the current fiscal year. However, the budget for the upcoming fiscal year 2020/21 is a modest increment if compared to the government's revised estimated expenditure of Rs 1,385.96 billion for the current fiscal year.

The finance ministry's move to lower the budget size for the upcoming fiscal year reflects the pressure the government is facing to secure financial resources due to the adverse impacts that COVID-19 has made on the economy. There were also suggestions to Finance Minister Khatiwada during the budget formulation process to lower the size of the budget and make the expenditure plans realistic rather than first coming up with a bloated budget and lowering revised estimate later through the mid-term review.   

Out of the total budget for the upcoming fiscal year 2020/21, the government allocated Rs 352.91 billion (23.9 percent out of total budget) for capital expenditure and Rs 948.94 billion (64.4 percent) for the recurrent expenditure. Remaining Rs 172.79 billion (11.7 percent) has been allocated for the financial management.

Finance Minister Khatiwada said that he was allocating Rs 6 billion to make sure there is no shortage of medicines, protective equipment and treatment materials that are immediately required for the treatment and control of the coronavirus infection. Similarly, he has also announced various spending plans for the health sector. 

To finance its expenditure, the government plans to mobilize Rs 889.62 billion in revenue while expecting Rs 60.52 billion in foreign grants. For the remaining shortfall of Rs 524.5 billion, Finance Minister Khatiwada announced that the government will raise Rs 299.5 billion from external debt and Rs 225 billion from domestic borrowing. 

Even in the upcoming fiscal year, the revenue collected by the government is going to fall short to cover its recurrent expenditure that largely comprises administrative expenses, salaries and social security allowances. Economic experts say that the shortfall of the revenue even to meet recurrent expenditure does not bode well for the economy. 

However, officials at the Ministry of Finance say that the size of the recurrent expenditure remains high because it also accounts for the fiscal transfers, or various grants that the federal government provides to sub-national governments.

The government seemed to have put the revenue collection target to a lower side by taking a cue from the current slowdown in tax collection in the wake of the COVID-19 pandemic.

The third budget presented by the current Finance Minister has received mixed reactions. While economists termed the expenditure estimate of the government largely ‘pragmatic’, the private sector seems to be less upbeat. 

“There are fewer ambitions in this budget. So are the risks. The logic behind this could be a big uncertainty that we are facing,” Swarnim Waglé, a former vice-chair at the National Planning Commission, told Republica. “The budget opts for middle ground and it is pragmatic and realistic compared to the last budget in terms of setting revenue targets,” added Waglé, who is also the executive chair at the Institute for Integrated Development Studies. 

Business leaders say most of their major demands that they hoped would help them weather the coronavirus crisis did not find a place in the budget.

Some major relief measures include loan assistance at 5 percent interest rate for SMEs and tourism businesses hit by COVID-19 by setting up a separate fund of Rs 50 billion at Nepal Rastra Bank.

Finance Minister Khatiwada pledged to increase the size of the refinance fund to Rs 100 billion to help businesses battered by the pandemic on getting loan assistance at five percent interest rate. The immediate relief programs already introduced by the government will be given continuity until there is a risk of coronavirus infection, according to Finance Minister Khatiwada. 

However, the scale of the relief program has failed to satisfy the business community. 

“Incentives to small and medium enterprises and tourism sector, expansion of refinance fund and scrapping of demand tariff for electricity are some positive parts of the budget,”  said Shekhar Golchha, senior vice president of the Federation of Nepalese Chambers of Commerce and Industry.  “However, the economic revival looks challenging as the budget fails to address the suggestions of the private sector including lowering of VAT and income tax rates and electricity tariff and liquidity management,” he added. 


Some of the cost-cutting measures announced by Finance Minister Khatiwada in the budget have also drawn applause. The government has announced that it is scrapping various types of allowances like dearness allowance, overtime allowance and meeting allowance for all government employees except doctors, health workers and security forces working in the frontline of COVID-19.  As part of austerity measures on administrative expenses, the Finance Minister said that he has significantly cut expenses for office operation, fuel, foreign junkets, seminars and vehicle purchase, among others. Though the Finance Minister did not divulge details, he announced that he will shut down public offices or agencies that are of no use or duplications in functions in line with the recommendations made by the Public Expenditure Review Commission. 

Despite criticism from various quarters, the government has given continuity to the Local Infrastructure Development Program (LIDP), previously known as the Constituency Development Fund. The allocation for this program, however, declined to Rs 6.6 billion for upcoming fiscal year from Rs 9.9 billion in the current fiscal year. Under this program, each of the 240 electoral constituencies will now receive Rs 40 million, down from Rs 60 million in the current fiscal year.  

There were demands from various sectors to phase out this distributive program not only due  to its nature of pork barrel spending but also due to the rampant misuse of the money due to the lack of proper monitoring.

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