Govt cautioned not to take more internal loans in the name of increasing budget deficit

Published On: June 1, 2023 10:00 AM NPT By: Republica | @RepublicaNepal

“Soaring budget deficit will devastate the country’s money market in future”

KATHMANDU, June 1: Experts have warned the government not to consider taking more internal loans for its regular expenditure as the state’s financial system is already overburdened by domestic borrowings.

Analysts expressed such a view in a program organized on Wednesday. They warned that if the government fails to take corrective measures, it may crash the country’s bureaucratic financial system in the coming years.

Former Finance Minister Yubaraj Khatiwada said the country has fallen in the policy trap in the past one and a half decades. “Due to this reason, most of the annual budgets turned out to focus on distributive programs rather than focusing more on production-related activities.

Khatiwada also pointed out that the government’s system is being trapped more on internal loans in recent days. “Although the government through the budget has announced to curtail spending on allowances to civil servants and purchase of vehicles for government offices, it might be challenging to do so,” he added.

The budget talks about achieving economic growth of six percent in the next fiscal year. However, it may not be possible as the country is reeling under inadequate investments, according to Khatiwada.

Nepal’s per capita public debt has increased to Rs 73.860. It has increased four-folds in the past one decade, mainly due to an increasing unproductive spending along with slow growth in the government revenue collection.

The country’s budget deficit has hit Rs 271 billion as of the May end this year. “As a result, the public debt has risen significantly,” said Professor Shiva Raj Adhikari, head of the Central Department of Economics, Tribhuvan University.

Adhikari said increased recurrent expenditure and shrink in the government revenue collection will further help increase the budget deficit. “It will again adversely affect the money market of the country,” he added.

Economists have pointed out that the government has minimal fiscal space at present. To overcome the structural problems, it will be possible only through achieving a giant policy leap. Although the budget has shown some indication towards it, the disbursement side seems weak, according to the economists.