Budget at 4PM today

Will the budget be a sharp departure from the previous ones?

Published On: May 28, 2020 11:25 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, May 28: The government is unveiling its budget for the next fiscal year 2020/21 later today. Minister for Finance Yuba Raj Khatiwada is scheduled to present the budget -- the estimates of expenditures and revenues of the government -- at a joint meeting of the federal parliament at 4 PM today. The federal government is bound by the constitution to present its budget on Jestha 15 each year for the upcoming fiscal.  

This will be the third budget presented by Finance Minister Khatiwada who was tapped by Prime Minister KP Oli to manage the treasury from beyond partisan politics. While the last two budgets were marred by under-execution, Finance Minister Khatiwada will encounter a whole host of issues in the upcoming fiscal year.

The budget for the upcoming fiscal year should focus on stimulating the economy hit hard by COVID-19 through the government's own spending, relief to the private sector and assistance to individuals who have lost their livelihoods, say experts. Similarly, there are projects and programs that the government has to either introduce or continue in the upcoming fiscal year. Also, the financial liabilities like salaries of government employees, pension and fiscal transfers to the local governments are some expenditures that the government cannot avoid. This means that all of these expenditures are going to put a huge pressure on the financial resources.

The government is struggling to collect the targeted revenue in the current fiscal year, and so it cannot be optimistic in raising the revenue target for the next fiscal year. While raising VAT rate or customs duty on imports is going to raise prices for consumers, increasing corporate income tax risks discouraging private sector investments. Slowdown in economic activities could also deal a blow to the government in raising revenue. Foreign grants at this moment also look less likely as most of the countries are themselves reeling under economic crises. The government has an option of mobilizing domestic and external debt for deficit-financing. Some multilateral institutions like the World Bank, International Monetary Fund and the Asian Development Bank (ADB) have already announced concessional loans to Nepal. Except these major lenders, there are only a few others which the government can approach for external debt. The government is reportedly preparing to raise more domestic debt in the upcoming fiscal year 2020/21. While there is some space for the government to raise debt in the domestic market, excess borrowing will not only put pressure on liquidity and interest rates of banks but also crowd out the private sector.

Despite pressure on finances, the government is preparing to come up with a 'bloated' budget. While economists have called for a realistic budget with focus on reviving the economy from the pandemic and introducing cost cutting measures, the government is increasing the size of the budget compared to the total estimated expenditure for the current fiscal year.



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