Big, Bold, Battered

MURARI SHARMA

NEW BUDGET
A bureaucratic government has done what successive political governments could not do for the last four years: Present a full budget. The 2013/14 budget plans to spend Rs 517.2 billion, of which Rs 354.5 billion will come from revenue and the rest from foreign grants, loans and domestic borrowing. It is big and bold and as battered as ever in absence of transparency and integrity. 

A full budge is a must not only to complete the on-going physical and social infrastructure projects on time and start new ones but also to create a roadmap and confidence for economic growth. The private sector had begged government for it. The talking heads had reasoned for it. Donors had pushed for it. Government employees had pressed for it. Ordinary people had called for it so the projects of their interest could be completed without delay and the delivery of goods and services could be improved. 


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However, deep mistrust among political parties and frequent changes in government stood in the way of a full budget for nearly four years. Opposition parties prevented the ruling parties from presenting such a budget fearing that the latter could bribe voters through populist measures. Besides, governments changed close to the start of a new fiscal year leaving insufficient time for timely budget preparation and announcement. So the government and economy had to stand on the shaky stilt of vote-on-account.

The consequences were grave. Funding uncertainties hampered public sector projects. The private sector segment that relied on government contracts for its bread and butter stagnated. Private investment elsewhere faltered because investors held back for the lack of a clear government policy. Besides, the weather did not help; neither did the stiff depreciation of the rupee. As a result, growth stalled and inflation soared. In 2012/13, for instance, they were 3.6 percent and 9.9 percent respectively.

Amidst this gloom, the Khil Raj Regmi government has tabled the first full budget in four year. 
Out of the total budget of Rs 517.2 billion, 68.3 percent is allocated to current expenditures, 15.2 percent to financing and 16.4 percent to capital expenditures. Development expenditures constitute 46.7 percent and administrative expenditures 53.3 percent of this outlay. While revenue will cover Rs 354.5 billion, Rs 5.5 billion will come from principal repayment and Rs 69.54 from foreign grants; Rs 87.70 billion from foreign loan and domestic borrowing will bridge the remaining gap.

The budget’s objectives—CA II election, broad-based growth, economic and fiscal stability, public-private cooperation, balanced and employment-oriented inclusive development, etc.—are timely and laudable. But the budget itself tells a different story. It is too big in size, in ambition and in inflation and is far from balanced. 

The projected rise in spending by 39.8 percent over the 2012/13 revised estimates is too big for an election budget. In an election year, budget implementation falls by the wayside: Rather than work, politicians are involved in campaigns and jockeying for power and bureaucrats speculate the outcome and change of course. Due to this, and based on recent performance, the growth target of 5.5 percent is hugely ambitious. It may be achieved only if, a big if indeed, weather remains extremely favorable for exceptional agricultural production. The rupee’s depreciation and external borrowing, both inflationary, could have helped export-led growth if we had sufficient exportable products and services, but we do not.

Although the projected increase of 20 percent in revenue can be achieved by tightening the slack, the goal of limiting inflation to 8 percent is a pipedream. The rupee’s steady depreciation and massive injection of steroids—new money—into the economy occasioned mainly by rising remittances and local component of foreign aid financing and by the 18 percent increase in public sector salaries will make it impossible to attain. In a country that is heavily dependent on imports, high inflation comes as a source of misery for the common people and a drain for the treasury, for they have to pay more to buy hard currencies. 

The election and Kathmandu-centric budget looks anything but balanced to those who come from backward areas.

The budget looks bold and bloated in the wrong places—like a man or woman on growth hormones. It plans to enhance spending without increasing taxes. Besides, it offers generous giveaways to please every powerful segment of society. Leaders will have all the pork barrel projects of spurious value continued and new ones added—including the ring road around the paddy fields of Regmi, the current head of government, in Palpa. Public employees have been given a respectable pay raise. Several study projects of little significance have been inserted so senior policymakers and influential members of civil society can make extra bucks without much extra effort. The Nepalis returning from abroad after a year will have custom duties waved for a 30-inch television. Private sector biggies can import vehicles, newsprint, and safa tempos and pay advance taxes at a concessional rate. The customs and export fees have been removed for exports. 

What makes the budget bold and bloated from the outside also makes it battered from inside. The budget is not only full of pork projects and pseudo-studies; it also hides huge political and security expenses under development projects so it looks good to donors and the public. Similarly, money aimed at providing relief to victims of disasters, diseases and other untoward incidents will continue to flow to the clients of powerful leaders, rather than to the real victims, for the budget proposes no change in disbursement methods. Such a highly opaque budgeting and deficient disbursement perpetuates the misuse of resources and corruption.

To be realistic, pork barrel projects and budget gimmicks to hide truth about questionable spending cannot be eliminated. Those in power will continue to pull strings to earn a rent or cover things up for their personal advantage. Government may also have to make unpalatable choices occasionally to accommodate conflicting and influential interests for the greater good. Frankly, I could not remove such projects and gimmicks when I headed the Budget Division of the Ministry of Finance but I tried to reduce them, which should be our objective. 

But over the years, such anomalies have proliferated and become a much bigger drain on public finances. For instance, only a few leaders could get their pet projects included in the budget when I was in the Budget Division; now there are too many leaders eager and able to do so. Then, only Royal family members and very senior officials with complications that could not be treated in Nepal used to go abroad, mostly India, for treatment on government funding. Now most leaders have become royals to enjoy free overseas health-tourism—more tourism and less health—on the public purse even for a simple check-up or procedure that can be done competently by specialists within the country.

The government seems to have decided to go with the flow rather than trying to limit such questionable activities and promoting the transparency and integrity of the budget. More tragically, the Regmi government may not last through the fiscal year and its replacement will have no commitment to implement this budget. All good budgets in Nepal have failed at the stage of implementation. So the 2013/14 budget is likely to face the same fate in a more aggravated way.

Despite many flaws, the 2013/14 budget is reasonably good in relative sense. An election budget presented by a political government could have been much worse—much bigger and more ambitious, inflationary, and corrupt—to unduly influence voters. I am also pleased that we have a full budget which offers guidance to economic activities for the next few months, if not for the full fiscal year.

 

 
Republica: http://www.myrepublica.com/portal/index.php?action=news_details&news_id=58507  
Published on 2013-07-28 01:10:59
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