ForcedRetreat

The protracted round of failed elections to choose the new prime minister has seemingly made the politics of the country a laughing stock. But, actually, the joke is on the economy. In the last three months since the country plodded through without a

Oct. 11, 2010, 5:45 p.m. Published in Magazine Issue: Vol.: 04 No.-09 Oct. -08-2010(Ashwin 22, 2067)

Normally, Revenue Secretary at the Ministry of Finance, Krishna Hari Baskota exudes an air of optimism.

Even during the height of the Balance of Payment (BoP) crisis last year, Secretary Baskota did not flinch an inch whenever he was asked to describe the state of affairs. He used to point at the robust growth of revenue collection as an indicator that the economy is safe and sound.

But this week he was sporting a despondent look.

“I have started to think that the economy is beginning to wilt under the unending instability,” Baskota said.

His pessimism was grounded in the ‘forced retreat’ the economy has been subjected to owing to the political instability that has blocked the introduction of budget for this fiscal year.

Data Down

Secretary Baskota is ridden with anxiety looking at the revenue figures of Shrawan and Bhadra.

In the last fiscal year, the revenue collection had grown by 54 percent and 52 percent, respectively, in Shrawan and Bhadra.

“But this year, the revenue growth has come down to 12 and 11.2 percent during these two months,” said Baskota.

“Compared with our expectations, we have made Rs 3 billion loss in revenue collection in these two months already,” he said.

Last year, the government collected Rs 180 billion as revenue.

Of the total, Rs 160 billion were spent on regular expenditure and Rs 19 billion were spent on payment of principles and interests of loans.

This year, the regular expenditures and loan payment dues will not decrease but rather increase.

“We must collect at least Rs 200 billion to service those expenditures. Unfortunately, the collection is dropping,” said Baskota.

The handsome growth in revenue collection had been one of the most promising aspects of Nepali economy in the last few years.

In fact, international organizations like International Monetary Fund (IMF) had praised the government for the successful revenue drive.

Even when Nepal suffered serious Balance of Payment losses in the past one year, the government had continued to boast the soaring revenues based on soaring imports.

But, all of a sudden, the revenue collection has been hit. Why?

No Budget, No Revenue
The most important reason why the revenue collection has been hit is the delay in pronouncement of new budget.

As the current government is a caretaker, it only presented an advance budget that allowed the spending of one-third of the total expenditures incurred during the last fiscal year.

That was supposed to be a stop-gap measure.

But even after several rounds of election, the parliament has not been able to elect a new prime minister. In the absence of political understanding, the instability is set to extend.

With it has extended the financial instability.

The lack of budget, which is nothing but a package of financial policies, has made the whole situation unpredictable.

The import has been its first victim.
Till three months ago, the government was considering imposing import control in order to rein in the soaring imports that were aggravating the BoP crisis.

But now, the situation has completely altered.

In the last two months, the government lost Rs 200 million in revenue from motor vehicles, according to Secretary Baskota.

This loss is calculated based on the comparison of government’s expected revenue from the sector and the actual collection.

In a clear pointer to the recessionary trend, the construction has slackened. “This is clear from the loss of Rs 80 million in revenue the government incurred from import of MS billets. The real estate sector is collapsing. In fact, we lost Rs 180 million in registration fee collected from realty transactions during this period,” he said.

The government had imposed capital gain tax on realty transactions of over Rs 50 lakhs.

“But in the last two months not a single penny has been collected under this title, which means there has been not a single transaction of that volume during the period.”

In another worse indicator, the government incurred loss of Rs 90 million revenue in the two months compared to the same period last year from the import of petroleum products.
No Budget, No Revenue
The most important reason why the revenue collection has been hit is the delay in pronouncement of new budget.

As the current government is a caretaker, it only presented an advance budget that allowed the spending of one-third of the total expenditures incurred during the last fiscal year.

That was supposed to be a stop-gap measure.

But even after several rounds of election, the parliament has not been able to elect a new prime minister. In the absence of political understanding, the instability is set to extend.

With it has extended the financial instability.

The lack of budget, which is nothing but a package of financial policies, has made the whole situation unpredictable.

The import has been its first victim.
Till three months ago, the government was considering imposing import control in order to rein in the soaring imports that were aggravating the BoP crisis.

But now, the situation has completely altered.

In the last two months, the government lost Rs 200 million in revenue from motor vehicles, according to Secretary Baskota.

This loss is calculated based on the comparison of government’s expected revenue from the sector and the actual collection.

In a clear pointer to the recessionary trend, the construction has slackened. “This is clear from the loss of Rs 80 million in revenue the government incurred from import of MS billets. The real estate sector is collapsing. In fact, we lost Rs 180 million in registration fee collected from realty transactions during this period,” he said.

The government had imposed capital gain tax on realty transactions of over Rs 50 lakhs.

“But in the last two months not a single penny has been collected under this title, which means there has been not a single transaction of that volume during the period.”

In another worse indicator, the government incurred loss of Rs 90 million revenue in the two months compared to the same period last year from the import of petroleum products.

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