BUDGET 2010 Development Dilemma

Three days after the caretaker government issued the budget through ordinance , major donors came out with a written joint statement showing grave concern over the lack of what they called 'development leadership.' Theeir concern is especially pertin

Dec. 9, 2010, 5:45 p.m. Published in Magazine Issue: Vol.: 04 No.-12 Dec. 03-2010 (Mangsir 17,2067)

In a way the uncharacteristically scathing statement made by Nepal’s key donors was a dreadful reminder of how the unending political uncertainty was exacting a toll on the country’s economy and development.

In a clear sign of growing impatience among Nepal’s development partners, the statement was aimed at shaking the leaders who appear almost blithe toward the economic plight.
For over four months the development partners had watched, with trepidations, how the debate on the need to timely bring the budget was trampled under political considerations.
And when it was finally about to come, the drama that erupted in the House served as the last straw that broke the camel’s back.

Alarmed by the unfolding events, the donors responded with a serious warning.

"The slow pace in implementing the peace process combined with the continued care-taker status of the government, lack of development leadership significantly reduces most donors' ability to secure future resources for Nepal," their statement read.

They have even warned that Nepal's unstable political situation makes it increasingly difficult for them to justify why Nepal should receive support in a world where there are many competing demands for limited development resources.

Danger Signs
Even if they want, the politicians will not be able to wish away the warning from the donors.
A quick look at the budget figures this year is enough to bury doubts, if any.

Of the total outlay of nearly Rs 338 billion, the government projects to finance only Rs 216 through revenue. The rest will have to be collected mainly as foreign loans or grants.

The budget expects to get Rs 65 billion in foreign grants and additional Rs 22 billion in foreign loans.

Their warning, if not paid heed to properly, could upset the budget projections substantially.

The part that could suffer the most, if the donors actually cut their aid amid worsening political instability, will be the development.

Since the government will not be in a position to cut financing the regular expenditures, any shortage of funding will hit the development expenditures.

‘Ambitious’ Target
In a budget that was delayed by four months and that came through ordinance, the government has set aside nearly Rs 130 billion for development purposes.

This, many economists say, is ambitious target.

“I will appreciate if the government can spend even one-half of that projection,” said economist Dr. Chiranjivi Nepal.

According to him, the lengthy procedures laid down in the Procurement Act and the administrative red tapes will, invariably delay the start of development projects.

“That delay on the top of the fact that the government now has only seven months to implement the budget will mean that the development targets will not be met,” he said.

But this is contested by the government officials. Keshav Acharya, Senior Economic Advisor at the Ministry of Finance, claimed that they will be able to spend ‘most’ of the development budget.

“This budget does not have new programs and projects. Therefore, the older ones will not need to go through contract and other procedures under the Procurement Act. This will save time,” he said.

On the other hand, the concerns shown by the donors and the doubts raised by economists have pushed the government to the situation where it might feel the urge to spend the development resources randomly just to fulfill the quota.

“That is exactly the concern. In this situation, the government might feel compelled to misuse the development expenditures,” said Dr. Nepal.

But Acharya has an answer to those doubts as well.

He said that some policy departures introduced by the budget – like prohibiting transfer of resources allocated to far and mid western region and limiting the amount of expenses that can be incurred during the final months of the fiscal year – will ensure that development budget will be used appropriately. 

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