Corona And Our New Budget

In our case, the new budget has thrown lots of cold water on the expectation of relief-seeking common people and those engaged in productive activities who were expecting solid package in the budget to help them get out of the mess they have been pushed into by the virus

June 23, 2020, 9:41 a.m. Published in Magazine Issue: VOL. 13 No. 18, June 19, 2020 ( Asadh 5, 2077) Publisher: Keshab Prasad Poudel Online Register Number: DOI 584/074-75

In the midst of lots of talk about Corona and the government’s ostensible resolve to solving the pandemic- related problems, the budget for the fiscal year 2077\78 (2020\2021) was red in the Parliament on a specific date as provisioned by the constitution of Nepal. Although this budget with a total outlay of Rs.1474 billion is about Rs. 59 billion less than the budget for the current fiscal year (2076\77), a sizable portion of this, more specifically the allocation under capital expenditure head,is certain to remain unspent as has been the case so far. By bringing a smaller budget, the budget writers have satisfied the opposition leaders, mostly from the main opposition party NC who, probably fearing massive misuse of funds in a ballooned budget, did not want it to inflate much. At the same time, it has also satisfied observers who saw no reason in inflating budget each year in the face of government’s inability to spend even the regularly downsized, at the half-yearly reviews, budgets. This apparently pragmatic approach taken in budget formulation kept capital expenditure(Rs.353 billion) lesser than the current year’s allocation of Rs 408 billion and reduced revenue collection target(Rs.889 billion) by 4 percent, as compared to initial revenue collection target of this year. It is wise on the part of the budget writers that, instead of failing each year to collect the targeted revenue, they have reduced the target a bit this time. Despite this reduction, however, the target is not likely to be met this year also, which would be this government’s third failure in a row. Likewise, doubts are expressed about the possibility of hitting the wished growth target of 7 percent and containing inflation at 7 percent level in the complicated economic situation emanating from Corona. Lots of questions are being asked and doubts raised about this budget both in the House and outside on the streets of Kathmandu.

Indeed, the reduction in the size of this budget could not satisfy the NC lawmakers who came down heavily on it as being not up to the mark to revive the economy in such a depressing situation. NC stalwarts, who propagated for a small size budget, basically to prevent misuse of funds, must be unhappy that funds under the much controversial Prime Minister Employment Programme have been substantially hiked to more than Rs. 11 billion. Make no mistake that People here are in the know of stimulus package provided in different countries that include handouts to low-income families, unemployment benefits and benefits to farmers and small\medium enterprises in terms of cash and concessional loans. Basically, depending on the size of economies and population, countries have launched stimulus packages and have taken decisions to get the economy moving even in the face of the rising levels of infection and deaths resulting from it. They are also impatient about rescuing the tourism and hospitality sector, which has suffered the most as a result of the pandemic. In our case, the new budget has thrown lots of cold water on the expectation of relief-seeking common people and those engaged in productive activities who were expecting a solid package in the budget to help them get out of the mess they have been pushed into by the virus. Waivers and reduction in taxes and provision of subsidy are found in the budget document but it remains way short of providing a shot in the arm in these difficult times. Expectedly, the budget has set aside substantial sums for the health sector, basically to fight Corona, and pledges to implement programmes with the aim of achieving self-sufficiency in milk and meat. Hike in fertilizer subsidy (Rs.11 billion) and decision to encourage organic production in the mountain and hilly regions, if implemented properly, could push this agricultural nation towards becoming self-reliant in agricultural products. Unfortunately, however, despite various provisions touching upon different sectors of the economy and attractive proclamations, the budget made public in a difficult situation, could not win the support of even common people because they are used to this annual rhetoric of achieving self-sufficiency in certain products and encouraging export through the provision of subsidy and tax cuts. These annual proclamations, it seems, have worked in the opposite direction because our import of agricultural products is on the rise and trade deficit is accelerating unchecked. Indeed, the budget has fallen short of the expectations and the writer of the budget, Dr. Khatiwada, has also been facing strong criticism related to changes in tax rates on certain items. Equally forceful is the criticism in the House and agitation on the street, which has got to do with the huge amount of Corona-related expenditure incurred by the government so far.

It was expected that this regular type of budget would not win praise and appreciation but at the same time not many thought that Khatiwada would be individually attacked in the Parliament, seriously questioning and doubting his integrity. His decision to increase import duty on electric vehicles, contrary to the policy of governments all over the world to promote its use, and another budgetary provision that reduced tax on imported high-grade chocolates created the unfortunate situation for the main budget formulator. The case got further complicated by the revelation that owners of a prominent business house in Nepal, said to be close to him, got into the country about 125 electric vehicles before the budget was made public, saving millions of rupees for themselves. The same group is said to be the major importer of expensive chocolates on which rates have been perplexingly reduced. A lot has been spoken and written on this, challenging Khatiwada’s integrity, and his responses have failed to assuage the doubts of many. One could, however, take the liberty of thinking that changes in tariff rates and the associated transaction\deal was a mere coincidence and could have happened several times in the past also. Another item that has invited huge criticism is the government’s recent announcement that it has already spent Rs. 10 billion on Corona. Opposition lawmakers have seriously raised this issue in the House and people have taken to streets, braving water cannons and tear gases. The protesters are demanding that the expenses incurred in medical goods be made transparent and the decision to impose additional tax be withdrawn. We can simply hope that the concerned provide adequate evidence to clear the accusations that funds have been embezzled. All said and done, let us not forget that people, in general, are not happy with the way Corona is handled in this country and so is the case with the lackluster new budget, which is devoid of any substantial scheme to resurrect the depressed economy of this country.

Our government is accused of bringing the country and the economy to a complete halt when there was no need to do so in the initial stage because migrant workers carrying the virus from India and elsewhere had not come and reported positive cases were almost nonexistent, which could be due to very slow testing activities in the country. Many of us feel that the initial few weeks of lockdown did more harm to the country than good because the economy was thrown into a state of grinding halt and the government did not do much sensible homework as is shown by reported problems related to quarantine, testing and procurement of medicines and equipment. Checking the total mobility of people and vehicles per se could never be an achievement in itself because it simply does serious harm to the economy. Probably as a realization of this truth, countries in deep problems such as the US, Brazil England, Italy, Spain, etc. have opened their economies, easing restrictions. Of late, Corona has assumed an alarming proportion in India but this has not stopped the authorities there from opening the economy. We have to believe like other sensible people elsewhere that Corona is going to stay with us for quite sometimes and we have, therefore, no choice but to learn to live with it, adhering to different norms prescribed. Let Corona not scare us off into bringing our activities to a complete halt as has been the case here. In this regard, we could learn lessons from Thailand, where the number of infections and deaths from it is one of the lowest in the world, which has succeeded in checking the spread of viruses without bringing the economy to a complete stoppage. The authorities there are worried about the state of their economy, showing deflationary symptoms and is said to have contracted by 6 percent, which is being rescued through stimulus package (65 billion dollars), and further lowering of interest rate is also contemplated. Maintaining a proper balance between economic and Corona-related activities, South Korea has also succeeded in keeping the spread under control. Things are not very bad in Japan either. People should not take too long to realize that a prolonged period of lockdown breeds starvation and poverty. In Nepal, our government has also finally decided to ease restrictions gradually, succumbing to protests and cases of disobedience. It would be wise for the authorities here to let people return to work and students get back to their institutions without wasting much time. Let the government services resume. Some very precious time has been wasted without doing much.

No one should hesitate to agree that whatever little is provided in the new budget is grossly inadequate to galvanize the economy and some additional measures will have to be taken, as Japan has brought an emergency budget in the tune of 300 billion dollars mainly to combat Corona. Let us not forget that even in the midst of rising levels of infection and deaths therefrom and a strong possibility of its resurgence, countries are easing restrictions and introducing stimulus packages to save their economies. It may be noted that the Organization for Economic Cooperation and Development has recently stated that the global economy will shrink by 6 percent in 2020. Bank of England looks all set to act in the face of reported 20 percent shrinkage in the economy. Let us see what the new monetary policy of Nepal Rastra Bank, under the leadership of a close confidante of Khatiwada, has to offer to stabilize the financial sector and provide the much-needed support to different sectors of the ailing economy. Khatiwada's recent confession in the House that it is becoming increasingly difficult to organize monthly requirement of Rs. 40 billion to run state affairs, speaks volumes about the state of our economy and has also ruled out the possibility of any additional measures to revive it.

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