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Nepal’s Maiden Federal Budget 2018-19
The economic growth of Nepal is expected to reach 5.9 percent this year, says Nepali Finance Minister Yubaraj Khatiwada in his parliamentary address
After the successful formation of a federal government, Nepal is now all set to see another milestone on its way towards a full-fledged socio-political-economic transformation.
In a landmark step, the newly-formed Oli-led Nepali Government is unveiling the country’s first federal budget for FY 2018-19 or FY 2075-76 (Nepali year) on May 29, 2018.
Nepal’s Finance Minister Yubraj Khatiwada will reveal the budget at a joint meeting in the Nepali Parliament on the aforementioned date at around 4 p.m.
Speaker of the House of Representatives, the lower house of the Federal Parliament of Nepal Krishna Bahadur Mahara announced this officially on May 27, 2018.
As per the Nepali Constitutional mandate, the Nepali Government is supposed to unveil the budget in a joint parliamentary meeting on Jestha 15 (May 15-June 14 as per the Western calendar), the second month of Bikram Samwat in the official Nepali calendar.
Expenditure Up for Economic Growth
As per the available sources, the Government of Nepal is most likely to place a Rs 16 trillion budget for the
“The economic growth of the previous decade has remained average at 4.3 percent. Now it is expected to reach 5.9 percent this year,” says Yubaraj Khatiwada in his parliamentary address.
However, experts feel that the presumed economic growth can be achieved only by increasing the tax levied on the public.
“The expenditure has increased, the source of income has decreased constantly for which the government’s major focus lies on collecting revenue, which will hike the import plumping the custom duty that will definitely result in dearth, constant increment in the price of petroleum in the upcoming fiscal year,” says an economic expert and a senior Nepali journalist.
Two days prior to the budget day, the Finance Minister also noted that the finance deficit is most likely to reach 10.4 percent.
Inflation is a key matter of concern for the country; inflation in Nepal increased to 6 percent in the last eight months of the current fiscal year from a previous value of 2.3 percent.
Development & Fiscal Discipline
Assuring development while balancing the fiscal discipline remains a key area of focus for the Oli-led Nepali Government.
Prior to the budget, programs and policies on top priority for the government were announced on May 27, 2018, in which, social and infrastructure development projects took the top place.
While the National Planning Commission (NPC) is projecting the relevant budget to be at around Rs 1.2 trillion for such projects, the finance minister is expected that to be above Rs 1.45 trillion.
When it comes to pooling revenues, the government is aiming at a collection of Rs 1 trillion in the coming fiscal while also raising Rs 300 billion as a foreign fund.
According to the Finance Ministry officials, the provincial and local governments are most likely to see a significant budgetary allocation of around Rs 400 billion for developmental activities.
Overall, the government is looking at an 8 percent economic growth rate to meet the targets set by the annual policies and programs such as two-fold rise in per capita income in five-year period, among others.
Allocation Across Sectors
According to the Finance Ministry, a significant amount of budget will be allocated for flagship projects in infrastructure, energy, agriculture, tourism, among other sectors and on PM’s dream projects such as railways and waterways.
Energy and irrigation projects such as the Sunkoshi-Marine Diversion Program and Butwal-Sunauli cross-border transmission line are set to receive a due attention in the upcoming budget.
Some of the projects that are likely to receive budgetary attention include the Madan Bhandari Highway, railway expansion covering metro rail in Kathmandu, Kathmandu-Tarai Expressway and a feasibility study on Nepal-India waterways.
Taxation is another area that is going to see some significant changes in this budget. Along with a significant revisal of tax regime, the new budget is more likely for increased tax on import on luxury products such as liquor and cigarettes.
The government is also looking at royalties, land registration and fees as the additional sources of income for the treasury.
When it comes to the government sector, the civil servants’ salaries are not going to see any significant changes other than little adjustments in indirect benefits and allowances.
Allocation for social security allowance is also likely to take a back-step because of the increased allocation to the local and provincial bodies.
Overall, domestic industries are more likely to get the due support in this budget with those using local raw material on top priority.
As part of schemes, a special program called ‘Sustainable Energy for All’ is going to be implemented with focus on renewable and hydropower sources. “We’ve focused on reservoir projects as well as expansion of transmission lines under this program,” says an NPC member.
Two of the key current challenges for Nepal are with regard to foreign exchange reserve and food deficit.
According to the Nepal Rastra Bank (NRB), Nepal’s foreign exchange reserves have come down over the last three months affecting the country’s ability to finance imports.
In its third quarterly review of the country’s monetary release on May 26, 2018, NRB reported a massive expansion of imports, outflow of dividends by foreign investors and slow growth of remittance contribution to decreased foreign exchange reserves.
NRB statistics show a decline in the country’s foreign exchange reserves from USD 10.31 billion in mid-July 2017 to USD 10.16 billion by mid-April of 2018, a decline over the previous fiscal.
After a consistent rise driven by rising remittances over the years, foreign exchange reserves of Nepal started dropping down since the mid of January 2018.
“We are not worried about current drop in foreign exchange reserves as our target is to keep such reserves to sustain the imports of goods and services for at least eight months. But, the situation may worsen provided the import continues to surge and remittance growth continues to slow and export does not grow as required,” says Nara Bahadur Thapa, Executive Director of NRB.
Meanwhile, the country is also currently facing a food deficit despite the surplus harvest in the current fiscal year. The Economic Survey 2017-18 released on May 27, 2018 has reported a food deficit of 71,400 tons in the current fiscal despite the presence of 898,115 tons surplus from the previous fiscal.
In another development with regard to trade, Nepal is hoping high on trade activity through India’s Vizag port. A Nepali delegation that visited Vizag (India) expressed confidence over controlling overall end-to-end logistics costs and improving trade supplies to Nepal through Vizag port’s infrastructure.
On an End Note
The new budget is definitely going to be a path-breaker for Nepal in its new path of development led by the newly-formed government. Besides internal functioning, the Oli-led government is also focusing high on external relations by expanding Nepal’s bilateral and business ties with other countries.
Let’s hope the new budget will create a needed scope for the country’s overall development while also balancing the nation’s external growth on a global scale!