Country’s economy bears a gloomy face: FM Sharma

 Government set to announce new budget

 Kathmandu, Aug 10

The government is set to announce a new budget replacing the one brought about by the previous government led by KP Sharma Oli through an ordinance.

Presenting a white paper on the current status of economy at the Federal Parliament on Tuesday, Finance Minister Janardan Sharma, said that the budgets of previous years were designed without considering the government funds which had lowered the credibility of the budget.

 “The new budget will address the Common Minimum Programme (CMP) of the ruling alliance, policy and priority of the present government, public interest and challenges created by the COVID-19 pandemic,” he said.

The economy battered by the global COVID-19 pandemic bears a gloomy face with a bleak prospects of meeting the growth targets estimated in the budget of the last fiscal year 2020/21, said Minister Sharma.

Poor and timely budget execution had resulted in the negative growth of 2.1 per cent against the target of 8.5 per cent in the FY 2019/20 while the second wave of the pandemic inflicted serious injuries to the economy as the business and industries struggled to combat the untoward situation amidst looming uncertainty of the coronavirus.

FM Sharma said that the 7 per cent economic growth estimates for the FY 2020/21 would not be achieved due to the impact of the pandemic. Previous government had already lowered the growth target to 4 per cent and said that even the adjusted aim was difficult to meet.

The economy that was on the recovery path from the damage of the 2015 Gorkha Earthquake is again been sluggish. In the three years after the quake the country was on the path of high-growth trajectory.

According to the paper, there is a risk of inflation due to the expansion in the economic activities and price hike of petroleum products in the international markets.

Gross domestic saving is gradually going down – it was 13 per cent four years ago but is estimated to fall to 6.6 per cent last year. Likewise, capital formation is also reduced from 30.6 per cent four years ago to 27.3 per cent in the last fiscal.

Another troubling fact is the increasing government recurrent expenditure and reduced size of the development budget.

The white paper mentioned that of the Rs. 1087 expenditure in 2017/18, 24.9 per cent was mobilised for development while the utilization of the capital budget in the last fiscal is 19.35 per cent of Rs. 1180 billion. But recurrent expenditure has increased to 72.1 per cent in the last fiscal from 64.1 per cent four years ago, said FM Sharma.

Trend of massive capital budget mobilization during the last month of the fiscal year continues despite multiple policies and initiatives.

The white paper noted that employment and economic activities did not increased in line with the expansion of loan from the banks and financial institutions. Similarly, a large part of the loan is limited to a few individuals of selected locations and common people have poor access to finance.

In the last five years, government debt is increased to Rs. 1729 billion from Rs. 698 billion – a huge jump from 22.7 per cent of the Gross Domestic Product of the country to 40.5 per cent of the GDP. However, there were no significant achievements made from the debt obtained.

According to the paper, there was a need for policy reforms to attract more Foreign Direct Investment and attract manufacturing industries to the capital market.

The government has mentioned that the relief and rehabilitation programmes for the COVID-19 affected business and people were insufficient.

Foreign trade

Trade deficit is widening due to poor export and high imports. Export-import ratio, which was 48 per cent in fiscal year 2000/01, has dropped to 9.2 per cent in fiscal year 2020/21, read the white paper.

This fact has declined the competitiveness of Nepal’s exports. The export has reached Rs. 141 billion (3.3 per cent of GDP) in fiscal year 2020/21 while it was Rs. 73 billion (2.4 per cent of the GDP) in fiscal year 2016/17.

The growth of exports has been high in recent times due to the increase in the export of goods  based imported raw materials.

The export has reached Rs. 1,540 billion (36.1 per cent of the GDP) in the fiscal year 2020/21 while it was Rs. 990 billion (32.2 per cent of GDP) in the fiscal year 2016/17.

In fiscal year 2020/21, the share of capital in imports was 14.8 per cent and the share of industrial goods was 37.2 per cent.

It has been acknowledged that there has not been enough focus to increase domestic production of food grains, vegetables, fruits, fuel and other domestic products and reduce imports.

Balance of payments and foreign exchange reserves

The volatility in imports, exports and remittances is reflected in the balance of payments situation. Due to the slowdown in consumption and economic activities due to the COVID-19 pandemic, the balance of payments remained in surplus of Rs. 282 billion in the fiscal year 2019/20.

However, due to higher expansion in imports and contraction in service income, the balance of payment has been in deficit of Rs. 15.15 billion in the eleven months of last fiscal year 2020/21.

Similarly, the foreign currency reserves stood at Rs. 1,366 billion in mid-June 2021, compared to Rs. 1,079 billion in mid-July 2017.  The foreign exchange reserves maintained in mid-June 2021 is sufficient to support the import of goods and services for 10 months.

Remittance inflow

The remittance inflow has increased to Rs. 871 billion during the first eleven months of the last fiscal year 2020/21 while the country received remittance of Rs. 695 billion in the fiscal year 2016/17.

Due to the uncertainty in the inflow of remittances, the white paper has been pointed out that a reliable alternative to earning foreign exchange needs to be prepared.

The trend of spending a large portion of remittances on consumption persists. Studies have shown that more than 70 per cent of such income is spent on consumption.

It is mentioned that the contribution of remittance inflow to the economy should be evaluated and it should be attracted to the productive sector.

The White Paper has  emphasised for domestic employment opportunities by utilising the demographic benefits for the economic development of Nepal by gradually reducing the high dependence on foreign employment.

Meanwhile, the government has introduced various relief programmes through budget and monetary policy with a motive to minimise the COVID-19 pandemic’s impact in various economic arenas.

Finance Minister Sharma said that considering the impact of COVID-19 on nation’s economy, the public institutions were also being provided at discounted price.

“However, the government acknowledges that even though the various facilities and schemes were being provided, people under the poverty line, small entrepreneurs, farmers and marginalised groups are still deprived from the facilities,” said Sharma. “Also, the relief and rehabilitation programmes are not enough to revive from the economic and social impact made by the pandemic.”

Sharma said that the government’s first responsibility was to administer anti-coronavirus vaccine to all citizens and ensure availability of all necessary healthcare facilities to protect public health.

“Likewise, reviving the nation’s economy with policy-based improvements and rehabilitation programmes is also in the government’s priority,” said minister Sharma.

 Prepared with Laxman Kafle. Published in The Rising Nepal daily on 11 August 2021.