Deprived and marginalised will be protected

The budget for the Fiscal Year 2019/20 presented at the Federal Parliament on 29 May has given top priority to the social security, infrastructure development, strengthening the federal structure, and industrial and agricultural development. But what is making rounds in the media and society is social security. Though the estimates of income and expenditure of the government have drawn mixed reactions from different sectors, it has been largely praised for its inclusiveness and focus to infrastructure and industrial development while some have criticised it for not having game changer projects.

In this backdrop, former Finance Minister Surendra Pandey at the Gorkhapatra Sambad, a weekly dialogue of the Gorkhapatra Corporation, elaborated various positive aspects of the budget.  Excerpts:

Finance Minister Dr. Yuba Raj Khatiwada said that the budget of the coming Fiscal Year 2019/20 was 'socialism-oriented'. What should we understand by that philosophy?

The present government is trying to make some efforts towards creating an equitable society. We are not saying the divide between the rich and poor will be addressed overnight, nor do we want to make a society like in China but would like to begin the creation of a society where every individual will have a dignified life.

People in the lowest rung in the society must be supported by the government in order to help them raise their living standards.  The government doesn't want to create confrontation between the rich and poor but would create an equitable society through different measures such high taxes to the rich and welfare to poor. It should adopt a protectionist policy for the deprived sectors and marginalised communities. The budget aims at alleviating poverty through different measures. The ultra-poor must be lifted with livelihood opportunities and welfare projects.

Including senior citizens, single women, disabled, marginalised communities like Raute, a total of 2.2 million people, will get Rs. 64 billion a year. Similarly, more than Rs. 3 billion is allocated for scholarships in schools, and about Rs. 2 billion to support women during pregnancy and delivery. In total Rs. 100 billion is set aside to fulfil the social security requirement. This is huge money since it covers almost 10 per cent of our total revenue. Even the richest countries do not allocate budget of that size for social security.

The second important factor is capital creation. Nepal is poor in capital formation. We spend Rs. 9 out of Rs. 100, so saving is also low. The government should facilitate the private sector in the capital formation and should invest in the projects for the same as well. If there is 30 per cent or more value addition, it will help in capital formation. Our current focus is to create as much capital as possible. The budget of the next fiscal year 2019/20 has followed that principle.

No industrial areas were established after the restoration of democracy in 1990. Land has become an instrument of capitalist and used by people to earn money in an easy and faster way. The industrialists are facing hard times to manage land for their business ventures so the government will provide land to the industrialists in the industrial zones. Expensive land has two-sided impact: the land won't be used for agriculture since the investment will be very high and cost of setting up business will go up which might discourage the industrial development. Therefore, the government has planned to establish industrial zone in seven states and industrial village in each local level.  

There have been trends to present a large size budget and revising the size and most of the targets in the mid-term evaluation. Are we developing trend of budget revision? And, how does the government tackle with the shortage of resources to meet the demand of the large size budget?

So far as the size of the budget is concerned, it would have gone up to Rs. 1.9 trillion, if I were the finance minister. The government has to address myriads of aspirations of the people and the size of the budget seems inflated. I think it is natural. Revenue will go up to Rs. 1 trillion this year. We have 20 per cent average revenue growth rate. The government is set to formalise the informal cross-border trade which is equal to 40 per cent of the total trade. There is a huge leakage at the customs and border points.

We have external loan of 15.5 per cent of the GDP and internal loan of 13 per cent so we have enough fiscal space. We can manage resources needed for development. The government must not afraid of obtaining loans but should be worried about the proper utilisation of the borrowed money. Large economies like the United States of America and Japan have loan more than 100 per cent of their GDP.

But the problems lie at the capital expenditures. Performance of the capital budget is not well. However, I am hopeful that the new political arrangement for spending budget through the local units will help boost up the capital expenditure. The situation persisted in the current fiscal year due to the delay in managing human resources at the state and local bodies.

To fully utilise the capital budget, the government agencies at the Federal level must disburse the money by the beginning of the fiscal year. Now the Finance Ministry should disburse the money to the projects directly, staff must be stable, and they should not go for leave during working season.

The government is spending a large amount of resources in the unproductive sectors like social security while the budget lacks new game changer projects. Would you like to comment on it?

Welfare facilities help in checking the social unrest and prevailing peace. However, there must be a balance between our income and expenditure. Economics is the management science responsible for the equitable income and distribution. Another element is choice, which is managed by a wise decision of an individual. The same thing happens with the government.

We need to give more attention to agriculture to substitute import of about Rs. 100 billion agricultural goods. This budget has given priority to irrigation projects and river diversions which will increase the production within a couple of years. Nepal's productivity will be enhanced with the irrigation projects like Ranijamara Kulariya and Sikta.

Monetary value of time should be considered and the projects that are being implemented should be completed first. The budget has assimilated this fact and set to complete the multi-year projects. The country is bearing a huge cost overrun with the time overrun. Therefore, the focus of the budget is to complete the pending projects, however, Sunkoshi Marin Diversion has been announced as a national pride project.

I would like to tell you that the mind-set of bureaucracy is the greatest challenge which only knows the rules not the business. It is always concerned to the process not the result. Bureaucracy must be proactive and able to understand the demand of the time since we are competing with better economies in terms of attracting investment and tourists. But the reality is otherwise.

Finance ministers for long time have been telling that the country has a huge fiscal space as it has a small loan liability, therefore, it can borrow a significant amount of funds to meet its developmental need. But the reality is we have failed to spend the capital budget which is about Rs. 350 billion to Rs. 400 billion. What is wrong with the system?

Absorption capacity of the government is weak. The country can't spend the budget allocated to the development projects. Unskilled politicians and bureaucracy are the major reasons behind the poor performance. When it comes about implementing development projects, leaders and bureaucracy should have the capacity to understand the technical and financial aspects of project implementation. Municipality representatives must know about the housing standards. We need the tunnelling technology due to difficult mountain terrain across the country, but we lack tunnel engineers. So, the engineers of the Department of Roads do not propose tunnel since they lack the technical knowledge about it. But the overall drive should be managed by the politics. I am for reducing the size of government staff and increasing their pay.

There is no alternative to enhancing the spending capacity and we need to motivate the bureaucracy with capacity building and better payment.

How can the situation be improved?

The first thing we need to disrupt is education which is fundamental to create the required skilled human resources. The world is moving to the fourth industrial revolution led by Artificial Intelligence. The country must produce competitive skilled manpower which fit in to the modern technological setup and understand the demand of time. At the same time, we need to have leaders, bureaucracy and civil society who can understand this.

Similarly, if the implemented tax rate create challenges in business and obstruct the growth, the government will reconsider them.

Tourism has got less priority in the budget at the time when the country is going to celebrate Visit Nepal Year 2020.  Why it is given less priority?

You are right. The budget has given less priority to tourism sector. I don't know the reason, but tourism has received less funds. The country needs to invest in aircraft, aviation infrastructure, hospitality and transport. The tourism areas must have better infrastructure, security and tourist-friendly environment.

How can the government' announced 500,000 employment created? Almost every government had announced to generate 400,000 to 500,000 jobs in the past but all of them failed.

It does not mean that the government will create all jobs by itself. It will create an environment where private sector can prosper and create more jobs. Private sector growth will increase employment opportunities. At the same time, infrastructure like Mid-hill Highway will create significant employment. Therefore, the government has given high priority to the completion of large infrastructure projects.

Employment information centres in the country are not perfect, they fail to provide timely and relevant information. They need to be reformed.

Published in The Rising Nepal daily on 3 June 2019.