Economy welcomes new Finance Minister Dr. Khatiwada with gloomy picture; forecast of growth rate reduced to 6.0 from 7.2%, budget shortfall of Rs 35.47 arba against last years’ surplus of Rs 40.22 arba
Thu, Mar 8, 2018 12:13 PM on Latest, Featured, Corporate, External Media,
Soon after arriving at the office, the newly appointed Finance Minister had a daunting task of sharing to the whole nation that earlier predicted economic growth rate of 7.2% has to be downgraded to 6% this fiscal year.
As per the bi-annual evaluation of the budget for the current fiscal, the Ministry says that negative impact of floods to seasonal crops is showing an economic growth rate of lesser than the target. The economic growth rate for the year was targeted to be 7.2%.
Likewise, inflation during the review period remained at 3.5% while it is estimated to climb to 6% at the end of the current fiscal year. Furthermore, inflow of remittance has decreased by 0.5%.
During the period, export of goods increased by 13.4% and import by 15% leading to an increment in the trade deficit by 15.1% to reach Rs 493.02 arba. Foreign exchange reserve also decreased by 1.1 while government expenditure increased by 45.5%.
However, revenue collection increased by 20.73 per cent, leading to a budget deficit based on cash flow to Rs 35.47 arba. The expenditure during the period was only 31.23 % of the total budget, including 41.20 current, 14.35 capital and 14.41 5 % in fiscal measures.
Why low forcast?
Though the preliminary forecast of 6 percent is lower than the initial target of GDP growth in the budget speech, it is still higher than the forecast of other multilateral institutions like the World Bank and the Asian Development Bank who have said that the growth is likely to average around 4.5 percent.
The budget for the current fiscal year that targeted to achieve 7.2 percent economic growth through increase in public expenditure and promotion of private sector investment could not be implemented as expected.
As the Nepal government was focused on holding the elections of parliament and provinces, development expenditure could not be put to use while the recurrent expenditure surged unexpectedly. Similarly, the macroeconomic indicators were not satisfactory as there was slackness in the collection of taxes, rise in import and fall in exports growth, fall in remittances and balance of payment and current account slipping into negative territory. So, it seems difficult to achieve the growth target.
A Massive budget deficit and Finance Ministry’s corrective measures
The government faced budget deficit of Rs 35.47 arba at the end of first half of current FY, compared to a surplus of Rs 40.22 arba in the corresponding period of previous FY.
Releasing the mid-term review report of the budget for the current fiscal year yesterday, the Ministry of Finance announced measures to address the overall budget shortfall. The measures include cutting of budget for purchase of furniture and fixtures, new computers, laptops, printers, procurement of software, tightening foreign junkets from the government budget, restriction on transfer of funds and reform in revenue mobilization.
The shortage of fund is mainly the result of the surge in recurrent expenditures, fiscal transfers to sub-national governments and faulty accounting of carried over surplus fund of nearly Rs 102 arba from previous FY.
Moreover, the decisions have been made that the projects failing to spend will be asked to surrender the allocated budget. Likewise, the full amount of domestic debt would be raised by ministry of Finance, departing from the trend of previous years when the internal borrowing remained below the target set in the budget speech. The government can now make internal borrowing of Rs 30.21 arba only.
Another measure announced in the mid-term review as part of plunging the revenue gap is filing of various unutilized funds in the revenue account. It was also revealed that the duplications on the social security programs will be removed and consolidated.
Likewise, the government would be tough on axing recurrent expenses on fuel, maintenance, office stationeries, miscellaneous, consultancy and visits and adopt a policy to not purchase additional computers, laptop, printer, furniture and vehicle for existing offices except the new ones. Similarly, initiatives would be taken to identify the purpose of the unused public money in different government accounts and arrange the transfer to the revenue accounts.
The Finance Ministry is to lay its emphasis on the compliance of tax laws, control of revenue leakage and tax net widening. The remaining dues to be collected would be drawn soon by completing processes and the size of the budget for the upcoming fiscal year would be determined by confirming the source while the projects and programmes listed under the rights of the local level would be identified and budget would be handed over.
During the period, export of goods increased by 13.4% and import by 15% leading to an increment in the trade deficit by 15.1% to reach Rs 493.02 arba. Foreign exchange reserve also decreased by 1.1 while government expenditure increased by 45.5%.
However, revenue collection increased by 20.73 per cent, leading to a budget deficit based on cash flow to Rs 35.47 arba. The expenditure during the period was only 31.23 % of the total budget, including 41.20 current, 14.35 capital and 14.41 5 % in fiscal measures.
Why low forcast?
Though the preliminary forecast of 6 percent is lower than the initial target of GDP growth in the budget speech, it is still higher than the forecast of other multilateral institutions like the World Bank and the Asian Development Bank who have said that the growth is likely to average around 4.5 percent.
The budget for the current fiscal year that targeted to achieve 7.2 percent economic growth through increase in public expenditure and promotion of private sector investment could not be implemented as expected.
As the Nepal government was focused on holding the elections of parliament and provinces, development expenditure could not be put to use while the recurrent expenditure surged unexpectedly. Similarly, the macroeconomic indicators were not satisfactory as there was slackness in the collection of taxes, rise in import and fall in exports growth, fall in remittances and balance of payment and current account slipping into negative territory. So, it seems difficult to achieve the growth target.
A Massive budget deficit and Finance Ministry’s corrective measures
The government faced budget deficit of Rs 35.47 arba at the end of first half of current FY, compared to a surplus of Rs 40.22 arba in the corresponding period of previous FY.
Releasing the mid-term review report of the budget for the current fiscal year yesterday, the Ministry of Finance announced measures to address the overall budget shortfall. The measures include cutting of budget for purchase of furniture and fixtures, new computers, laptops, printers, procurement of software, tightening foreign junkets from the government budget, restriction on transfer of funds and reform in revenue mobilization.
The shortage of fund is mainly the result of the surge in recurrent expenditures, fiscal transfers to sub-national governments and faulty accounting of carried over surplus fund of nearly Rs 102 arba from previous FY.
Moreover, the decisions have been made that the projects failing to spend will be asked to surrender the allocated budget. Likewise, the full amount of domestic debt would be raised by ministry of Finance, departing from the trend of previous years when the internal borrowing remained below the target set in the budget speech. The government can now make internal borrowing of Rs 30.21 arba only.
Another measure announced in the mid-term review as part of plunging the revenue gap is filing of various unutilized funds in the revenue account. It was also revealed that the duplications on the social security programs will be removed and consolidated.
Likewise, the government would be tough on axing recurrent expenses on fuel, maintenance, office stationeries, miscellaneous, consultancy and visits and adopt a policy to not purchase additional computers, laptop, printer, furniture and vehicle for existing offices except the new ones. Similarly, initiatives would be taken to identify the purpose of the unused public money in different government accounts and arrange the transfer to the revenue accounts.
The Finance Ministry is to lay its emphasis on the compliance of tax laws, control of revenue leakage and tax net widening. The remaining dues to be collected would be drawn soon by completing processes and the size of the budget for the upcoming fiscal year would be determined by confirming the source while the projects and programmes listed under the rights of the local level would be identified and budget would be handed over.
