Finance Minister Janardan Sharma on August 10 presented a white paper (swet patra) or the ‘Information on the Current Economic Situation of Nepal’ which depicted a bleak situation of the national economy amid the ongoing COVID-19 pandemic. According to the white paper (prepared by the bureaucratic and technical team at the Finance Ministry), Nepal’s public borrowing has reached 40.5 percent of the country’s gross domestic product (GDP), with the national coffer registering a deficit of NPR 143 billion. Presenting the paper at the House of Representatives (HoR), the Finance Minister also highlighted that out of the public debt worth NPR 1.729 trillion, NPR 928 billion accounted for external loans while the remaining NPR 801 billion lied within the government’s financial liabilities on the domestic sector. The paper also depicted the short-fall in revenue collection by the previous government. The previous government had managed to collect only NPR 829 billion in revenues in fiscal year (FY) 2020/21 which was not adequate enough to meet the recurrent expenditure.
Similarly, the fact paper has also revealed that the consumption-to-GDP ratio, which was 87 percent during fiscal year (FY) 2016/17, had gone up to 93.4 percent in fiscal year (FY) 2020/21 and that the household savings-to-GDP ratio had slumped to 6.6 percent in fiscal year (FY) 2020/21 from 13 percent in fiscal year (FY) 2016/17. Likewise, the ratio of national savings-to-GDP, which stood 41.7 percent in fiscal year (FY) 2016/17 has dropped to 31.4 percent in fiscal year (FY) 2020/21. Focusing on poverty, the finance minister also revealed that roughly 18.7 percent of the total population (across the country) are still living below the poverty line further increasing their risk of staying in that category due to the pandemic. Moreover, the finance minister strongly refuted the economic target set forth by the previous Oli government as unattainable considering the ravaging effects of the pandemic on the country’s economic and productive sectors. The Minister was quoted saying, ‘A growth target of 7 percent for fiscal year 2021/22 is unlikely to be achieved’.
This is not the first time that a white paper has been presented by an incumbent finance minister. Back in 2018, the then finance minister Yubaraj Kathiwada too presented a melancholic picture of the national financial and economic situation, stating that the national coffer had been left practically and technically empty. Back then, the major concerns impeding the national economy was a ballooning trade deficit; ever-increasing consumption expenditure which stood at a staggering percentage i.e. 90 percent of the total GDP; preferential credit distribution to manufacturing and construction sectors (which constituted 16.3 percent and 10.6 percent of the total credit respectively); expenditure to revenue ratio of 110 percent; inflation of administrative expenditure by 17 percent; ineffective utilization of capital expenditure with 70 percent of development budget spent in the last quarter; and inefficient utilization of foreign loan and grant i.e. utilization of only 27.4 percent and 32.4 percent out of the total respectively.
While the 2018 white paper had brought various narratives to the national limelight, the highlight of the fact paper was identified as the attempt of the then finance minister in discrediting the previous government in their policies and programmes. After the formation of the Oli government in 2018, finance minister Yubaraj Khatiwada took little time in profusely blaming the previous government (led by Sher Bahadur Deuba) for fiscal indiscipline and leaving the state of coffers ‘virtually empty’. Kathiwada back then tried to defend his white paper by stating that the paper was curated without targeting any particular party but rather by focusing on the existing micro- and macro-economic woes impeding the economy. Despite such assurance, he was unable to separate politically influenced misinformation of facts and figures, which onehandedly crushed down investor’s confidence in the economy. In particular, what stood out the most in the 2018 white paper was the contradicting information presented in the white paper as compared to the seven months data released by the Nepal Rastra Bank (NRB) just a week before the paper was presented at the House of Representatives (HoR). According to the seven months data for fiscal year (FY) 2018/19, Nepal’s national treasury was operating at a surplus of NPR 301.64 billion (which roughly included NPR 84.25 billion in Local Authorities Accounts). In simpler terms, during that time, the economy was actually enjoying a significant fiscal space with public debt at 27 percent of the gross domestic product (GDP). This had raised serious enquiries into Kathiwada’s narrative of a failing economy alongside questioning the credibility of the central bank as a fair and autonomous agent of the government. Moreover, Khatiwada’s outright allegation on the Deuba government for the derision of privatization which was deliberately brought in after the adoption of privatization policy was also deeply scrutinized by several lawmakers and economist likewise.
Considering this, economic and financial experts who had been keenly observing and following the national economy were in anticipation of criticisms on the new white paper. As a repetition of history, finance minister Sharma too has been accused of using the white paper as a tool of revenge to discredit the previous government (primarily by the opposition forces). However, Minister Sharma has strongly stated that the national budget presented by the previous Oli government was deeply concentrated on approving policies and programmes that suited the CPN-UML government; completely discrediting the formulation, finalization and implementation of national policies and programmes by them. To solidify his white paper, minister Sharma has also made public the practice of data manipulation by the Oli government; questioning their credibility and their attempt in hiding the government’s failure in pursuing clear policies. The biggest reveal by minister Sharma has to be in the foreign trade sector where he has disclosed the ever-increasing trade deficit of the country (of around NPR 1.26 trillion), which the Oli government was hiding under the pretext of increasing exports (NPR 121.25 billion) as compared to a bloated import of NPR 1.38 trillion in the past 3 years.
The issuance of white paper to show the stark reality of the national economy and financial situation has been a common phenomenon in federal Nepal. With limited capacities and resources, coupled with overall federal neglect; documentation of local, provincial and federal government has been a huge challenge. This in turn has been impeding the periodic development plans and the short-, medium-, and long-term expenditures of planning and budgeting. Moreover, the innate practice of blaming and discrediting the previous government for economic failures has reduced the public’s confidence in fiscal discipline and financial governance. Amidst such scenario, the Deuba government is anticipated to stay in power for one and half more years; providing the finance minister with ample opportunities to steer the economy towards the right direction. Thus, the finance minister needs to initiate stronger political and diplomatic efforts to solve the current economic crisis brought in by supply constraints and prolonged lockdowns. For this, resource mobilization, enhancement of internal/domestic production, stable financial and monetary policies and techniques, transparency in financial systems, sound business and investment environment and most importantly prioritization of the nation-wide vaccination drive to revive economic and productive sectors will be imprudent.