May Analysis: Economy and Development


Timeline of major events in May.

May 04The Ministry of Labour, Employment and Social Security increased the minimum monthly wages of labourers by 11 percent; from NPR 13,450 to NPR 15,000.
May 07The Ministry of Industry, Commerce and Supplies held high-level talks with its Indian counterparts to ensure continuous food shipments to enlarge storage facilities and food reserves.
May 12Nepal Rastra Bank released the ‘Current Macroeconomic and Financial Situation of Nepal’ which recorded remittances received, current account deficit, and consumer inflation at NPR 729.02 billion, NPR 207.41 billion, 3.10 percent, respectively.
May 13Nepal Investment and Himalayan Banks merged to form Himalayan and Nepal Investment bank, with a combined paid-up capital of NPR 26.14 billion.
May 16Ministry of Finance allocated NPR 4 billion towards the prevention, treatment and control of COVID-19.
May 24Department of Customs released foreign trade data where exports and imports stood at NPR 108.47 billion and NPR 1,245.11 billion for FY 2077/78.
May 25NEPSE reached an all-time high of 2,823.06 points, with share turnover exceeding NPR 13 billion.
May 28PM KP Oli unveiled ‘Policies and Programs 2078/79’ for the upcoming national budget.
May 29Finance Minister Bishnu Poudel presented the national budget of NPR 1,647.57 billion for fiscal year 2078/79.

National Budget-

The Finance Minister presented a NPR 1,647.57 billion budget for the new fiscal year 2078/79, with focus on controlling the COVID-19 pandemic and accelerating the recovery path for the economy. Presented via a televised address instead of the regular presentation at the House of Representatives, the budget prioritizes on citizens first (to save lives), promoting social security, and utilizing public and private resources to increase overall productivity. Out of the total budget for fiscal year 2078/79, the government has earmarked NPR 374.26 billion for capital expenditure, NPR 678.61 billion for recurrent expenditure, and NPR 207.97 billion for the financing. Similarly, NPR 386.71 billion has been transferred to the provincial and local governments, with NPR 325.74 billion in equalization grant and NPR 60.97 in conditional grant. Meanwhile, the government has set revenue target at NPR 1,024.90 billion; seeking NPR 63.37 billion through foreign grants, NPR 309.29 billion through loans, and NPR 250 billion through domestic loans.

Table 1: National budget over the last five fiscal years

Fiscal Year (in Nepali B.S.)National Budget (in NPR billion)
2076/77                             1,530.00

                                                                                                                 (Source – Ministry of Finance)

Highlights of the budget-

The government in its new fiscal has anticipated a growth rate of 6.5 percent, with per capita disposable income to reach USD 1,486. The budget has provided utmost importance to health sector by allocating NPR 122.77 billion; with NPR 26.55 billion to procure COVID-19 vaccines, alongside waiving all previous taxes imposed on import of oxygens and medical equipment’s. Similarly, agriculture and education sectors have been allocated NPR 45.09 billion and NPR 180.04 billion, respectively. Likewise, NPR 14 billion has been provided for widening labour and employment opportunities, with NPR 400 million separated for skill development training. The budget has also promoted establishment of industries in ‘Special Economic Zones’, by allocated NPR 2.77 billion for the development of industrial infrastructures. Moreover, the government has allocated NPR 43.54 billion towards maintenance and distribution of water resources.

In its positive aspect, the government has allowed for a 33 percent increase in all types of social security allowances, besides increasing senior citizens allowances to NPR 4,000 per month. Youths have been granted with NPR 2.5 million in loans at 5 percent interest rate (on completion of bachelor’s degree); and NPR 80,000 in loan at 1 percent to buy laptop. Similarly, to lessen the burden of hospitality and tourism businesses, the budget has decided to levy 1 percent income tax on hotel and aviation industry; with new businesses receiving 50 percent tax exemption in their first year and 25 percent exemption in their second.

An analysis-

While the budget does reflect major improvements, some of its aspects need serious reconsideration. The growth target of 6.5 percent is too ambitious for a country fighting through its brutal second wave of COVID-19. Primary estimates have shown a possible growth rate of 3.9 percent in fiscal 2078/79; reflecting the new growth target to be guided by unrealistic assumptions and expectations. Similarly, the budget has cut down its job creation target. The government aims to create 350,000 new jobs when 500,000 active labourers enter the labour market every year; contradicting their own schemes and estimates and relying too much on the ‘Prime Minister Employment Programme’ to cater employment for all.  The budget has also failed in addressing the needs of micro, cottage, small and medium enterprises. With only 2-5 percent of such enterprises benefitting from previous refinancing facility, the sector is skeptical in receiving concessional loans and funds that has been promised to them.

For most of it, the budget is primarily seen as a measure to expand the voter base by the KP Oli administration in the upcoming November elections. Brought in through an ordinance, the budget has very strategically allowed for an increment in social security and salary hike to please certain sections of the society. Similarly, eliminating of excise duties on electric vehicles (EVs) to boost its sale comes as a policy measure of little importance, considering other crisis currently being borne by the economy. Likewise, there is also a major repetition of previous programs and promises under the new budget’s ambitious policy, including- building a 300-bed epidemiological hospital (in Kathmandu), making arrangements to promote skill building trainings, allocating funds towards building of fly-overs and tunnel roads (in ring-road), which all failed to kick-off as promised by the previous one. Thus, while the new budget has been received as a long-cherished dream, by the general public and the private sector like-wise; its intention and target look fundamentally skewed, with very little emphasis and research done on its viable implementation and execution, leaving all skeptical in its outcome.

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