Replacement Budget Bill 2021/22

Posted by : CESIF Nepal


Date :

The Sher Bahadur Deuba government has laid a new bill for Nepal’s annual financial plan. Finance Minister Janardan Sharma on September 10 unveiled a new federal budget of Nrs. 1.632 trillion (USD 13.86 billion) for the ongoing fiscal year (FY) 2021/21, replacing the previous ordinance budget presented by Bishnu Paudel (the then Finance Minister) under the KP Sharma Oli led administration. Amid protest and agitation of parliamentarians of the opposition party CPN-UML, Sharma in the new budget has downsized the annual financial plan by around Nrs. 15 billion (USD 127 million) as compared to the previous budget of Nrs. 1.647 trillion (USD 13.99 billion). The new bill has revised the following allocation in the estimation of annual income and expenditure for the ongoing fiscal year (FY) 2021/22:

  • Out of the total allocation, the federal government’s current expenditure, capital expenditure and financial management has been revised to Nrs.677.19 billion (USD 5.75 billion) (41.42 percent of the total budget), Nrs. 378.10 billion (USD 3.21 billion) (23.16 percent of the total budget) and Nrs. 189.44 billion (USD 1.60 billion) (11.6 percent of the total budget), respectively. Similarly, 23.72 percent of the total budget has been transferred to meet the expenses of provincial and local governments.
  • Particularly on the income side of the financial plan, the new bill has reduced the proposed internal and foreign debt of the country by Nrs. 37 billion (USD 314 million).
  • Following the footsteps of the previous Oli government, Finance Minister Sharma has retained the increment in social security allowances alongside introducing new allocation under which immediate family members of individuals killed in political upheavals and protest will receive Nrs. 3000 (USD 25.49) per month and patients of ailments including cancer, kidney diseases and paralysis due to spinal cord will receive Nrs. 5000 (USD 42.48) per month.
  • Sharma has brought in new allocations targeting the poor and vulnerable where 10 free lunch spaces is to be built inside Kathmandu Valley and Nrs. 10,000 (USD 84.95) is to be granted to 500,000 families who have lost their sources of income owing to the brutal first and second wave of the COVID-19 pandemic.
  • In a much-applauded move, the new budget has also slashed allowances provided to government officials by 10 percent; wherein the saved amount, Nrs. 5 billion (USD 42.47 million) will be used in procuring vaccines for the nation.
  • Similarly, Minister Sharma has included a provision where tax exemption of up to 100 percent has been ensured on the production of vaccines, medical oxygens, sanitary pads for the first three years of production; followed by an exemption of 50 percent after the first three years.
  • Lastly, the new bill also aims to revive the Melamchi water supply project which had halted its operations owing to numerous flooding and landslides caused by the recent incessant and erratic rainfall.

An Analysis

Overall, the new substitution bill has been heartily welcomed by the private sector. By focusing on policies of transforming the economy from the current import-based model to an income-oriented model, the new bill aims to channel remittances into fruitful domestic and internal productive sectors; reviving micro- and small-scale businesses who were particularly hard hit by the COVID-19 pandemic and its subsequent lockdowns. In particular, the ‘Make in Nepal- Swadeshi’ campaign as introduced in the new bill looks promising for the industrialization, commercialization and development of the traditional industries of Nepal to a more productive and innovative one. The new budget has also touched upon the need to address the ballooning trade deficit of the country which has nearly left the nation coffer practically empty and had reduced the Balance of Payments surplus by Nrs. 281.18 billion (USD 2.38 billion). For this, the new bill has laid provisions to preserve and identify domestic products that have comparative advantage in the international market by providing subsidy and seeds to industries that produce goods from domestically sourced raw materials.

Yet the new bill seems unguided in terms of its implementation. With a growing faction of opposition party dissatisfied with the introduction of the new bill, its practicality and execution remains ambiguous. Although the budget mostly focuses on procuring COVID-19 vaccines and building the necessary infrastructure to ensure medical facilities and services; procurement plan and procedures remains largely absent. Similarly, the provision of low-cost meals and monetary support to 500,000 families seems widely vague. According to a report published last month by the National Planning Commission (NCP) titled ‘Nepal: Multidimensional Poverty Index 2021’, there are currently 18 million people in Nepal (roughly 63.5 percent of the total population) who are facing deprivation of some form in area of multidimensional poverty. Considering this, the monetary aid programme under the replacement budget seems blindly targeted, brought in without conducting any preliminary ground work in identifying individuals across the nations who need monetary aid the most; rendering it similar to the previous populist announcements made to secure electoral votes rather than ensuring welfare of the targeted groups. Likewise, the government’s overtly ambitious growth target of 7 percent seems a distant dream considering the current micro-, macro- and financial-situation of the economy. With international organizations like Asian Development Bank (ADB) predicting Nepal’s growth target to remain at a provisional estimate of 3 percent to 4 percent; the new growth target seems candidly exaggerated. For instance, the government has earmarked Nrs. 378.1 billion (USD 3.21 billion) for capital expenditure which is an increment of only Nrs. 4 billion (USD 33.98 million) (as compared to the previous financial plan laid out by the Oli government); leaving behind huge gaps in the public-private expenditure ratio in meeting the growth target.

Minister Sharma has also failed in downsizing public and domestic debt of the country as per the general expectation. While Sharma vehemently criticized the previous government in failing to reduce both the components (in his August 10 White Paper), the minister himself has only reduced public and domestic debt by Nrs. 37 billion (USD 314 million) and Nrs. 11 billion (USD 93 million), which is not adequate enough to avoid any unforeseeable liquidity crisis that may arise in the economy. The budget has also exerted immense pressure on the collection of revenue. Minister Sharma aims to generate Nrs. 1.05 trillion (USD 8.92 billion) from revenues yet the state mechanism to do so has not been clear i.e. the federal government is yet to allocate rights and policy framework to sub-national governments in carrying tasks and responsibilities assigned to them. In this backdrop, the new budget seems more challenging than achievable, with the government remaining largely misguided in its execution and wildly fallacious in their projections.

Note: The Nepalese Rupee to US Dollar conversion rate used in this article is Nrs. 1 = USD 0.0085