The National Planning Commission, which charts the country's economic direction and long-term development roadmap, is headed by Gunakar Bhatta. Bhatta, who has assumed a central role in policymaking at a time when the economy has slowed down, investment has declined, and job creation has become challenging, is expected to make concrete policy interventions and implement result-oriented plans. Bhatta, an economist and former executive director of Nepal Rastra Bank, has the responsibility of making significant contributions to making the economy dynamic by coordinating between the government, private sector, and development partners. The sluggish economy has not been able to become dynamic, and the effects of the West Asian conflict are starting to be felt. Kantipur's Yagya Banjade and Bimal Khatiwada spoke to Vice Chairman Bhatta about the current state of the economy, reform plans, priorities for the next year's budget, and resource options. You have been entrusted with the responsibility of leading the Planning Commission when there is a strong government with a two-thirds majority. With a stable government in place, it is expected that political stability will prevail and the government will prioritize economic reforms. What are your plans to speed up the economy at such a time? What kind of reforms do you see needed for this?  The main priority at present is institutional strengthening. Promoting good governance and instilling hope in the general public. The second is to work in the field of infrastructure construction. International experience has also shown that investment in infrastructure development increases production and productivity. In Nepal too, development in the industrial sector is seen after 2041 BS. The share of the industrial sector in GDP started increasing in the fiscal year 2042/43. Liberalization after 2048 BS provided an opportunity for the education, health, banking, and financial sectors to flourish along with industrialization. Achieving high economic growth is through the development of an infrastructure sector. In the past, policy reforms helped achieve economic growth. Now, going for economic growth also means investment in infrastructure construction, innovation, and digitization. If we can digitize government services as well as the banking sector, it can accelerate the pace of economic growth. The other is the development of human capital. That means increasing investment in quality education and health. Economic development should be balanced. Resources should reach the lagging provinces, regions, and local levels. Large infrastructure projects should be taken forward in a decentralized manner. The role of the commission in this is to coordinate. The commission effectively performs this role. We are coordinating how to support various ministries and agencies in policymaking.  Global geopolitical tensions and the increasing conflict in West Asia are seen to add multifaceted challenges to Nepal's economy. Due to the disruption in the supply chain due to the conflict, the price of crude oil in the international market has increased by about 60 percent in a month, putting pressure on domestic prices. This seems to further affect the Nepalese economy, which is dependent on chemical fertilizers. How has the government viewed minimizing the impact on the Nepalese economy? 

This conflict is seen as the third shock of the century at the international level. The impact of the 2008 financial crisis, the COVID-19 pandemic, and the current conflict in West Asia have been seen on the global economy. It seems that after every crisis, the global economy takes time to recover. If we look at the 2008 crisis, its impact was seen for 5/7 years. The impact of COVID is still being felt. This impact may last for a long time. Its impact has been seen in terms of price hikes and contraction of economic activity. At the international level, its impact may be greater in price hikes. The longer the energy crisis goes on, the greater the impact. Initiatives are being taken at the international level to resolve it as soon as possible. Despite the increase in the prices of petroleum products, the supply system has not deteriorated. However, the government is very vigilant to minimize potential risks. 

What is the government's preparation for minimizing potential risks?

Work is being done to manage supply in a coordinated manner. We are understanding this with the Oil Corporation. The government is working to make the supply and sale of petroleum products systematic. Although price management is challenging, relief has been provided by modifying infrastructure taxes and customs duties to make the lives of citizens easier. Consumer awareness has also increased after the government showed promptness in fuel price and sales management. Various efforts are also being made to facilitate the supply of fertilizers required for the agricultural sector. 

There has been no improvement in the long-standing economic slowdown, and the protests of Bhadra 23 and 24 have added more problems to the economy. How do you analyze this situation? 

Our economy is under three types of pressure. First, the private sector is in a state of high debt. The credit extended to the private sector from the banking sector is 92 percent of the gross domestic product (GDP). When loans from the Citizen Investment Fund, Provident Fund, etc. are added, the total credit extended to the private sector has reached 110 percent of the GDP. Second, a large investment by the private sector is trapped in real estate and other assets. It is becoming difficult to get out of it. Third, the government has a lot of obligations to pay. Thus, the private sector is now also at risk of high debt and the government is also under compulsion. It will have to come out of this compulsion. The important steps that the government is currently taking to overcome these problems are institutional strengthening, good governance, and capacity building. 

The general public has started to feel that the services provided by the government have improved. The first need today is to digitize the services as much as possible. The pace that the government has shown in a month has raised hopes among the general public. The roadmap for governance reforms, national commitment, and effective implementation of the 16th Plan made public by the government will make a significant contribution to the country's economic growth. The private sector accounts for about 81 percent of the total investment. What kind of policies should the government adopt to increase the confidence of the private sector and encourage investment expansion? The government has already started showing results in a month. It seems that the government's actions and behavior have raised hope among the general public and people who are sincerely engaged in their professions and businesses. The government is ensuring good governance, which has created an environment for working. 'Crony capitalism' is a long-standing problem in Nepal's economic politics. There should be a relationship between business and politics, but it should not be self-centered. The private sector is the driver of economic development. The government understands this well and wants to move forward with the private sector. The Finance Minister has also said that instead of imprisoning businessmen, financial penalties should be imposed in cases of mistakes. However, contrary to his statement, the private sector is not in a state of distress because the government is arresting businessmen? 

The private sector should not be in a state of distress. If there are some works done for personal gain, if there are deals made for vested interests, then it is difficult for those who do such works. There is no problem for the honest private sector that operates industries and businesses according to the law. Before you came, the commission has given a ceiling of 1890 billion for the budget of the coming fiscal year. But will the new government bring a budget within that limit? 

According to the legal system, the Resource Estimates Committee prepared and gave the budget ceiling to the government. In which 5.5 percent economic growth and 5 percent inflation were used as the basis. Now, we have to move forward by carrying out the second phase of economic reforms and strengthening institutions and building infrastructure. Even keeping in mind the public interest in development and the goal of high economic growth, the size of the budget may increase slightly. 

Before you came, the commission has given a ceiling of 1890 billion for the budget of the coming fiscal year. But will the new government bring a budget within that limit? 

According to the legal system, the Resource Estimates Committee prepared the budget ceiling at that time and gave it to the government. In which 5.5 percent economic growth and 5 percent inflation have been used as the basis. Now, we need to move forward with the second phase of economic reforms and institutional strengthening and infrastructure construction. Even keeping in mind the public interest in development and the goal of high economic growth, the size of the budget may increase slightly. 

The situation of revenue collection and capital expenditure has been critical in recent years. What suggestions have you given to the government to prevent this trend from repeating in the coming years?

Revenue administration or revenue management should be made more efficient. The more efficient we can make revenue management, the more revenue can be mobilized from the current size of the economy. Revenue mobilization as of 16 Baisakh is 925 billion rupees. Revenue of 868 billion rupees was raised in the same period last year. This shows that revenue mobilization was higher than last year despite the pressure of low economic growth. Institutional strengthening is required to increase revenue collection. Revenue administration should be made more efficient. With the formation of this government, overall reforms have gained momentum. The government has set a target of 7 percent economic growth for the next 5 to 7 years. Revenue mobilization will increase as economic activity increases. Efforts are being made to increase the capacity to implement projects to increase capital expenditure. The Prime Minister has shown great interest in development construction. The concerned ministries are also engaged. If we make development administration active and public finance management efficient, a lot can be done.
Customs duty has been levied on goods worth more than Rs 100 in the name of increasing revenue. The government has been opposed saying that this is causing hardship to citizens living on the border. How do you view this? 

It seems that customs management should be made more active. During Covid, the border was made systematic, and the movement of people was tightened. This made our border markets bustling. Even if such a decision causes some problems initially, it will be good in the future. After a few months, it strengthens the internal economy. It helps reduce informal trade. Employment is created when the internal market starts bustling. 

In the current fiscal year, projects that are not included in the project bank and those worth less than Rs 30 million were not included in the federal budget, but they were put through a roundabout way. This year, it has been said that projects worth less than Rs 50 million will not be included. However, MPs are also demanding projects worth Rs 100,000. In such a situation, how do you balance the demand and supply of projects in the budget?

We have set standards for projects that go to the project bank. These include criteria such as an environmental impact assessment (EIA) should be done, a detailed project report (DPR) should be prepared, and the project should be evaluated. The criteria that have been set for listing in the project bank cannot be exceeded. Some small projects are still in demand. But there is no way to include any project that goes beyond the criteria of the project bank. If scattered projects are not prioritized, it will cause problems. Therefore, projects should be prioritized and a cost-benefit analysis should be conducted. In the coming days, when selecting projects, it is important to see how economically sustainable they can be and how socially beneficial they are. We are working on improving the standards.

We want to say that we call them pride projects, but we are very stingy in allocating budget to them. This is why some projects have not been completed on time. What priority will those projects get in the upcoming budget?

The situation of all projects of national pride is not the same. Work on some has not even started. Nothing can be said about those projects. Projects that benefit the state by completing them quickly, they get priority. For example, fast track and some irrigation projects. They should have been given priority, but they have not been completed for years. We think that the projects should be completed quickly. That is also the government's priority now.

It has been 17-18 years since the postal highway was started. Its construction has not been completed yet. There is also a lack of budget in the mid-hill highway, the north-south corridor. How will the government solve this problem of lack of resources?

Now we may have to think about different models of development finance. It is not possible to build all projects from the government's budget alone. Now we can also go to the concept of project bonds. We can also raise resources by issuing green bonds and diaspora bonds. For that, we need to increase our project construction and implementation capacity. We are studying various options for resource management. 

Finance Minister Swarnim Wagle had said a few days ago that budget preparation is challenging as there are mandatory obligations of Rs 1.5 trillion more than revenue collection. People have high expectations of this government now. In such a situation, how will the government manage resources and fulfill the expectations of the citizens? 

It is natural for demand to be high according to public expectations. There is always a limit to supply. This is also the rule of our practicality and economics. The government needs to increase revenue. For that, the scope should be expanded without increasing tax rates. The informal economy should be formalized. Various studies have shown that the informal economy is currently around 50 percent. Earlier, you talked about collecting customs duty on goods worth more than Rs 100 at customs points. This step also broadens the scope of taxes. In some cases, we can make border citizens say that we have no problem paying 5-6 percent tax. By doing this, more people are likely to come into the tax system. Delays in project construction also increase costs. If the pace of construction of those projects is accelerated, the increased costs due to delays in construction can be avoided. Currently, there is more than 1 trillion rupees in the banking system. Interest rates are at their lowest level ever. In such a situation, the government can collect money from the market at cheap interest rates. After the formation of the new government, trust in the government has increased not only at home but also abroad. It is said that having a stable government will bring political stability and economic reform will be given priority. In such a situation, resources can also be raised from abroad by issuing diaspora bonds. In the past, citizens were less attracted to citizen savings certificates and foreign employment savings certificates. Now, citizens are more attracted to purchasing these instruments. 

Now, donor agencies and the international community are also expressing trust and support for the government. This has shown signs of increasing foreign direct investment, portfolio investment, assistance and grants from bilateral and multilateral donor agencies. The country's sovereign rating is also better than many countries in South Asia. If we utilize all the opportunities and possibilities mentioned above, the size of revenue can be increased after one or two years with the expansion of economic activities, even if not immediately.

He said that the informal sector should be gradually converted to formal to expand the scope of taxes. Are there any such plans that can formalize the informal economy? 

The most important task of converting the informal economy to formal is to create electronic payments and a digital economy. Revenue can also be increased and leakage can be controlled by making the revenue system and customs administration more efficient. 

Which sectors and projects are likely to be the government's priority in the next year's budget? 

The main priority is good governance or governance reform. This is also mentioned in the government's 100-point agenda, national commitment and other documents. Good governance includes institutional strengthening, digitization, and managing the informal economy. Another is infrastructure construction. The budget for the infrastructure sector is for projects that can yield quick returns. By allocating budget to those projects, work can be completed on time. Another is investment in the social sector. Investment in education, health and other sectors should be increased in the upcoming budget. 

In the past, this government has claimed to improve corruption and the distortion of appointing its own people to regulatory bodies and public institutions. Even now, under your leadership, the work of selecting the leadership of two regulatory bodies has begun. Now, what is the basis for selecting leadership based on merit and ability, and not on hearsay and transactions? 

The problem in Nepal's regulatory sector is that politics is too dominant. This is the reason for the strong influence and pressure of middlemen in appointments. Such appointments were also made for the benefit of certain individuals and groups. Past mistakes will not be repeated in future appointments. The government has a vision and commitment that the right person should be appointed to the right place based on ability and honesty. This has made it very easy for us. So far, no instructions have come from anywhere to appoint such and such a person. Applications have also been invited following a specific method. 

Applications have been invited for the chairman of the Securities and Exchange Board of Nepal. This happens when a person with a conflict of interest does not show interest in the chairman of the board. How can a person involved in securities trading manage the market after becoming the chairman of a regulatory body? The expected good governance cannot be maintained by such a person. To maintain institutional good governance, it cannot be 'fishing with dynamo', that is, doing anything to make easy money. People with conflict of interest cannot work honestly if they lead the board. This will put an unnecessary burden on the government tomorrow and will also raise questions about the people who make the selection. 

In 1995, there was a crisis in the banking sector in Paraguay. After the head of the central bank there was removed, another governor was appointed. Then, it was found that the other governor who was appointed also had a conflict of interest. From 1995 to 1999, 15 banks were closed there. Later, an investigation showed that the governor appointed in 1995 had a large investment in one of the banks. Therefore, there was no good regulation and supervision in the banks during his tenure. Instead, mistakes were covered up and hidden. This caused problems in the entire banking system. When there is a conflict of interest, the regulatory bodies cannot work effectively. We are vigilant to ensure that such a situation does not occur in Nepal. 

The previous government, like you, had been claiming that appointments were made by making procedures, submitting all documents, presenting work papers and completing all the processes including interviews. How can citizens believe that the current appointment is different and transparent than before? 

I say with claim - the current appointment is made on the basis of merit. Because politics is not dominant in appointments now. Middlemen are not dominant. We look at the image of that person in society along with ability and competence. Since there is no possibility of appointment under pressure and influence from anyone with conflict of interest, we recommend good people for appointment to the Securities and Exchange Board of Nepal.

It is said that we will be upgraded to a developing country in 2026. The idea that we will not be upgraded next year after the Gen-G movement has come from the private sector. Therefore, the private sector is demanding an extension of the deadline for upgrading. What is the government's view on this matter?

Looking at the commitments made so far, it means that we will definitely be upgraded to a developing country. Nepal has fulfilled all three criteria set for upgrading. The government has also made a special strategy for upgrading. That strategy has been made for 2024 to 2030. However, upgrading is also an opportunity for Nepal to build its image in the international world. How long will it continue to be a least developed country? There is an argument that becoming a developing country will increase our presence and capacity in various countries and international forums. Another argument is that due to being least developed, we were getting free access (quotas) to international trade, concessional loans, aid, grants and other facilities. These may be affected after upgrading. Therefore, there is also an argument that upgrading will not happen immediately. Further discussion and analysis is needed on this issue. 

If we say that we are not ready, should we not upgrade? 

In today's situation, the indices have not shown that upgrading will not happen. If we think that we have more benefits now than after upgrading, we may have to think about that too.

The country is on the FATF blacklist. It is said that the government has not done enough to get out of it. In such a situation, how is the government prepared to get out of the blacklist on time? 
The government and its subordinate bodies are working to get out of the gray list within the time specified by FATF. For this, a 'Risk Assessment Report' has been started. Currently, intensive work is being done on it. I have received information that the report has been prepared in advance. The formation of this government, its commitment to good governance, efforts for governance reform, and the readiness seen in recent times are also sending a good message. Regulatory supervision of sectors such as casinos, precious metals trading, real estate business, cooperatives, hundi, etc. should be made more effective. The government is also working on that. If we can finalize the action plan set by FATF according to the pace of good governance that the government is currently taking forward, we can quickly get out of the gray list. 

The government has started distributing salaries and allowances to employees every 15 days, what is the purpose of this? 

The government has decided to make the cycle of consumption of citizens more active. This is also a successful international practice. Currently, this system has been started as a trial. The government is preparing to implement the same system at all three levels of government and in the private sector. Salary distribution on a fortnightly basis is seen as more necessary in the private sector. This system will make it easier for employees, make business and business more dynamic. It will facilitate the consumption trend of consumers and increase confidence. It will have a positive impact on the economy. 

From time to time, the issue of abolishing the National Planning Commission is raised. Should you strengthen the capacity of the commission that you are leading or think of alternatives? What is the government's view?

Trust and interest in the commission has increased everywhere. Therefore, the commission will show its presence and work in a strong manner by strengthening its role. 

Will the current legal structure be sufficient for the reform of the commission or should some policy reforms also be made? 

Some legal reforms may be required. Coordination is being done for this. It seems that the commission has to do three main things. The first is data management. Although the Statistics Office is managing national statistics, coordination between the data-producing agency and the commission needs to be increased. Second, it should focus on policy formulation and research, and third, everyone expects the commission to monitor the implementation of development projects. We are thinking of strengthening the commission in this role.