Budget, Monetary Policy and Prosperity

The current and imminent, alarming but not immediately dramatic data and indicators of the economy should make the political forces and leaders in the government serious about reforms. Decades have passed since the Nepali people did not experience even this minimum seriousness and caution of the rulers.

Let's look at the latest statistics. In the first eleven months of the last financial year, while the import was worth 14 trillion 54 billion rupees, the total export was only 1 trillion 40 billion rupees. Nepal is the country with the widest trade deficit ratio in the world. In the recently ended financial year 2080/81, adding up to the speed of development, only 63 percent or 1 trillion 92 billion rupees of the allocated 3 trillion 2 billion rupees development budget could be spent.

Only 10 trillion 30 billion of the revenue target of 14 trillion and 22 billion rupees, i.e. 72.43 percent of the target, could be raised. As the government fund is empty, the big contractors who worked on public construction are complaining to the government that they have not received payment of about 60 billion. Dairy farmers across the country are on street protests after not being able to collect their dues of Rs 4 billion. The problems of meter-banking victims, cooperative victims and microfinance victims are gradually becoming political weapons of the parties. Governments of all colors seem to have the same intention of not solving the problem politically and setting aside a committee or commission.

Behind these disappointing facts and figures, there are reasons related to legal, institutional and governmental capacity. This includes the need for long-term strategic plans for the expansion of revenue/income sources, which can be improved immediately by increasing institutional capacity and government effectiveness, from the situation of capital allocation and capital expenditure, which is possible only through intensive and gradual improvement. For this, the paramount purpose and justification of political parties of both natures who want to stay in the government or want to change the government should be to make the economy viable.

However, the formation/dissolution of the power equations of unstable speed is not only continuing the situation where the economy reform agenda is not included, the economic condition of the country has ceased to be the main interest of the top leadership. Even the hope of forming a common political understanding so that the change of power does not hinder the pace of economic development is a mirage. For this reason, there has been an adverse effect on the implementation of resource planning schemes and the regularity of public service delivery. The search for new economic resources and investment promotion have become beyond imagination.

Budgets without dreams

Finance Minister Varshman Pun, who recently came out of power, presented a budget of 18 trillion 60 billion rupees for the next fiscal year 2081/82 on May 15. It is a contractionary budget in all aspects of physical development, economic growth and expansion of economic activity. Especially the proposed capital expenditure of Rs. The amount of 3 trillion 52 billion is exactly equal to the amount proposed five years ago in the financial year 2077/78. However, if we look at the exchange rate of the US dollar (1 dollar = Rs. 120 at the beginning of that financial year and now 1 dollar = Rs. 134), the proposed development expenditure at that time has decreased from 2.93 billion dollars to 2.62 billion dollars, i.e. by 7 percent. has decreased. The size of the budget also increased slightly from 12 billion 28 billion dollars to a total of 13 billion 88 billion dollars.

Or, the size of the proposed budget has only increased by 13 percent in five years, or an annual average of 2.6 percent. In terms of actual spending, there has been no progress in budget size expansion and implementation over the past five years, rather a general contraction. The government changed 6 times in these five years. But no government was interested in seeing and showing a general dream of development except exploiting the malnourished economic system for the benefit of a limited circle of powerful people. What other evidence should be sought for this bitter reality than the figures above?

Ironically, the finance minister who brought a very contractionary budget like this financial year started to be thanked for bringing a 'practical and resource-friendly' budget. Certainly, the state's traditional sources of revenue are drying up. Due to the deterioration of Nepal's government's credibility, the flow of foreign aid has decreased significantly. And private investment is not growing because of the persistently ambiguous view of unfettered rights over private property, especially in communist politics here. Capital flight has increased in imaginary imports.

Year after year, even in the absence of a catastrophic disaster or emergency, there is no need for the government to resort to the ritual of continually shrinking plans and budgets. It is the first duty of every honest government to identify and mobilize non-traditional economic resources, make adequate use of existing economic capabilities and win the trust of development partners. Even this basic qualification has not been demonstrated by the same indolent governments that are constantly being 'cloned' by the political industry here.

Now the country's two biggest parties have formed a powerful government. If this political power cannot focus on solving the country's most pressing problem, the recession-ridden economy, then this equation will have no meaning. Unfortunately, the new government has not tried to think in a new way and to utilize the three strengths created in the economy through the financial policy itself.

First, there is no thought of making an action plan to use the easy foreign exchange reserves as a tool for the general credit rating of the country and foreign investment attraction. Second, the importance of collaboration with the private sector to develop risk-free 'financial services products' that invest the at least 7 trillion rupees available in the banking system into the productive sector has not been overlooked. And third, the political will to effectively institutionalize economic diplomacy to win the trust of development partners sitting with aid bags in their hands is not manifesting anywhere in practice.

This year's budget did not include any plan to address the clearly identified problems of public procurement and expenditure transparency, which have been faced equally by the federations and local governments, where capital expenditure cannot be incurred. No meaningful initiative has been taken to develop the local and regional structures as units capable of running their 'own economies'.

It is now too late to create a legislative and administrative roadmap for a radical restructuring of the financial structure. It is necessary to free the economic and political discourse of the country from the mirage of words and mirages to achieve economic growth and social prosperity by investing in a socialist-oriented economy, three-pillar economic structure model with cooperatives and microfinance model. Its image should be exposed to everyone in planning, budget and monetary policy. Politics without a vision is doing the job of suppressing this 'discourse'. The parties may seem different but the ideological distinction has now been homogenized in the lust for power.

The role of the monetary authority

The debate on monetary policy in Nepal is limited to whether it is contractionary or expansionary? Inflation targeting (inflation targeting), the use of crypto currency and the possibility of complete convertibility of the Nepali currency have not been sufficiently debated and proven. The reason for this is that the role of the Central Bank or Monetary Authority of Nepal needs to be clarified and made more objective.

First, what policymakers need to be clear about is that monetary policy is not a substitute for development finance policy. If the state needs a concessional, concessional preferential investment strategy, then the finance policy should take responsibility for formulating it. Therefore, the country's monetary authority should not be expected to act as a development finance service provider. Failure to end such self-interested practices undermines the core function of the central bank.

Second, the monetary authority of the country should be unconditionally given the regulatory role of the entire financial system in a real sense. Most of the distortions that have come to the surface in the monetary economy and financial system of Nepal are due to the fragmentation of the authority of the monetary authority.

On the one hand, the country's large debt and fund mobilizing organizations such as the Employee Provident Fund cannot be brought under the regulatory scope of the monetary policy, and on the other hand, the financial system is in shambles due to the fact that organizations such as financial cooperatives are allowed to collect savings and mobilize loans against the cooperative principle without creating an effective regulatory mechanism. There has been no honest attempt to correct this at the level of the political leadership. He would definitely get patronage when the issue of making these issues a part of economic reform was actually a part of the so-called consensus papers of the political equation. The exercise of

authority

Another question is whether the central bank has become the de facto monetary authority of the country. Such questions are frequently raised due to frequent disagreements between the Minister of Finance who makes the financial policy and the governor of the National Bank who makes the monetary policy and the practice of dismissing the governor. News came out that the monetary policy, which was prepared to be announced last Friday, was stopped due to the intervention of the Prime Minister's economic advisor. If this is not an auspicious sign, it seems that rather than improving the monetary policy arrangements, the intention is to demonstrate their official status.

Two harsh realities make the monetary policy of the next financial year less likely to speed up economic recovery. Even if it is claimed to introduce a loose monetary policy, such a policy cannot come and its implementation can be effective without clearly implementing the structural reforms mentioned above. Experience has shown that many of the 'directed investment policies' of the past have not yielded results.

In addition, if there is a fight between the officials of the same government on the issues of regular operation, the country's economy will further decline if not entering into fundamental and transformative structural reforms. It is clear that there is a fundamental difference in the views of the private sector investors on Yuvraj Khatiwada, the Prime Minister's newly appointed economic advisor, and Finance Minister Bishnu Paudel.

Meanwhile, Governor Mahaprasad Adhikari's moral responsibility to demonstrate regulatory fairness and help boost economic investment will rarely leave room for pleasing certain characters. The shadow war between these three decisive officials who are equally dear to Prime Minister KP Oli should not deepen the problems the economy is facing now. The signs are there. It is also the responsibility of the Padasins to prove it false.