Budget will address challenges posed by COVID-19: Finance Minister
06 May, 2020
The coronavirus outbreak and the lockdown imposed to stem the spread of the pandemic has taken a severe toll on the economy. Business and industry, except those dealing in food and essential goods, are shut. Development work is halted and millions of people are put off their work. The government is preparing the budget of the next fiscal year 2020/21 in this challenging time. Gopal Khanal and Modnath Dhakal of The Rising Nepal caught up with Finance Minister Dr Yuba Raj Khatiwada to talk about the economic status during the COVID-19 crisis, budget priority and rehabilitation of the businesses in the post-corona days. Excerpts:
Nepal has performed quite well compared to even some developed countries in terms of controlling the coronavirus pandemic. What made this possible?
Saving life is the first priority of the government. Prime Minister’s perspective that to enjoy freedom, one should first be alive and ability for timely decision in a challenging situation were the primary factors behind Nepal’s success. We took cautious steps even before the pandemic entered in Nepal. It was one of the boldest decisions of the government to close the border, movement of people and aviation operation. It was not easy to bar the cross-border movement at the southern border due to social pressures and import of essential goods. The PM took a courageous decision in this regard. Lockdown was announced the very next day. Some accused the government of making haste but later our moves proved timely and the very people said that the lockdown should have been imposed even earlier. As a result, the World Health Organisation (WHO) has termed Nepal as one of the successful cases in terms of managing the coronavirus pandemic. Neighbouring countries have also appreciated us. I must say that it was possible because of opposition parties, civil society and private sector organisations. We have seen crowds of thousands of people during the crisis but Nepali people were aware enough about not making such mistakes. It is not possible without cooperation of one and all. However, the risks still prevail. I would like to urge that let’s not risk our own lives in the name of freedom – we will have a whole life to enjoy that freedom.
It’s more than six weeks of lockdown. India has extended the restrictions for another two weeks. What would be Nepal’s move?
It depends on the level of risks. The higher the risks, the tighter the restrictions. Stricter provisions will be implemented in the areas that are riskier. However, the situation in those areas is not out of control till now. The greater risk is created by the people entering the country in an illegal way from India. The government is paying higher attention to it with tighter surveillance at the border. But areas away from the border are safe so although the lockdown will be continued, situation will be eased locally where there is no or less risk.
Risk has heightened as many people confirmed of the coronavirus infection in the last couple of days, especially in Nepalgunj. Don’t you think that the government should have shut the border with India much earlier? The government has taken decision on its own. Nobody had suggested us about shutting the border with India in early days. It is easy to react to the actions and decisions of the government but it had taken a proactive decision at that time. It is an irony that the government was criticised for making hasty decision in terms of border closure, however the same people later said that the step should have been taken earlier.
But, the government has said that the Nepalis in India should be kept there and Nepali mission in New Delhi should coordinate in this regard?
We are not in a position to open the border and let people in while the risks are high. It applies equally to all Nepalis across the world, not only in India. The PM had talked to the head of states or governments of most of the countries where there are Nepali citizens. Using the labour of Nepali citizens in good times and sending them back during the crisis is not a welcome step. We have urged the concerned countries to take care of Nepali citizens and Nepal will also take care of the foreigners here. About 1,300 foreigners are kept safe at Nepal-India border. We urge the friendly nations that this is the time to support and workers in each country should be treated with minimum social security. This is the agenda of 19th SAARC summit. Similarly, diplomatic missions are directed to collect the details of the stranded migrant workers and take care of them. If needed, Foreign Employment Fund will be used to support them.
However, internal mobility has recently gone up. Representatives of the local bodies and parliamentarians arranged vehicles to create one of the greatest exodus of people from the capital during the lockdown. Are they exempt from the rules?
The government had asked all to stay where they were for which it was criticised as restricting the exercise of civil liberty and stopping people from going to their homes. The government had said that they would be taken care of but some people began their journey to home on foot. They were rescued and facilitated and dropped home safe. Colleagues from the states and local levels began to send buses to take people back. It was not good to take back people to the villages en masse. More than 700 buses were lined up in the capital. It was the result of lack of communication and coordination among the different levels of the government. We must not think that all decisions are right during the crisis, we need to test and apply in some cases. Therefore, the government welcomes healthy and constructive criticism on its decisions and actions. Just think about the size of health and quarantine facilities including food when we take people from one place to another or bring in Nepalis from abroad. This is beyond our management capacity.
How do you assess the impact of coronavirus crisis on economy?
We aimed for at least 6.5 to 7.5 per cent growth this year. Initially, we aimed for 8.5 per cent growth but the reduction in the production of paddy would hit the expansion. Due to Public Procurement Bylaws controversy, contractors halted the public construction for about two months and tourism growth was not as anticipated. The coronavirus crisis has supplemented the challenges and the country has lost about Rs 150 billion so far and is likely to lose Rs 300 billion by the end of this fiscal. Some large scale pride projects would have been completed and started capital formation, and investment would have increased had the COVID-19 crisis not hit the country. Likewise, there will be depreciation of investment and no production from the private sector. The pandemic has hit the employment, investors’ confidence, planning and enthusiasm. This crisis will affect the growth next year as well. However, we are hopeful that we will recover soon. Similarly, the crisis will have a profound impact on individual’s perspective on life, society, employment and economic activities. The crisis has affected income, employment and poverty alleviation the most.
What do you say about the chances of vulnerable families being pushed back to poverty due to the loss of jobs or businesses?
There is also seasonal poverty which appears when food is finished and bread earner of the family goes out for work. Such families will come back to normal after the lockdown is lifted. However, the people who permanently lose their jobs are at risk of being pushed down to poverty again. I would like to assure that we won’t let anyone be pushed out of their job. At the same time, social security provisions cover a large number of people including the vulnerable citizens which will work as a relief to people. Meanwhile, Prime Minister Employment Programme will connect people who want to work. It will create meaningful employment. However, the wage and salary will not increase this year as we need to mobilise resources in other sectors due to the new crisis. When the employment is not snatched away, we can survive even by cutting our cost of food and clothes as well. However, although people would be saved from falling down into poverty, the rate of poverty alleviation would be slowed down by COVID-19.
What would be the priority of the budget in the changed scenario?
Budget is a continuous process so we should not expect new budget every year. Good programmes and projects have been affected by the pandemic, we have to complete them. Livelihood and public aspirations need to be addressed since they are inscribed as the fundamental rights in the constitution and are the responsibility of the government. The budget will also be directed to address the challenges created by the COVID-19 in the health and economic sectors. Contraction in economy, employment and resources are the biggest challenges that need immediate response from the government side. Likewise, budget will be guided by the 15th periodic plan and government policy and programmes. The budget of the sub-national bodies will also be reprioritised in the context of the current crisis.
The government is under pressure to increase the social sector spending while revenue collection is hit hard by the lockdown and foreign economic cooperation can also be affected by the resource constraints. How are you going to manage resources in this context? Will the size of budget be compromised?
We are discussing the size of the budget. We are hopeful of economic activities rebounding soon after the crisis is over. The gap created by the slump in remittance will be filled up by the international financial support. The country has signed agreements of more than Rs 150 billion international support that would be mobilised in the next fiscal year. We are weak in terms of absorption of the foreign support. Our spending capacity must be enhanced and decision making mechanism should be sound and prompt. However, we must be prepared for a slight disturbance created by the internal resources which will be shrinking due to the coronavirus pandemic. The government will raise internal debt with the need assessment and won’t let the private sector businesses suffer from resource crunch due to government’s borrowing.