Austere Budget Trend

Curtailed budget sizes and austere approaches have been the features of budget estimates of these abnormal times. All seven provinces have presented their annual budgets for the fiscal year 2023/24. The provincial governments will carry out their financial dealings -- income, expenditures, revenues, taxes, borrowings, and a host of programmes — necessary to run the provincial governments. The finance ministers of the Madhes, Bagmati, Gandaki, Lumbini, Karnali and Sudurpaschim provinces presented the statements of income and expenditure on Friday while the Koshi government had presented its budget statement on Thursday through an ordinance. Due to the devastating impacts of the COVID-19 pandemic, the countries around the world faced unprecedented economic difficulties. And in a globally inter-connected scenario, Nepal could not remain an exception to it. Budget making has to take note of this fact.

Workforce migration, import, export and remittance earnings make a huge difference in the international aspects of trade and growth and they naturally have their bearings on the national economy as well. Negative impacts of the pandemic on these international economic linkages had adverse effects on the economic situation of Nepal as well. Moreover, the Ukraine war further worsened the global economic situation and its impacts were also deeply felt in Nepal too in the form of inflation. The Russia-Ukraine conflict sent the fuel prices soaring and the international supply chain, production, trade activities and growth trend were badly affected. The high inflation in the aftermath of the Ukraine war led to depletion of the foreign currency reserve in Nepal because its economy is largely import-based. 

As a result, import of some trade items considered luxurious was restricted. But this had a devastating impact on revenue generation which stands as a major component of income of the country. Nepal’s economic stability and budgetary strength stands on the pillars of revenue earning, remittance earning and foreign assistance. While the COVID lockdowns and other restrictive steps brought the economic activities to a grinding halt, the Ukraine conflict took inflation to precipitous heights. As prospective visitors also suffered under the tumultuous economic situations at home, Nepal saw a sharp decline in the trend of tourist arrival. As a result, the tourism industry, a major foreign exchange earner, was also badly hit. 

All these economic developments, both at home and in the international arena, had to be considered while formulating the annual budget of Nepal. The economically upsetting trends and elements have reigned supreme in the budget statements presented by the federal government as well as the provincial governments. In absence of solid revenue base in the aftermath of the economic downturn, the governments in the centre and the provinces had to struggle to expand revenue sources. The commitment of foreign assistance is not as sound as it once used to be. So, if we look at the budgetary feature of this fiscal year, especially in the provinces, shrinking in total size of the budget and the allocations is glaringly visible. In this scenario, Nepal needs to lay focus on its strengths and make amends with its weaknesses.

Nepal has a great strength in the form of hydropower that can act as a crucial driver of economic development. Industries and enterprises of all scales have potential of thriving when there is reliable supply of energy. Economy of many countries have stalled due to power failure and energy crisis. We stand on strong ground in this regard. Electricity self-sufficiency marks the beginning of prosperity and development. This can save us billions by substituting the import of fossil fuels. As we graduate to the status of power exporter, this bodes well for earning foreign currency and narrowing down the trade deficit.