News Commentary: Upcoming fiscal year’s budget is a test of new government for delivery

Mahendra Subedi

Kathmandu, June 3: Finance Minister Dr. Swarnim Wagle tabled the budget for the upcoming fiscal year 2083/84 BS in the federal parliament on May 29, claiming that a structural departure through reforms. 

The government has set an ambitious target of achieving seven percent of economic growth rate and inflation within a six percent limit. With Rs 2,124.34 billion in size, this is the largest budget in Nepal's history but the finance minister has argued that the size of the budget is neither big nor ambitious. 

“The upcoming fiscal year’s budget is not small by any means, it is relatively modest when measured against the country's GDP,” the finance minister said at a media briefing about the budget announcement. “The budget is not overly ambitious but has been formulated within realistic fiscal limits," he went on to argue. 

The size of the budget is around 28percent of the estimated GDP, while the size of the budget increased as high as 37 percent of the GDP in the post Gorkha Earthquake. This time too, the concern on budget size is real because the increased size of the budget could lead to inflation if all other things were not well considered. The size of the budget is an issue among the stakeholders since it has direct correlation to its implementation, capital formation, inflation, job creation, fiscal stability and others key aspects of economy. 

The budget's prioritisation of the information technology sector, digitalization, including a 50 percent tax exemption on service exports and a plan to establish an AI computingcentre to bring Nepal into the AI age is a welcome step. The announcement allowing the private sector to trade electricity in international markets, the establishment of a national asset management company for bad debt management and the opening of the secondary market to Non-Resident Nepalis are all seen as steps that will positively influence the stock market. 

If these provisions are implemented firmly, the morale of the private sector will rise and overall economic activity will expand. The budget's thrust on tax reform, concessions for industry and business, promotion of the digital economy, prioritisation of technology and infrastructure development, and emphasis on the energy sector is expected to create an investment-friendly environment. Meaning the upcoming year's budget has embraced the private sector as the primary partner and vehicle for economic growth, placing investment, entrepreneurship, innovation and expansion of financial access at the forefront.

On the energy front, the budget announces special priority to the sector as the main pillar of economic transformation, advancing structural reforms, infrastructure expansion, private sector participation, and green energy-based industrialization. 

The 1,200-megawatt Budhi Gandaki Reservoir Hydropower Project is to be pushed forward under a high-powered authority. Financial closure and construction processes for the Uttarganga Reservoir Hydropower Project will begin, the 40-megawatt Rahughat Hydropower Project will be completed and the construction works of the Tanahun Hydropower Project will be accelerated. The budget also mentions that the Pokhara International Airport, which has failed to make regular international flights will be managed in collaboration with the private sector. 

Economist Dr Kalyanraj Sharma is optimistic to this budget adding that this budget has offered ample opportunities for the middle-class people. Dr Sharma added that this budget is aimed at offering several choices to the middle-class people and engaging them in the nation building tasks. Surprisingly, the budget has tried to please the middle-income earner by raising of the personal income tax exemption threshold to Rs 1 million and the reduction of the maximum rate from 39 percent to 29 percent.

In this context, the Nepal Chamber of Commerce has welcomed the budget by expressing confidence that, despite the budget appearing somehow ambitious, effective implementation could help the economy gain momentum, while welcoming the income tax exemption and industry incentive policies.

But despite these announcements, economist Dr Paudel argues that the budget has limited rooms to increase production, capital formation and job creation through its implementation.

The government officials believe that this budget will expedite ongoing infrastructure projects and will boost private sector confidence, attract investment and expand economic activities upto the grassroots level, sharing the benefits both at the household and personal levels. 

Some critics have also raised concerns that this budget could not uplift growth at the individual level and fails to ensure production and productivity. While government employees are set to receive a substantial salary increase, many citizens struggling with inflation, unemployment, and stagnant incomes see little direct relief. In this regard, economist and a noted development practitioner Dr Giridhari Sharma Paudel views that this budget has to struggle a bit more with its implementation if its ambitious promises are to mean anything to ordinary Nepalis. 

Dr Paudel has a lukewarm response to the budget and its allocation to the agriculture sector. Agriculture remains stagnant in terms of production despite a large number of people relying on it for subsistence, with its contribution to GDP stagnating due to slower growth compared to the non-agricultural sector. Cuts to some agricultural subsidy programmes will have critical impacts, he suggested.

Offering some exemptions, providing subsidies and expanding the scope of social security are good things, but we should ensure that our economy can sustain such ‘desired burdens’ too. The budget has arrived with enthusiasm but the resource and implementation remain critical, which should be fulfilled through the assurance of resources and the assurance of implementation.

In conclusion, Nepal's new budget unveiled by the Balendra Shah government formed after the fresh elections in the wake of Gen-Z Movement could be termed a document, which is reform-oriented, digitalization-focused, private sector-friendly and energy-focused. The budget’s credibility will be determined by what is delivered through it but, for this, implementation must improve and agricultural neglect should be corrected.RSS