Monday, June 4, 2012

Expansionary budget fails to create jobs, widen rich-poor gap

Successive budgets have failed to create employment but increased the rich-poor gap making poor, the poorer and rich, the richer despite the government's claim of inclusive growth.
In the fiscal year 2006-07 — when the country entered into the peace process — the total budgetary outlay stood at Rs 143.91 billion, whereas after the seven years, the caretaker government of Dr Baburam Bhattarai is planning to bring Rs 429 billion budget for the fiscal year 2012-13 through ordinance.
"The expansionary budget will only add to the woes of the common people as it will fuel price hike," said senior economist Prof Dr Bishwhambher Pyakurel. "The 10 per cent increase in narrow money supply — money that is considered to be the most readily available for transactions and commerce — will push inflation to 4.7 per cent up," he said, adding that in a country, which has no production and is dependent on imports, the expansionary budget will push the number of poor up widening the rich-poor gap.
"The increasing petroleum prices in the international market and policy distortion like political pressure to subsidise the petroleum products will increase poverty as neither would it support inclusive growth nor reduce inequality," he added.
In the past ten years the Gini-coefficient — that measures the income inequality among the entire population of the country — increased from 34 to 47.3 indicating that the gap between the rich and the poor has grown further, according to the Human Development Report 2011 of the UNDP.
The country has not seen any new investment due to rising vulnerability and uncertainty, apart from government's inefficiency that has forced the unemployed youths seek employment opportunity abroad. "The government has also failed to spend on development works — that could have created employment — despite timely budget for the current fiscal year," the senior economist said, adding that the country has eroded its capacity due to weak leadership and institutions.
On one hand, the country is passing through a phase of unabated acceleration in the size of current expenditures to as high as three-fourths of the total expenditures, and on the other, capital expenditure is suffering from the problems of delayed and lethargic implementation and gradual erosion in the government's capacity to spend.
The Finance Ministry that is preparing the country's 62nd budget — for the fiscal year 2012-13 — though claims to create employment and support inclusive growth, is only increasing the total outlay size but cannot guarantee investors the predictability that they seek to invest.
"The UCPN-Maoists have failed to create conducive environment for investment," Pyakural added.
The extreme polarisation among the political parties after May 27 has also created doubt that the election could be held on November 22 as was announced by Dr Baburam Bhattarai forcing the investors seek for alternatives.
Fiscal policy — popularly known as a budget — is not only the income and expenditure statement of a government, it is rather a political party's — that is in power — vision document of the development. But the UCPN-Maoists policy distortion and inefficiency, and protracted political transition will further aggravate the challenges and increase the country's dependency on foreign aid, despite UCPN-Maoists tall claim of making the country independent.

The budgetary outlay
2006-07 — Rs 143.91 billion
2007-08 — Rs 168.99 billion
2008-09 — Rs 236 billion
2009-10 — Rs 285.93 billion
2010-11 — Rs 337.90 billion
2011-12 — Rs 384.90 billion
2012-13 — Rs 429* billion
(*Ceiling given by National Planning Commission for the next fiscal year's budget. Source: Finance Ministry)

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