Wednesday, June 20, 2012

Expansionist budget to make country more dependent on foreign aid

An expansionist budget is not only making the country heavily dependent on foreign aid but will also fail to address the poor populace pushing inflation up, according to experts.
"The trend of formulating a deficit budget in itself is a very serious implication in the long term for the economy as the country will be more dependent on foreign aid," said Prof Dr Biswambher Pyakuryal, addressing an interaction on 'Priorities Sectors of Foreign Aid in Fiscal Budget 2012-13: People’s Perspective' organised by Alliance for Aid Monitor Nepal, here yesterday.
The incumbent caretaker government which is preparing a budget of around Rs 429 billion with a huge deficit will also make the country rely more on foreign aid, he said, adding that the identification of needs and priorities to address people’s voices have always been discarded during the planning of the fiscal policy.
The weak participation of people including various stakeholders during the preparation of the fiscal policies has also led to more dependency, he added.
Looking at the past five years of development of the private sector, it has not been able to create ample job opportunities, said Pyakuryal, projecting that the next 10 to 15 years will be a period of 'economic uncertainties' in the country.
"So development partners, who have a prime objective of strengthening the system, should be more concerned in helping Nepal avoid this uncertainty," he said, "Once the country goes for restructuring of the state mechanism with at least 11 provinces, some federal states will go for budget deficits of almost 75 per cent to manage for basic social services like drinking water and electricity for people."
"If we look at the history of the world economy, a country takes-off for economic transformation via the manufacturing sector," said former senior advisor to the Finance Ministry Keshav Acharya.
"But unfortunately, the manufacturing sector has been the least attractive sector in the country at present," he said, adding that the fiscal policy should create a sound environment for the manufacturing sector to attract more investments. "Otherwise, the country is heading towards de-industrialisation."
Big industries like textile and match factories are already on their death beds, said Acharya, urging donors to mobilise aid in manufacturing sector that will help strengthen Nepal's economy rather than in the service sector.
After 60 years of planned development and flow of foreign aid into the country, it has not been able to contribute to the development of the poor populace, according to Alliance for Aid Monitor Nepal.
There has been a huge gap in foreign aid commitment and disbursement too both due to donors' and Nepal's lack of spending capacity. "The cumulative commitment of foreign aid stood at $4 billion in 2010, which was downgraded to $1.7 billion for real commitment, and finally only $1.1 billion was disbursed," he added.
Similarly, of the total disbursements, 70 per cent of the aid came in the budget, of which only 50 per cent came in the government treasury and the other 20 per cent had been directly spent by donors themselves, he said, revealing that some 30 per cent of the total aid bypassed the country's system. "Foreign aid in Nepal has become instrumental only for some elites irrespective of caste, ethnicity, tribe and gender."
"Even the data of Millennium Development Goals (MDGs) in education and health that has been taken as an achievement in the real sense is different," said an anthropologist by training Dr Dilli Ram Dahal, adding that the poor communities still do not have access to basic services. "So foreign aid has not been supportive for the poor populace."
He also stressed on cultural study of aid, donors, and the institutions to make foreign aid work better.
"However, amidst the negative perception on foreign aid, the genuine subject is to realise whether foreign aid has addressed National Development Strategies or contributed to reducing dependency on aid dependency or not,” said country director of ActionAid Nepal Bimal Phnuyal.

Foreign aid commitment
2008-09 — Rs 47.97 billion
2009-10 — Rs 96.60 billion
2010-11 — Rs 106.10 billion
2011-12 — over Rs 100 billion*
(*Finance Ministry's projection for the current fiscal year. Source: Finance Ministry)

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