Thursday, June 21, 2012

Govt encouraging distribution, not growth

The UCPN-Maoists government, with its populist fiscal policy, is encouraging distribution and consumption, not growth, according to the former finance minister and Nepali Congress leader Dr Ram Sharan Mahat.
"The trend of consumption-oriented budget floated by the UCPN-Maoists have to be changed into capital spending-oriented," he said, adding that the more the government directs its spending on development works, the more it will boost the growth by creating employment in the country.
But the government has failed to spend capital budget — popularly known as development expenses — as by the end of 11 month (mid-June), it has been able to spend only Rs 31.76 billion on cash basis, which is less than half of the earmarked development spending as it had earmarked Rs 72.61 billion under capital budget.
"Without spending of capital budget, the economy could not grow," Mahat said, adding that the government's capacity to spend has eroded due to its weak political and administrative capability.
The development expenses not only create employment in the local level but also boost the confidence of the private sector encouraging it to invest in the country, said economist Dr Chiranjivi Nepal.
The private sector's spending will be four times the government spending that will create vibration in the economy. "The government's contribution in total investment is only 21 per cent, if it could spend its total capital budget, whereas the government's spending will encourage the private sector — the engine of growth — that will invest the remaining 79 per cent, he said, adding that the low government spending will result in lower private sector's spending hurting the industrialisation of the country that creates more unemployment.
The country needs to create some 420,000 jobs every year but with low development spending, neither the government nor the private sector has been able to create jobs driving Nepali youths to overseas, Nepal added.
By the end of the 11th month of the current fiscal year, some 480,990 Nepalis left the country in search of greener pasture due to government's inability to create jobs in the country.
However, the government's increased regular expenses and low development expenses coupled with financial indiscipline has bleed the government coffer.
The government has earmarked Rs 266.61 billion under the regular administrative spending, which is more than the government's income source, the revenue mobilisation that is targeted at Rs 242 billion.
"The government, due to consumption-led expansionary budget, could not even pay salary of the employees from its internal resources," he said, adding that it is making country more dependent on foreign aid to even pay the regular salary for the government employees.

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