Wednesday, November 7, 2012

Expansionary budget will only fuel inflation, widen rich-poor gap


Despite resistance from the opposition, the caretaker government is planning to bring an expansionary budget of over Rs 450 billion — Rs 21 billion more than the Rs 429 billion ceiling approved by the three-year interim plan — with populist and distributive programmes like Youth Self Employment Programme that has already failed.
“Inefficient bureaucracy and government populism will hit people as inflation will spiral,” says former secretary Dr Bhola Chalise.
Though the government claims to provide relief to the people, the expansionary and consumption budget will hit the poor, the most, as it would widen the rich-poor gap, he added.
Around 10 per cent increase in narrow money supply — money considered most readily available for transactions and commerce — will push inflation up by 4.7 per cent, according to empirical studies.
Increased inflation coupled with absence of production in an economy heavily dependent on import is widening the rich-poor gap. “The consumption budget could not ensure inclusive growth,” he added.
In the past ten years, the Gini-coefficient, which measures income inequality among the population, increased from 34 to 47.3 indicating that the gap between the rich and poor has widened, according to Human Development Report 2011.
The country has not seen any new investment due to increased vulnerability and political uncertainty, forcing the youth to seek employment abroad.
The government has also failed to spend on development work that could have created employment despite the timely budget last fiscal as the country has eroded its appetite for investment due to weak leadership and institutions.
The special budget had allotted Rs 20.96 billion under capital expenditure — development expenses — but could spend only Rs 2.77 billion in the first three months of the current fiscal. “The ministry had projected expenditure of Rs 4.88 billion by the end of the fourth month (mid-November), on the basis of the expense pattern of last fiscal,” according to finance secretary Shanta Raj Subedi.
However, recurrent expenditure — administrative expenses — increased by over 100 per cent since the last five years from Rs 98.17 billion in 2007-08 to Rs 226.61 billion in 2011-12.
A budget is an essential tool for setting goals, establishing reasonable boundaries for meeting those goals and measuring one’s performance and holding one accountable to those boundaries.
But the political deadlock after ‘the death’ of the Constituent Assembly (CA) and absence of parliament resulted in uncertainty of the country’s 62nd budget. Due to absence of people’s representatives, lack of accountability has also increased.
“The budgetary system has also become a victim of financial indiscipline, myopic vision and inconsistency, as well as donor-driven priorities, victimising the nation leading to misuse of taxpayers’ money,” said former finance minister and Nepali Congress leader Ram Sharan Mahat.
The Supreme Court stay order against doling out tax payers’ money to disqualified UCPN-M combatants also exposed the government’s lack of accountability.
The country would not have been divided on the budget had the Maoists been committed to norms of parliamentary democracy and respected people’s rights. The UCPN-M’s frequent obstruction of the budget in past years is now haunting it, as the government is finding its own budget impossible to sell.
The opposition, including Congress and UML are opposed to a budget without political settlement and the ruling UCPN-Maoist is hell bent on bringing the budget, if necessary by force. That would push the country on the path of confrontation, further deepening the crisis.

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