Tuesday, March 19, 2013

Finance Minister faces challenge to contain inflation

Though the current government has been formed with a single agenda to hold a free and fair election, the newly appointed finance minister Shankar Koirala will face a slew of challenges not only in providing enough resources for the election but also in containing the rising inflation, maintaining macroeconomic stability and boosting the private sector's confidence.
Though Koirala, today, while assuming the office, promised to provide enough resources for the election — the key mandate of the current government — besides creating an investment-friendly environment in cooperation with the private sector, and targetting on economic growth and boosting the private sector's confidence, the former bureaucrat has become the finance minister at a critical juncture when the economy is witnessing contraction and the private sector is fast losing confidence in the government due to regular attacks and low public expenditure that has squeezed private spending too.
The government has been able to spend only Rs 9.48 billion — in the seven months of the current fiscal year — out of the total allocated Rs 51.29 billion for capital expenditure in the interim public expenditure arrangement of Rs 351.93 billion brought by former finance minister Barshaman Pun.
Koirala will have to adopt a two-pronged approach, said Prof Dr Bishwambher Pyakuryal. "On one hand he has to expedite public expenditure — that will help increase private sector spending and create employment — and on the other, he has to curtail non-budgetary expenses that fuelled inflation," he said, adding that Koirala must focus not only on economic growth but also on controlling inflation. Inflation has been looking up to a double-digit figure and was recorded at 10.1 per cent in the seventh month due to increased cost of production and transportation besides the ballooning informal economy.
"He must also focus on repairing the structural deficiencies like ballooning informal trade and trade deficit," Pyakuryal added.
Though the earlier government had promised to increase exports to Rs 100 billion, the country has exported merchandise worth only Rs 44.98 billion and imported merchandise worth Rs 316.21 billion, by the seventh month of the current fiscal year, widening the trade deficit gap to Rs 271.22 billion.
Likewise, boosting the morale of the private sector will also be more difficult for the new finance minister, as the repeated attacks on entrepreneurs and enterprises of late have discouraged them, fuelling capital flight.
"Apart from controlling non-budgetary expenses — that could help bring inflation down — the finance minister must not be influenced by political parties and carried away while allocating the budget for constituencies for the election," said Pyakuryal, adding that Koirala's top priority should be to bring a full-fledged budget first.
"The ministry has started preparations for a supplementary budget for the current fiscal year 2012-13 and also for a budget for next fiscal year 2013-14," according to the finance minister.
However, former chief secretary Dr Bimal Koirala opined that the key challenge for the new finance minister is to allocate enough resources for a free and fair election and maintain macroeconomic stability and hand over a healthy economy to the next government.
Challenges ahead for finance minister Koirala
* Providing enough resources for election
* Controlling non-budgetary expenses
* Containing inflation
* Boosting private sector confidence
* Preparing ground for sustainable growth
* Maintaining macroeconomic stability and handing over a healthy economy to the next government


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