Pandey presents Special Budget

Once again the political agenda has pushed the development and economic agenda to the back burner. Instead of the full fledged budget, finance minister of the caretaker government Surendra Pandey today presented Rs 110.21 billion 'special budget' meant only for the government expenditure.
"Due to the present political deadlock, the caretaker government could not present the regular budget for the fiscal year 2010-11," he said adding that "due to the emergence of special situation, the Special Budget Bill -- that empowers government to withdraw money from Consolidated Fund to carry out regular services and activities in the coming fiscal year under the Article 96 (a) of the Interim Constitution -- has been presented.
According to him, the revised total expenditure of this fiscal year 2009-10 is estimated to remainat Rs 265.63 billion -- 20.93 per cent higher compared with a fiscal year ago. The 'special budget' will help the government to spend 'not exceeding one-third of the last year's budget'. "The government is forced to bring the 'special budget' as a temporary arrangement to allow itself to carry on with routine expenses and revenue collections in the new financial year, starting from July 17," he said.
Economic policies of the last budget gets continuity until a full-fledged budget is brought by the new government.
It is the second time after the Constituent Assembly (CA) election that the government has failed to present a full-fledged budget on time and made temporary arrangements. Under the Interim Constitution, Pandey has not announced any new tax policies as a caretaker government cannot bring changes to the present tax structure or introduce new taxes. Earlier, former finance minister Dr Ram Sharan Mahat had brought such 'special budget' in July 2008. But the entrepreneurs think that such 'temporary arrangements' will hurt the development activities and investors' sentiments. "We are on 'wait and watch' mood," said president of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Kush Kumar Joshi. "There will be no new investment as the investors will wait for the new government's programme and policy," he said adding that such arrangements will also not address the business fraternities' problems. Binod Chaudhary, CA member and the president of Confederation of Nepalese Industries (CNI) agreed, "Once again the political agenda has pushed the economic agenda to the back burner." "At a time when all the economic indicators are nosediving, expenditures are going up in an uncontrolled manner hurting the economy," he said adding that many Acts that could boost the investors' confidence are gathering dust in the Parliament. Another CA member and industrialist Rajendra Khetan thinks that neither had the full-fledged budget nor this arrangement could propel development activities. "However, had the budget come on time, it could have addressed rising trade deficit and negative Balance of Payment (BoP) position," he said adding that the arrangement is only for the government expenses. Instead of outlining new development programmes and plans, the 'advance budget' aims to enable the government function till the full-fledged budget is brought by the new government to be formed.

The next finance minister will have a daunting task to tame inflation; check intimidation and threat against business community, create investor-friendly environment, provide security for the investment, and push the plummeting exports up to bridge the widening trade gap and BoP position.

Government fails to crack the whip on rising prices

The government has failed to crack the whip on price rise. "The inflation is expected to remain at around 10.7 per cent instead of the budget's projection at seven per cent," according to the Economic Survey that Finance Minister of the caretaker government Surendra Pandey today tabled in Parliament.
"Similarly, the gross domestic product (GDP) growth has been revised to 3.5 per cent from an estimated 5.5 per cent due to low agriculture yield that was at four per cent in 2008-09," said the survey that has estimated the agriculture sector's growth to remain at 1.2 per cent. The agriculture sector contributes 33.03 per cent to the GDP, according to the pre-budget economic survey.
The survey said construction, commercial services like real estate, leasing and other services, manufacturing, and hotels and restaurants sectors could grow at higher pace than in the last financial year.
The survey has accepted government intervention as the key to address obstacles in accelerating economic growth.
"Government finance situation is satisfactory," said the survey that has estimated revenue mobilisation to grow by 24.6 per cent. Encouraged by the revenue mobilisation, the government has also revised the revenue target upwards to Rs 190 billion from the budgetary estimate of Rs 176.73 billion.
Pandey had presented an accommodative budget of Rs 285.93 billion for 2009-10, with Rs 46.34 billion deficit.
Normally, the Economic Survey is tabled in Parliament a day before the General Budget but due to political deadlock, the Finance Minister will present a Special Budget tomorrow.
He will present an estimation of expenditures and revenue projections, with no changes in tax rates or new policy measures for four months.
The Special Budget will help the government to spend 'not exceeding one-third of the last year's budget'. The government is forced to bring the Special Budget as a temporary arrangement to allow itself to carry on with routine expenses and revenue collections in the new financial year, starting from July 17. Economic policies of the last budget gets continuity until a full-fledged budget is brought by the new government.
It will be the second time after the Constituent Assembly (CA) election that the government has failed to present a full-fledged budget.
Earlier, former finance minister Dr Ram Sharan Mahat had brought such Special Budget in July 2008.
The next finance minister will have a daunting task to tame inflation; check intimidation and threat against business community, create investor-friendly environment, provide security for the investment, and push the plummeting exports up to bridge the widening trade gap.

Sector wise contribution to GDP (2009-10)
Agriculture and Forestry – 33.03 per cent
Wholesale and Retail Trade – 13.97 per cent
Transport, Storage and Communication – 9.76 per cent
Real Estate, renting and business activities -- 8.26 per cent
Education – 6.67 per cent
Construction – 6.64 per cent
Manufacturing – 6.25 per cent
Financial Intermediaries – 4.07 per cent
Hotels and Restaurants – 1.67 per cent
Public Administration and Defence – 1.99 per cent
Electricity, Gas and Water – 1.49 per cent
Health and Social Work – 1.46 per cent

Govt expenditure on PE employees goes up

Despite the poor performnace of the Public Entreprises (PEs) compared to private sector, the government's average expenditure on PEs employees has gone up almost to the level of private sector employees.
"The average expenditure per employee per month has increased to Rs 27,110 compared with Rs 21,672 a fiscal year ago," said the annual performance review of the PEs published by the Finance Ministry today.
Among the 36 PEs half of the PEs reported profit and the remaining half were in loss in the fiscal year 2008-09, whereas 17 were in profit and 19 in loss during the fiscal year 2007-08, said it.
"PEs under industrial sectors, service sector and social sector are in loss whereas the PEs under the trading sector, public utility sector and financial sector are in profit," according to the performance appraisal.
According to the Financial Comptroller General Office, the government has invested Rs 86.13 billion in these 36 PEs and has received Rs 3.47 billion in dividends in 2008-09. However, the return stands at only 4.03 per cent in comparison to the total government's share investment.
The government has received Rs 3.47 billion in dividends from Nepal Industrial District Management, Nepal Telecom, Nepal Stock Exchange and Rastriya Beema .
The review reveals that overall net profit of the PEs has also more than doubled to Rs 10.55 billion in the fiscal year 2008-09 from Rs 4.94 billion in the fiscal year 2007-08.
The performance appraisal gives a gloomy picture of the auditing of the PEs. "Out of 36 PEs, only 14 have completed audit up to fiscal year 2007-08, 15 PEs have completed audit upto 2006-07, two PEs have completed up to fiscal year 2004-05," according to it.
The government accepts that the task of limiting of number of Board of Directors to five could not be complied because of lack of Act and Regulations as some of the PEs that have specified the number of Board of Directors fixed above five that remained to be amended. Similarly, the government has also failed to hire professional management team to run the PEs.
The unfunded liability has increased by a whopping 92.59 per cent to Rs 9.54 billion in the fiscal year 2008-09, whereas contingent liability has touched Rs 17.10 billion. Similarly, the outstanding balance of the PEs remained Rs 74.6 billion at the end of the fiscal year 2008-09.
The annual performance review of the PEs incorporated per formance of 74 entreprises comprising 36 PEs with full government holding, 26 witgh minority share, 11 development committees involved in commercial activities and Employees Provident Fund that is incorporated under special Act.

Monetary Policy to give breather to margin lending, real estate

The central bank is planning to bring a balanced Monetary Policy with some changes -- especially to relax margin lending and real estate sectors -- before the full-fledged budget this time.

"The government''s policy and programmes will largely based on the Three Year Interim Plan (2011-2013) that is the already-approved," Nepal Rastra Bank (NRB) governor Dr Yubraj Khatiwada said adding that the approved-TYIP and the central bank''s financial indicators will help chalk out the plan for the Monetary Policy.

"The central bank might not need to wait for the full-fledged budget," he added. "Though, the Monetary Policy has to come after the budget – that has been delayed this year too due to political uncertainty this year – there might be exception this time."
Though, the tradition has it that the Monetary Policy is brought to support the government's policy document that is budget.

Meanwhile, painting rosy picture of the economy, the governor said that the deposit -- that was registering negative growth during February, March and April -- has been increasing by 11 per cent recently, credit to deposit (CD) ration has come down to around 85 per cent from 95 per cent and foreign exchange reserve – mainly Indian Currency (IC) and dollar – along with the Balance of Payment (BoP) is improving. "Within six months BoP will come out of the current deficit position,” he estimated.

However, he accepted that the BoP situation is not improving due to increase in exports – that has plummeted by over six times than the imports – but due to some restrictions in imports.

"Restriction on imports of some goods and services helped the BoP deficit to ease,” the governor said. The BoP deficit has eased to Rs 17.36 billion in the first ten months from Rs 22.1 billion in nine months.

The Monetary Policy will also spell out specific upgradation policy for the banks and financial institutions. "The upgradation has been stopped for a while," Khatiwada said adding that quality has to be taken seriously while upgrading banks and financial institutions.

Currently couple of banks and financial institutions like Sanima Bikas Bank and Nepal Share Markets and Finance Company have applied to the central bank for upgradation to the Class-A commercial banks. But the central bank has halted their process till the new Monetary Policy.

Meanwhile, the Monetary Policy will have a serious challenge to address the rise in cost of fund due to hike in lending rates. "The rise in interest rates in recent months have been successful in increasing the deposit, but it has also put pressure on lending rates hurting the investors," the governor accepted.

Khatiwada also appealed the people not to hord cash at home and have faith on banking insititutions as there is enough liquidity in the banking system unlike last Dashain.

Financial Sector Reform

KATHMANDU: The review of new UK government’s grant assistance policy has hit Nepal’s Financial Sector Reform Programme. After the assurance of assistance, we will start the process of hiring the CEOs for the troubled Nepal Bank Ltd (NBL) and Rastriya Banijya Bank (RBB). The World Bank and DfID – the British agency – had been supporting the programme to restructure the NBL and RBB along with the central bank. “We are ready to start fresh process of hiring the CEOs for these two financial institutions,” Khatiwada said adding that the Nepal Rastra Bank (NRB) had invited applications for the post of CEO of NBL repeated but could not succeed. The central bank backed team is operating the NBL for last two-and-a-half year after the then foreign management left abruptly, though the RBB has seen not many changes.

Petroleum prices hiked again !

Citing the price hike in India, Nepal Oil Corporation (NOC) has, finally, hiked the prices of petroleum products. The state oil monopoly hiked petrol price by Rs 3 per litre, and Kerosene and diesel by Rs 2.50 per litre each. But it has not hiked the prices of cooking gas and aviation fuel.
The NOC has revised the prices of petroleum products upwards after it received the new price list from IOC on July 1. "Had the NOC not increased the price, it could have been incurring a loss of Rs 100 million per month, according to the new list," he added.
"With the price hike, price of petrol will be Rs 85 per litre and kerosene and diesel will cost Rs 65.50 per litre each," said Mukunda Dhungel, NOC spokesperson. "After the price hike, NOC will earn Rs 73.9 million in profit."
"The corporation was incurring a loss of Rs 1.16 billion in the current financial year," Dhungel said.
Earlier, the corporation had hiked petrol price to Rs 82 per litre and diesel — the poor man's fuel — and kerosene prices were hiked to Rs 62.50 per litre each. Then also, it had not changed the price of cooking gas. LPG costs Rs 1,250 per cylinder.
On every 1st and 15th of the English calendar month, NOC receives the new rate of diesel, kerosene and petrol from its supplier IOC. The rate of cooking gas is revised on the first of every English month according to the international market price.
According to the increased price in India since June 25, petrol and diesel were cheaper in Nepal by Rs 4.83 and Rs 2.10 per litre. "We had no option to hike to stop the back flow of the petroleum products due to open borders," Dhungel said.
For last one week, there has been a short supply of petroleum products. Though, Dhungel claims that the supply has been normalised, the supply crunch has still been experienced by the people. However, Consumer groups claim that the shortage has been created by NOC to raise the prices of petroleum products after the government turned down its loan request for Rs 1 billion.
But in the last cabinet meeting of the Madhav Kumar Nepal government, it was decided to give Rs 800 million to NOC so that it can pay its dues and supplies in the country could again become normal.
"The deep-rooted corruption in NOC created an artificial scarcity of petroleum products," said Jyoti Baniya, general secretary of the Consumers Rights Protection Forum(CRPF).
"The monopoly of NOC in petroleum products supply is repeatedly making the consumers suffer," a petroleum dealer said adding that the private sector should also be allowed to import petroleum products to create a fair market environment.

Nepal's per capita income looks to $568

Income of Nepali citizens has doubled in last one decade, though it might take more than a decade to graduate the country to even ‘very low income group’.
During the 2000-01, the per capita gross national income (GNI) of a Nepali was $259 only but it has doubled to $568 in 2009-10. “Nepal’s per capita gross national income (GNI) could touch $568,” according to the preliminary study of Central Bureau of Statics (CBS).
Currently, the per capita income of a Nepali is $472, the revised macro economic indicator reveals.
Per capita GNI is the dollar value of a country’s final income in a year, divided by its population. It reflects the average income of a country’s citizens.
In the last one decade, the GNI per capita has seen a continuous increase, except for one fiscal year — 2001-02 — when it dropped to $254 from $259 in 2000-01.
Knowing a country’s GNI per capita is a good first step toward understanding the country’s economic strengths and needs, as well as the general standard of living enjoyed by the average citizen.
As the general standard of living enjoyed by the average Nepali citizen has been deteriorating over the years, the growth in GNI per capita could be confusing to some extent.
A country’s GNI per capita tends to be closely linked with other indicators that measure the social, economic, and environmental well-being of the country and its people.
Normally people living in countries with higher GNI per capita tend to have longer life expectancies, higher literacy rates, better access to safe water, and lower infant mortality rates.
But Nepal comes at almost the bottom of the low income group.
According to the World Bank, a country with its GNI per capita above $20,000 comes under a very high income group. Similarly, $10,000 to $1,999 GNI per capita is categorised under high income group followed by a middle income group with $5,000 to $9,999 GNI per capita. A country with GNI per capita at $2,500 to 4,999 falls under the low income group, whereas a country less than $2,500 falls under the very low income group.
Meanwhile, the CBS report also reveals that the gross domestic production (GDP) at the basic price is expected to expand by 3.53 that was at 3.95 last fiscal year according to the revised projection. The government has — in its budget speech for 2009-10 — projected 5.5 per cent growth.
Similarly, the government also failed to curb the inflation that is hovering around 10 per cent, though the government has projected it to contain around seven per cent.
According to the CBS preliminary projection agriculture will grow by 1.05 per cent and non-agriculture sector will grow by 5.1 per cent.
In comparision to last fiscal year, the food crops production will see 5.88 per cent lesser this year.
“The major crops, paddy and maize will register a negative growth of 11.05 per cent and 3.91 per cent,” the preliminary report said. “Though agriculture contributes 33.03 per cent in the total gross domestic production (GDP), the preliminary report of CBS said.

Economic Survey paints bleak picture

Contrary to the projection of 5.5 per cent Gross Domestic Product (GDP) growth, the Economic Survey -- likely to be presented on July 8 -- puts forth a grim reality.
The Survey expects the GDP to expand by almost the half – by only 3.5 per cent – from the government’s projection due to low yield in the agriculture -- especially the major crops like maize and paddy -- and non-agriculture sector's low output than expected.
Similarly, the inflation also stands at 10.7 per cent against the projection of seven per cent, according to the Economic Survey.
The Survey also maintains that double digit price hike and slower growth have had an adverse effect on the consumers' purchasing power, posing a serious threat to the financial management.
Tradition has it that the Survey is presented a day ahead of the budget for the fiscal year but this year as the possibility of forming a new government seems still far, the caretaker government of Madhav Kumar Nepal is preparing to present the Finance Bill on July 9 a day after it is presenting the Economic Survey.
“We are planning to present Economic Survey on July 8,” said Keshav Acharya, senior economic advisor at the Finance Ministry.
Finance minister of the caretaker government Surendra Pandey is likely to present Financial Bill on July 9 that can give the government right to spend a quarter of this fiscal year’s expenditure. Though, delay in presenting budget will not hit the revenue collection as the Income Tax Act 2012 BS has given the government right to collect revenue not exceeding this fiscal year’s rates, it will definitely hit the development activities.
Since last three years, the successive governments have failed to spend on development activities as they failed to present the full-fledged budget on time due to political instability. In 2008, the then finance minister Dr Ram Sharan Mahat presented special budget only for four months and the next year in 2009, it took four months to pass the budget though the budget was presented on time. Such political instability has taken toll on the Nepal’s ranking in the economic freedom.
According to the 2010 Index published by Heritage Foundation and Wall Street Journal Nepal ranked 130th scoring 0.5 point lower than last year, reflecting declines in five of the 10 economic freedoms due to political instability.
It has hampered the development activities as the successive governments have not been able to spend properly on development activities. Due to balloning trade deficit and slowdown in growth rate of remittance -- that is hovering around 10 per cent -- the Balance of Payment (BoP) has also registered deficit. The whopping imports that is over six times the exports has also hurt the forex reserve that has been depleting.