Last trimester sees surge in spending, despite ceiling

The government spends more than half the development budget of any given fiscal year in the last four months of the fiscal year, and almost 40 per cent of it in the very last month.
The average development spending in the last four months over the last three fiscal years has been 'not surprisingly' 57.42 per cent on an average, according to data from the Financial Comptroller General's Office (FCGO).
While the government's eroding capacity to spend and lack of coordination among the key stakeholders have been largely blamed for the low level of development spending, it is more a case of 'political failure', according to former chief advisor to the Finance Ministry, Keshav Acharya.
The last month of the fiscal year sees around 40 per cent of the development spending despite the ceiling, he said, adding that lack of coordination among the prime minister, the vice-chairman of the National Planning Commission (NPC), the finance minister and the ministers at the implementing ministries has been a major problem in expediting the use of the development budget, he said, adding that the spending has been particularly low when a coalition government is in power.
According to FCGO data, successive governments have been able to spend only 6.33 per cent of the development budget on an average in the first four months, whereas the second four-month period sees an average of 15.26 per cent development spending. The spending all of a sudden surges to an average of 57.42 per cent in the last trimester, the data shows. Within the last trimester also, the very last month witnesses the spending of around 40 per cent of the development budget, Acharya added.
FCGO data also shows that the total average development spending in the last three fiscal years has stood at 78.96 per cent.
Joint Financial Comptroller General Kewal Prasad Bhandari attributes the low development spending to lack of seriousness in the bureaucracy and the absence of adequate budget law. "There is no schedule for budget spending," he said, adding that the lack of a carrot and stick policy has also left the officials responsible not in any hurry to spend.
The story is going to be repeated in the current fiscal year, 2015-16 too.
According to FCGO, the government has been able to spend only 13.83 per cent of the total development budget as of yesterday. "The remaining four months will as usual see a spike in the spending," Acharya said, adding that the government, meanwhile, has the convenient excuse of the earthquake and the Indian economic blockade for not being able to spend adequately.
The government now has a challenging task of spending Rs 1.66 billion out of the development budget every single day, if it is to meet the expenditure target for the current fiscal year.
According to FCGO data, the government has been able to spend only Rs 28.88 billion, or just 13.83 per cent, of the development budget so far as of March 24. Only 108 days remain in the current fiscal year, which ends in mid-July, and the government still has to spend Rs 179.99 billion development budget. The arithmetic means the government will have to spend Rs 1.66 billion ever day to meet the target for development spending.
Dr Ram Sharan Mahat, who was finance minister in the last government, had allocated Rs 208.87 billion for development spending for the current fiscal year. However, the post-earthquake situation and the fuel shortage caused by the Indian blockade following the promulgation of the new constitution on September 20, 2015, rendered the government simply unable to spend its development funds.
Mahat last July 14 had presented a budget of Rs 819.47 billion for the current fiscal year, and the incumbent government has been able to spend only Rs 274.55 billion, or 33.50 per cent, of the total budget, according to FCGO.
The budget allocated Rs 484.27 billion for recurrent expenditures such as salary payments for civil servants, grants to local bodies and interest payment; Rs 208.88 billion for capital expenditure such as spending on civil works, purchase of land, building construction, procurement of furniture, vehicles, plants and machinery; and Rs 126.32 billion for the financing provision, which includes lending to state-owned enterprises and repayment of principal.
According to FCGO data, the government has been able to spend Rs 201.50 billion, or 41.61 per cent, under the recurrent budget, and Rs 44.15 billion or 34.95 per cent under the financing provision.
The budget has also allocated Rs 91 billion for the reconstruction of structures damaged by devastating earthquakes in April and May. But the incumbent government and the National Reconstruction Authority (NRA) are in no hurry to provide shelter to the homeless despite their plight in the winter that is going to be worse in rainy season in a month. They have already announced that the reconstruction work will only start after April 25, which will mark the first anniversary of the devastating earthquake.

Nepal-China transit treaty to shift geo-political balance

In a major geo-political shift, Nepal has signed a transit and transportation treaty with China today that will give the land-locked Nepal access to sea from China.
Currently, Nepal has the access to sea, which is vital for third country trade, only through India, the southern neighbour. India and Bangladesh are the only two other countries with whom Nepal has signed transit treaties. But the transit treaty with Bangladesh is based on India, as Nepal and Bangladesh do not share border, and thus has not been implemented fully.
However, today's treaty will give Nepal access to a Chinese port for its third country trade, which is expected to reduce Nepal's dependency on India for trade and transit.
Despite historic and socio-cultural integration between India and Nepal, India's imposition of economic blockade for almost five months generated widespread disenchantment in Nepal, forcing Nepal to seek trade alliances beyond the southern neighbour. Though Tianjin Port, the nearest Chinese port is 3,300 km away from the Nepal border – as against the closest Indian port of Kolkata which is only 1,000 km – the treaty is also expected to shift the geo-political power balance in the region.
The agreement on transit and transport with the People's Republic of China could be a psychological shift for the future, according to senior economist Bishwhambher Pyakuryal. "The agreement is going to have a huge psychological shift in otherwise India-locked Nepal as the country will now have an option for international trade," he said, adding that the implementation of treaty is but a herculean task.
Likewise, trade expert and former commerce secretary Purushottam Ojha also opines that the treaty is a milestone, but Nepal needs to invest its huge resources and efforts on road infrastructure to benefit from the treaty. "Nepal must increase road and railway connectivity to take advantage from the transit treaty and increase economic integration with China," he added.
Apart from widening of Rasuwagadi customs point, and upgrading Korala and Kimathanka customs points and access roads, Nepal also has to work hard to simplify trade-related issues, including visa, currency and language, to make the treaty work in its favour, Ojha said.
Likewise, Nepal has to exchange a protocol with China, which will define the procedures that need to be followed. Nepal also have to have railway connectivity to take advantage from the agreement, which will be automatically reviewed every 10 years, as ferrying goods via road through Tibet may not always be cost-effective and convenient.
The visiting prime minister Khadga Prasad Sharma Oli and his Chinese counterpart Li Keqiang today witnessed the signing of the 10-point bilateral agreement and memorandum of understandings (MoU), including landmark transit and trade deal, in Beijing's Great Hall of the People, according to a press communiqué issued by the Nepali Embassy in Beijing after the signing ceremony.
To increase the connectivity, China has also agreed to construct a strategic railway link between the two countries through Tibet. The railway link, which is expected to link Kathmandu and Tibet, is also likely to be expanded to Pokhara and Lumbini.
According to officials in the meeting, Oli's visit has raised the possibility of the construction of two rail lines connecting three of Nepal's most important cities. China has already expanded its railway service to Shigatse, in Tibet, which is around 450 km from Kerung. Kerung lies at a distance of around 26 km from Rasuwagadi in Nepal. China plans to extend its railway service to Kerung by 2020, and also a longer term plan of extending railway lines from Kerung to Kathmandu depending on geographic and technical conditions, as well as financing, according to the officials.
But, Nepal will have to enter into a separate deal with Beijing to make use of the Chinese railway service for trade purpose.
The high profile visit also witnessed signing of Memorandum of Understanding (MoU) between the Ministry of Commerce of the People's Republic of China and the Ministry of Commerce of Nepal for launching the Joint Feasibility Study of China-Nepal Free Trade Agreement (FTA). Based on the findings of the feasibility study, both the governments will decide whether to sign the FTA.
The FTA is, however, not going to benefit Nepali products, which have lost their competitive advantage against the Chinese products. "Nepal should have pushed for preferential trade agreement with China," Ojha said, "As Nepali products cannot compete with that of China's."
China has already given duty free access to over 8,000 Nepali products. Of the total trade, Nepal's exports to China stand at just 2 per cent, whereas Nepal's imports from China stand at 12 per cent, widening Nepal's trade deficit with China. "FTA will only further widen the trade gap," according to Ojha.
Trade between China and Nepal has been governed by Trade and Payment Agreement signed for the first time in 1974.
According to the press communiqué the two countries also signed agreement on concessional loan for a new airport in Nepal's Pokhara and a feasibility study for oil and gas survey projects, though the much-anticipated agreement on commercial import of petroleum products from China was cancelled at the last moment.
Likewise, China has also agreed to distribute solar panels in Nepal’s rural areas by tapping its Climate Fund, and build, manage and maintain Xiarwa Boundary River Bridge at Hilsa, Humla, apart from signing MoU to strengthen intellectual property system in both the countries, and extend cooperation and exchange information on banking regulation.

Kathmandu third most polluted city in the world

Kathmandu is the third most polluted city in the world, according to Pollution Index 2016.
The annual report published by Serbia-based research website Numbeo.com has ranked Nepal’s capital city at the third position with a score of 96.66. Last year, Kathmandu was ranked at the fifth position on the index in the beginning of 2015. Kathmandu has slipped two places to third in the middle of last year.
The rankings are based on visitors’ perceptions to the website that also include some relevant data from the World Health Organisation (WHO) and other institutions, the Numbeo.com reads, adding that the index is an estimation of the overall pollution in the city with the biggest weight given to air and water pollution.
According to the report, Tetovo city of Macedonia is the most polluted city, followed by Egyptian capital Cairo, whereas Philippines’ capital Manila, Noida and Delhi of India, Guangzhou of China, Ho Chi Minh City of Vietnam and Egypt’s Alexandria complete the list of the 10 most polluted cities.
Likewise, Nepal is ranked 17th on the Pollution Index for Country 2016, with Egypt being the world’s most polluted country.

Wheat production set to drop by 20.5 per cent

Nepal's wheat production is estimated to drop by 20.5 percent in the current fiscal year.

Wheat production forecast for 2015-16 is 1,570 metric tons, a 20.5 per cent decrease compared to the production level of 1,975 metric tons in 2014-15, according to CCAFS Regional Agricultural Forecasting Toolbox (CRAFT).

The first advance estimate of 2015-16 wheat production in Nepal, which has been conducted using CRAFT, has also forecast that the current fiscal year's figure is a 16 per cent decline from average production over the last five years.

The significant drop in production is attributed to an estimated five percent decrease in wheat cultivation area nationwide as compared to the 2014-15 season. "Wheat grown area decreased because of two main reasons – severe shortage of fuel for irrigation and land preparation, and limited availability and use of fertilizers – both of which were caused by the political crisis in the Tarai and restricted cross-border trade with India from September 2015 to February 2016," the study report says.

In addition, according to the International Centre for Integrated Mountain Development, cumulative rainfall during this winter season – from November 2015 to January 2016 – was far below the 30-year average.

Official reports from the Department of Hydrology and Meteorology, however, are yet to be published. "Because of inadequate soil moisture due to delayed and poor rains and limited irrigation due to the shortage of fuel, it was assumed in the CRAFT model run that the irrigated area decreased by 25 per cent and wheat plantation was late by 10 days," the report further added.

The preliminary estimate, which will be revised with updated data as the season progresses, has been jointly produced by the Ministry of Agricultural Development (MoAD), World Food Programme (WFP), and the CGIAR Research Program on Climate Change, Agriculture and Food Security (CCAFS) as part of the Nepal Food Security Monitoring System (NeKSAP).

CRAFT incorporates a crop simulation model (DSSAT), weather and seasonal forecast module (CPT) and a GIS mapping module, and it provides the support for spatial input data, spatial crop simulations, integration of seasonal climate forecasts, spatial aggregation, probabilistic analysis of forecast uncertainty, and calibration of model predictions from historical agricultural statistics, analysis and visualization that increase the authenticity of the estimation and correctness of the forecast.

"The tool helps to provide advance information to farmers, extension agents and policy makers allowing them to manage within-season climate risks to agriculture," the report said, adding that the model has been used in Nepal for a pilot study and is being currently used in Bangladesh, Sri Lanka and India as well.

Nepal happier than India

Nepal is a happier country than India, according to a global report.
The World Happiness Report 2016 Update – which was released in Rome yesterday, ahead of UN World Happiness Day – has ranked Nepal ahead of India, Bangladesh and Sri Lanka in South Asia. UN World Happiness Day is celebrated on March 20.
The study that ranks countries by their happiness level, has listed Nepal at the 107th ranks among 156 countries with a score of 4.793. Bangladesh is in the 110th position with a score of 4.643, Sri Lanka (4.415) is 117th, and India with a score of 4.404 is in 118th position. Similarly, Afghanistan is at the 154th position with a score of 3.360.
However, Bhutan and Pakistan are happier than Nepal, according to the report that has ranked Bhutan at 84th position with a score of 5.196 and Pakistan at 92nd position with a score of 5.132.
The fourth World Happiness Report reflects growing global interest in using happiness and subjective well-being as primary indicators of the quality of human development. It also reflects results of subjective well-being research, and is expected to enable policies that support better lives.
This year, for the first time, the World Happiness Report gives a special role to the measurement and consequences of inequality in the distribution of well-being among countries and regions. The report states that people are happier living in societies where there is less inequality of happiness. "They also find that happiness inequality has increased significantly – comparing 2012-2015 to 2005-2011 – in most countries, in almost all global regions, and for the population of the world as a whole," it added.
According to the report, Denmark is the world' happiest country followed by Switzerland, Iceland, Norway and Finland. Likewise, Burundi is least happy, followed by Syria, Togo, Afghanistan and Benin. Denmark overtook Switzerland as the world’s happiest place, according to a report that urged nations regardless of wealth to tackle inequality and the environment. The United States came in at 13, the United Kingdom at 23, France at 32, and Italy at 50.
The report, prepared by the Sustainable Development Solutions Network (SDSN) and the Earth Institute at Columbia University, showed Syria, Afghanistan and eight sub-Saharan countries as the 10 least happy places on earth to live.
The rankings, which are based on surveys in 156 countries conducted over three years (2013-2015), reveal an average score of 5.1, out of 10. Seven key variables explain three-quarters of the variation in annual national average scores over time and among countries: real GDP per capita, healthy life expectancy, having someone to count on, perceived freedom to make life choices, freedom from corruption, and generosity, stated the report 

'Nepal needs to boost competitiveness of its exportable items'

The US has asked Nepal to identify its needs for boosting competitiveness of exportable items so that Nepali products could stay competitive even after the expiry of trade preference programme.
"We will be taking Nepal government's input on what type of technical assistance it needs to stay competitive for longer time, even after the expiry of the trade preference programme by the end of 2025," deputy assistant US Trade Representative (USTR) for India and Nepal Dawn M Shackleford said.
The Nepal programme is authorised for ten years and is designed to help Nepal's economic recovery.
In addition to the duty-free tariff benefits from the trade preference programme, there is also a trade capacity building programme outlined in the legislation, focused on helping Nepal implement the World Trade Organisation's (WTO) Trade Facilitation Agreement (TFA), she added. "Thus, the US is ready to assist Nepal in trade facilitation under its technical assistance (TA)," Shackleford said without elaborating how much the assistance is worth.
Referring to her discussions with the Nepali authorities and private sector, she said that Nepal can take maximum advantage from the Trade Facilitation and Trade Enforcement Act. "Especially handicrafts can take advantage from the trade preference program," she added.
With a view to facilitating economic growth through trade, the US is establishing a new stand-alone trade preference program for Nepal. On February 24, US President Obama signed the Trade Facilitation and Trade Enforcement Act of 2015. The Act allowed the President to authorise special tariff preferences for Nepal to help support the country's economic recovery following the devastating earthquakes of 2015.
Under the Act, the US President will have the authority to grant duty-free tariff benefits for several products not currently eligible for benefits under existing trade agreements, including certain kinds of carpets, headgear, shawls and scarves, handbag, and suitcases. The exports of Nepali goods covered by the Act totaled $8 million in 2015.
However, she said that for the new preference program to go into effect, certain administrative steps need to be completed in the US. "First, the US President must certify that Nepal meets the country criteria and eligibility requirements of the programme which are the same as those for countries that participate in the GSP Programme and the African Growth and Opportunity Act," Shackleford, who is currently in Nepal to finalise the date for second TIFA meeting, said, adding that it might take few months. "In the first phase, the US looks at status of rule of law, anti corruption measures and human rights violation, and in the second the US administration is also required to request a review by the US International Trade Commission of the products covered by the preference programme to ensure that an increase in imports of these products into the US market will not negatively affect the US economy," she said, adding that these statutorily-required reviews will take several months to complete, but the administration is making efforts to complete the processes as soon as possible.
In 2015, total trade between Nepal and the US was worth $123 million. During the year, Nepal exported goods worth $87 million to the US. Of the exports, Nepal enjoyed access to duty-free treatment for eligible products under the Generalised System of Preferences (GSP) of approximately $5.8 million.

NEPAL NEEDS TO PUBLICISE REFORMS
Shackleford also suggested Nepal to publicise its economic reform efforts to attract foreign investments. "There are investment opportunities in Nepal, but the investors should be made aware of the opportunities it offer," she said, adding that foreign investors should know what reforms have Nepal made to ease doing business in Nepal. "Based on the new Trade Policy and comparative advantage in growing ICT, tourism and service sector, Nepal should exploit its opportunity," she added.

Government damaging business environment

•    The government, which has allowed Birat Petroleum to sell petrol at Rs 130 per liter -- Rs 31 higher than the price fixed by Nepal Oil Corporation (NOC) -- is arresting drugs manufacturers on charge of promoting black-market.
•    A single-engine aircraft of Air Kasthamandap crashed on February 26. The government, without any further investigation, banned operation of single-engine aircraft across the country. Why and how was single-engine aircraft permitted, and why has it been banned with the ministerial decision?
•    Government agencies are confiscating Surya cigarette, stating that it was not carrying health warning message on 90 per cent of the packet, though the Act to Control and Monitor Tobacco, 2068 BS states the warning pictures should cover 75 per cent of the packet.

These are some of the examples that show how the government is destroying investment climate in the country. On one hand, the government claims that private sector is the engine of economic growth, and on the other it is discouraging and harassing the private sector, and promoting 'black economy'.
The decision to allow Birat Petroleum to sell petrol at Rs 130 per liter when NOC is selling it at Rs 99 per liter is an act of promoting black-market, according to consumer rights activists Jyoti Baniya. "The government itself is promoting the informal economy," he added.
The government is, in a planned way, harassing industrialists and encouraging black economy which will in turn send negative message to investors. President of Federation of Nepalese Chambers of Commerce and Industry (FNCCI) Pashupati Murarka said that recent incidents aimed at harassing private sector will send negative message to potential investors. "Industrialists are not criminals," he said, adding that the government was treating investors as criminals.
Prime Minister Khadga Prasad Sharma Oli and his cabinet members – from ultra-right to ultra-left politicians – repeatedly preach about promoting private sector and liberal economy. But in action, they are completely against the liberal economy and the private sector. Rather they are promoting crony capitalism, an industrialist said preferring anonymity. “The government is promoting market-distorting practices and crony capitalism in the name of encouraging private sector,” he said, adding that industrialists were only milking cow for them.
According to Advocate Jagdish Dahal, Nepali legal system is not development and economic prosperity-friendly. "Unstable governments and arbitrary decision of ministries are inflicting more damage on our efforts for economic development,” he added.
Any investor – be it domestic or foreign – invests in a country where there is policy stability, Dahal said, adding that the investors can be assured of their business age on the basis of policy. "However, instability in Nepal has been a headache for investors as the instable policy, including law, has damaged country's investment environment."
Industrialists also are surprised at the way policy keeps changing in Nepal. Vice president of Surya Nepal Ravi KC says that the government has every right to update policy according to time. He, however, says it must involve stakeholders concerned in discussions before changing laws, adding that one policy change can impact thousands of employees and billions of revenue to the government. "Likewise, frequent changes in policy will increase risks in business," Dahal said, adding, "Neither domestic nor foreign investors will invest in Nepal in such scenario."
The government has been eroding its capacity to spend development expenditure, and failing to create employment in the country, pushing thousands of youth to Gulf and Malaysia every year. It has not been able to amend acts and policies that have hampered development works, but is quick in amending acts and policies that discourage investors.
The government move is pushing industrialists to become traders as they do not want to take any risk by investing in industries, according to industrialists. They say that the government is to be blamed for shrinking contribution of the manufacturing sector to the economy. According to the Central Bureau of Statistics (CBS), the manufacturing sector is expected to grow by 2.35 per cent in 2015-16 compared to 2014-15.
Dahal attributes the government's moody policy-making for declining growth of manufacturing sector. "The current legal system is not development-friendly," he said, adding that the delay in courts have been a major deterrent to economic growth and private sector.
Likewise, the Doing Business Report of the World Bank has also revealed that Nepal's investment climate is not encouraging for doing business. In the Doing Business Report 2016, Nepal fell five notches to 99 due to weakness in regulatory and reform process.