Budget to push more Nepalis into poverty

The expansionary nature of the budget for the next fiscal year is going to push more Nepalis into poverty, although the government has promised to reduce the percentage of people under the poverty line.
Currently, some 21.6 per cent of Nepalis are under the national poverty line, whereas the government aims to bring it down to 18 per cent, according to the budget for fiscal year 2016-17.
However, the government's distributive and expansionary budget is going to push more Nepalis under the poverty line, thanks to increasing inflationary pressure, said economist Prf Dr Bishwhambher Pyakuryal.
Finance Minister Bishnu Poudel yesterday presented a budget of Rs 1,048.9 billion for fiscal year 2016-17 in Parliament, with an aim of reducing poverty, increasing economic growth and preparing the base for a prosperous Nepal, apart from implementation of new Constitution.
But the hike in the salary of government employees by 25 per cent and grade – making it to around 40 per cent salary hike in total including increased grade – and various distributive programmes in the budget will push market prices up, he said, adding that while the salary hike could be justified as the cost of living is increasing, the impact of the hike on the market will hit non-government employees and daily wage workers hard. "People who earn their living from day to day wage are most at risk of falling back into poverty will be dragged below the poverty line."
The 13th periodic plan that had aimed to bring the poverty rate down to 18 per cent failed mainly because of the failure of successive governments to create employment in the country and also rising inflation over the last three years. "Likewise, inflation fuelled by expansionary fiscal policy will again thwart the government's poverty reduction target," he added.
The 'socialist-oriented budget' has doubled the social security blanket and placed an extra burden on state coffers. This may have been necessary, but the distribution of the budget across all the 'dream projects' would not contribute to capital formation and increased productivity, according to former finance secretary Rameshwor Khanal."This could be disastrous for the economy," he added.
Likewise, the budget – that claims to strive for a self-reliant economy but has been overly dependent on foreign grants and loans, and also revenue from imports – has also failed to enhance market monitoring capabilities and crack the whip on price inflation.
The deficit budget, which aims to mobilise Rs 565.9 billion from revenue – mostly from the imports like customs, excise and VAT – has failed to introduce any radical reform in the revenue administration. Citing the examples of economic crisis in Greece and Venezuala, Khanal claimed that the estimation of large revenue without any sustainable base could lead to disaster.
Similarly, the budget has estimated Rs 10 billion to come through principal repayment and Rs 106.9 billion through foreign grants. The resulting deficit will be financed through foreign loans of Rs 195.7 billion, domestic loans of Rs 111 billion and Rs 59.4 billion from savings of the current fiscal year.

PEs profits up, dividend down

Though Public Enterprises (PEs) recorded impressive profit in the fiscal year 2014-15 compared to a fiscal year ago, their return has decreased.
They posted net profit of Rs 33.92 billion in the last fiscal year compared to Rs 5.5 billion, some Rs 29 billion in 2013-14 more, according to a report published today by the Finance Ministry. But they paid Rs 6.45 billion to the government as dividend, which is less compared to what they had paid a fiscal year ago.
Of the 37 PEs, some 20 posted net profit, whereas other 14 are still in net loss compared to 15 in 2013-14. NOC, which was in net loss in 2013/14, logged impressive profit in the last fiscal year.
"The net profit of these PEs was Rs 5.5 billion in 2013/14. In 2012/13, they had reported net profit of Rs 11.4 billion," the report added.
Despite regular political bickering, increasing red tape and weak governance, PEs were in green due to huge profit churned by Nepal Oil Corporation (NOC), Nepal Telecom, Rastriya Banijya Bank Ltd (RBBL) and Agriculture Development Bank Ltd (ADBL).
NOC, which used to be in loss in the past years, recorded profit of Rs 15 billion in the last fiscal year, whereas Nepal Telecom, RBBL and ADBL have been contributing huge revenue to the state coffer after they successfully underwent reforms.
In 2013/14, NOC had had reported loss of Rs 6.25 billion.
Though profits of PEs have increased, their return to the government has decreased. In 2013/14, five PEs -- Nepal Telecom, Industrial District Management Ltd, Hydroelectricity Investment and Development Company, ADBL and Citizens Investment Trust -- had paid Rs 6.61 billion as dividend to the government. However, in the last fiscal year, only Nepal Telecom, Industrial District Management and National Housing Company paid Rs 6.45 billion dividend -- some 1.59 percent of GDP -- to the government.
"The return is only 5.12 percent of the government investment on PEs," the report said, adding that the rate of return is lower than the current interest rate. But PEs also pay income tax, Value Added Tax (VAT), and other non tax revenue to the government.
The government has made share investment of Rs 126.16 billion on PEs, according to the report.
Likewise, total operating income of 37 state-owned enterprises increased by 5.06 percent to Rs 270.48 billion in the last fiscal year from Rs 257.81 billion in 2013/14 -- 15.48 percent up from Rs 223.26 billion in 2012/13.
Though it alone cannot gauge the overall efficiency of PEs, the rise in operating income reflects improvement in efficiency of state-owned enterprises.
According to the report, three PEs -- Nepal Engineering Consultancy Service Center, National Construction Company Nepal and Janakpur Cigarette Factory have not submitted any financial data to the government as they have already paid off their employees.

Strikes bleeding national economy

The country came to a standstill today due to a strike by public transportation. While private vehicles were able to ply the roads, the strike by public transport limited movements in the industrial sector and movement by the public at large as well.
While a general strike for one day causes the country a loss of Rs 2 billion, a day's strike by public transport will cost the economy half that amount, or around Rs 1 billion, according to the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), the umbrella organization of the private sector. As lack of movement will curtail the flow of goods, that will also send up the price of consumer goods too.
Strikes in the transport sector hit the industrial sector first, according to FNCCI President Pashupati Murarka.
The movement of industrial goods has been halted, causing a loss to industry, he said suggesting transporters not to take any extreme measures like going on strike and to sit for talks instead. "The government should also at least listen to them," he added.
Transport entrepreneurs and transportation workers associated with various transport associations including Nepal National Transport Entrepreneurs Association called the strike today to protest against the government's recent move to hike penalties for traffic rules violations, with effect from May 14.
The strike has inflicted losses on transport entrepreneurs also, according to Muraraka. "A truck owner, who could have earned Rs 10,000 a day lost that income," he added. "The transport sector itself is suffering from the Indian blockade of almost five months and this strike will not do any good to the thousands of people associated with this sector."
The transport sector is expected to grow by only 0.5 per cent in the current fiscal year because of the Indian blockade, according to the Central Bureau of Statistics (CBS).
Similarly, a study by Nepal Rastra Bank (NRB), the central bank, shows that the direct cost of general strikes during 2008-2013 stood at Rs 1.8 billion per strike day and Rs 27 billion for a year at current prices. "The lost output per year accounted for 1.4 per cent of the annual gross output," it reads, adding that the total accumulated output loss due to general strikes in the five-year period amounted to Rs 117 billion.
With such losses, general strikes decelerated annual GDP growth rates in a range between 0.6 percentage points and 2.2 percentage points during 2008-2013.
The transport strike, however, hit consumers hard also. "The monthly inflation rate jumped to over 9 per cent as a result of a two-day general strike while strikes called for three or more days led to an inflation of more than 10 per cent," the central bank report says.
The strikes not only hit the industrial sector but the social sector also as people could not get to hospitals for lack of taxis.

SDF, ADB ink pact for co-financing of projects

SAARC Development Fund (SDF) and Asian Development Bank (ADB) signed an agreement for co-financing of projects, regional connectivity and development of the SAARC region.
"ADB and SDF have signed a Memorandum of Understanding (MoU), agreeing to collaborate for the development of the SAARC region through co-financing of projects and programs focusing on regional connectivity/integration and economic cooperation among the SAARC member states," a statement issued today by SDF reads.
The two institutions have also agreed to provide technical assistance and investments for co-financing on the three windows of SDF, Micro Small Medium Enterprises (MSME) Programme and Social Enterprise Development Programme (SEDP), and any other new areas which can be covered under the pact, according to the statement.
Established to promote the welfare of the people of SAARC Region, improve the quality of life, and to accelerate economic growth, social progress and poverty alleviation in the SAARC Region, SDF recently has also signed yet another agreement with Asian Infrastructure Investment Bank (AIIB) in April to co-finance SAARC projects.
SDF, which was established in April 2010, has three financing windows; Social, Economic and Infrastructure.
The Social Window primarily funds projects, inter alia, on poverty alleviation, social development focusing on education; health; human resources development; support to venerable/disadvantaged segments of the society; funding needs of communities, micro-enterprises, rural infrastructure development that are in line with regional consensus as reflected in the SAARC Social Charter, SAARC Development Goals, SAARC Plan of Action on Poverty Alleviation and other SAARC agreed and endorsed plans, programmes and instruments.
Likewise, the Economic Window extends funding to non-infrastructural projects related to trade and industrial development, agriculture, service sector, science and technology and other non-infrastructure areas. Similarly, the Infrastructure Windows will be utilized to fund projects in areas such as energy, power, transportation, telecommunications, environment, tourism and other infrastructure areas.

Government told to start work for granting transit rights to India, China

Experts have proposed to the government start homework for granting transit rights to both the neighbors.
Presenting a paper entitled 'Toward a New Framework for Nepal's Trade and Industrial diversification' at the International Conference on Key Trends in China-Nepal-India Relations and New Development Strategy for Nepal,' jointly organised by South Asian Institute of Management (SAIM), Institute for Integrated Development Studies (IIDS) and Nanyang Technological University of Singapore, in Kathmandu today, former finance secretary Rameshwor Khanal said that the two neighbours – India and China – will, sooner or later, ask for transit rights. "Nepal should start homework right now to make sure that transit agreements would be in its favour,” he added.
He also proposed implementing connectivity infrastructure projects that support transit and trade diversification in the changed context of recent trade and transit blockade.
As the need of the hour is to diversify trade for a self-reliant economy, Khanal also proposed promoting energy-intensive industries, developing cross-border energy market and economic corridors along north-south transit routes, and promoting high value niche products and specialized services for trade diversification.
“Nepal has failed to diversify trade and transit even though each periodic plan – after the second periodic plan – has been emphasising on trade diversification, export promotion, foreign investment promotion,” Khanal said, adding that the country is still harping on trade diversification after six decades of the planned development practice.
Nepal started planned development practice from 1956 when over 95 per cent of its trade was with India. Trade with Tibetan Autonomous Region of China was confined to border region and most of it was bartering. Nepal had little to export to outside world then.
With foreign assistance, particularly from the then Soviet Union and China, critical manufacturing factories that aimed at import substitution were established in the decade following 1956. But following the calibrated reforms of 1985-86, policy reforms spanning all sectors of the economy were implemented between 1990 and 1992, he added. "The reforms led to trade diversification, growth of manufacturing sector, export growth, and some of the positive changes could also be seen lasting until 1998."
However, overall development policy did not support the trade and industrial policies started during the economic reforms of post-1990. Lack of continuity of reforms, weak institutions, and above all no infrastructure support held back the growth, Khanal said.
Commenting on his paper, chief executive of Investment Board Nepal (IBN) Radhesh Pant said that finance is not the problem for infrastructure development in Nepal. "Finance is the least of the problems," he said, giving examples of how foreign investors have been eager on putting money on Nepal's infrastructure development ranging from hydropower projects to cement factories.
Nepal needs huge investment in infrastructure development to meet the gap that can fuel economic growth, according to former member of the National Planning Commission (NPC) Swarnim Wagle. Hailing Chinese approach to development, Wagle said that quick delivery of aid without strings attached will help infrastructure development in Nepal.
In his paper on 'Asian Infrastructure Investment Bank (AIIB) and Infrastructure Construction in South Asian Countries', Prof Dai Yonghong, Director of Center for Myanmar Studies in Sichuan University and Deputy Director and Center for Nepal Studies in Sichuan University, highlighted benefits of Nepal as a transit economy. "It will help strengthening sub-regional cooperation between Sichuan-Tibet and SAARC, adjusting the area of cooperation, establishing Sino-Nepal FTA, and build Nepal overland trade route," he said, adding that it will also strengthen infrastructure development in border areas, apart from expansion of trade preferences and encourage investment, and expanding tourism cooperation, innovation and tourism business one-stop service mode.

Kathmandu more riskier due to informal building expansion, World Bank reports

Earthquake risk in Kathmandu is expected to double in next 2 decades due to informal building expansion, according to a new report by World Bank.
The report ‘The Making of a Riskier Future: How Our Decisions are Shaping the Future of Disaster Risk’ claims that earthquake risk in Kathmandu is expected to increase by 50 per cent by 2045 due to informal building expansion.
The new report has also warned that the world is ill-prepared for an increasing rise in disasters, spurred by climate change, rising populations and increasing vulnerability of people in large cities and unregulated housing.
It calls for a radical new approach to assessing risk, which takes into account extremely rapid changes in global disaster risk.
Using vulnerability curves developed through incremental dynamic structural analysis for each possible building configuration, a stochastic building expansion model was presented to simulate possible expansion sequences over the lifetime of a building. The model was then used to simulate an entire neighbourhood in the Kathmandu Valley area, and analysed to understand neighbourhood-level risk over time, based on a reproduction of the 1934 Nepal-Bihar earthquake that destroyed the city.
The researchers found that there is a significant earthquake risk linked with informal building expansion. While the risk is easy to overlook for a single building or short time frame, given enough time and scaled to entire neighbourhoods, the study revealed that the incremental expansion process can profoundly shift earthquake risk.
“Governments should consider policies to control the most dangerous expansions and/or should develop design guidelines for expanding safely,” the report reads, adding that both of these steps would have significant impact on reducing the future risk of cities.
It further said that the disaster risk of rapidly changing cities is predictable, even if it has significant uncertainty. Probabilistic hazard models can be combined with modern structural analysis tools, simulated building expansion, and other models to gain an understanding of the main trends in the disaster risk of cities.
“As part of efforts to ensure that cities are resilient to future disasters, these tools can serve as the basis for risk-informed urban planning and policy analyses that place urban environments on a trajectory to minimise future risk," it adds.
Annual total damages from disasters have been increasing for decades and models show that population growth and rapid urbanisation could put 1.3 billion people and $158 trillion in assets at risk from river and coastal floods by 2050, according to the report.
“With climate change and rising numbers of people in urban areas rapidly driving up future risks, there’s a real danger the world is woefully unprepared for what lies ahead," World Bank Group’s senior director for climate change John Roome has been quoted as saying in the media release issued today. “Unless we change our approach to future planning for cities and coastal areas that takes into account potential disasters, we run real risk of locking in decisions that will lead to drastic rises in future losses,” he said.
In examining literature and case studies from around the globe, the report cites studies showing that densely populated coastal cities are sinking and when coupled with rising sea levels, annual losses in 136 coastal cities could increase from $6 billion in 2010 to $1,000 billion in 2070.
It also cites research warning that in Indonesia, river flood risk may increase 166 per cent over the next 30 years due to rapid expansion of urban areas, while the country’s coastal flood risk could rise by 445 per cent.
Over 700 experts and thought leaders will gather in Venice in May end to examine the critical role of technological advances in disaster risk management. The 2016 Understanding Risk Forum, hosted by Global Facility for Disaster Reduction and Recovery (GFDRR), will showcase the latest innovations, exchange ideas and form partnerships on risk identification and assessment.

Government targeting 6.3 per cent growth for next fiscal year

The government is targeting 6.3 per cent economic growth in the budget for the next fiscal year.
Releasing an approach paper for the 14th three-year plan during a meeting of National Development Council (NDC) today, National Planning Commission (NPC) vice chairperson Dr Yubraj Khatiwada said that the 14th periodic plan has targeted an economic growth of 6.3 per cent for the next fiscal year 2016-17. "The government is preparing budget for the next fiscal year," he said, adding that it will be based on the approach paper of the 14th periodic plan.
He also said that the plan has targeted agriculture sector to grow by 4.5 per cent in the next fiscal year, followed by 7.3 per cent growth of non-agriculture sector. "Likewise, the industry sector is estimated to grow by 8.7 per cent, and service sector is estimated to grow by 6.9 per cent in the next fiscal year," he added.
Khatiwada also said that the 14th periodic plan has targeted average economic growth of 7.1 per cent in the next three fiscal years.
The 14th periodic plan – which starts from the next fiscal year 2016-17 and last till 2018-19 – will be the fourth interim three-year periodic plan instead of the traditional five-year periodic.
The plan has envisaged economic growth of 6.3 per cent for 2016-17, 7.2 per cent for 2017-18 and 7.9 per cent for 2018-19, Khatiwada said, adding that by the end of the 14th periodic plan the country will see an average economic growth of 7.1 per cent.
He also claimed that the country most post economic growth of more than 7 per cent not only to achieve developing country status from current Least Developed Country (LDC) status by 2022 but also to upgrade to the middle income country by 2030 from the current low income country status.
However, country's economy will grow by a mere 0.77 per cent in the current fiscal year, according to the Central Bureau of Statistics (CBS). The government had targeted economy growth of 6 per cent for the current fiscal year.
Country's average annual economic growth remained 2.92 per cent in the 13th periodic plan period which had targeted an average economic growth of 6 per cent in the past three fiscal years, including the current fiscal year which was hit by subpar monsoon, five months of Indian economic blockade since September 20, and the devastating earthquakes of April and May last year.
"This fiscal year we have an excuse because of the earthquakes and supply obstructions due to Tarai-Madhesh unrest," prime minister Khadga Prasad Sharma Oli, who is also the chairperson of NDC. He, however, said that the country has to move forward toward economic prosperity.
The first periodic plan after the promulgation of constitution envisages preparing a base for the welfare state and socialism-oriented economy, though the government has also reiterated to give enough room for the private sector for economic growth. The country needs to invest Rs 2.40 trillion – for next three years – to achieve an average growth of 7.1 per cent. But the eroding government capacity to spend has been a huge challenge lately.
Premier Oli accepted that the government has been unable to spend development budget. "The depleting absorptive capacity of the development budget has to be corrected," he said without elaborating on how his government plans to boost development expenses.