JUL 20 - Last Tuesday, Finance Minister Ram Sharan Mahat presented a Rs 819 billion budget with a special focus on reconstruction, rehabilitation, infrastructure development and balanced regional development. Many hailed the budget for its special mention of the Tarai, among others, while others have termed it a document without vision and of being populist. Vidhyadhar Mallik , former Minister for Health and Population and Federal Affairs and Local Development and former finance secretary spoke to Dewan Rai about the strengths and weeknesses of the bugdet, the supposed focus on the Madhes and the allocation of budget for future provinces.
What is your assessment of the budget?
The budget has tried to instill hope in the public by covering varied sectors and as a step towards normalcy after the devastation of the quake. But I believe that it has weakened fiscal discipline.
Which aspects of the budget give hope?
The proposed fund for reconstruction is a good step. So, even if the formation of the proposed Reconstruction Authority gets delayed due to political reasons, there is no need to be worried about initiating the formation process. The budget has set aside Rs 91 billion for it. However, implementation of the budget still remains a challenge.
Isn’t that always the case? What are the challenges?
Declaring this fiscal year as a ‘budget implementation year’ is not enough. The main issue is whether we have the structure and machinery to translate this into reality. We are still not sure whether the Reconstruction Authority will be set up. Even if we presume it will be, we aren’t sure how effectively it is going to be. We know the budget has allocated enough money to begin reconstruction works, even without setting up the Authority, but there is no blue print of the project. All we have is a minister’s statement. The Finance Minister, in a press meet, claimed that he would bring the money for reconstruction from anywhere in the world. It was just an emotional thing to say, which political leaders are good at. What is difficult is to translate the plan into reality. We need to have a mechanism in place. We have still not talked about the appointment of office bearers, let alone operational guidelines.
What could be done to make the budget work?
The problem lies with the state machinery which we keep complaining about but never reform. With the prevalent levels of corruption and capability of employees and their history of delivering results, it will not take long to turn hope into disappointment. However, these are not things that can be improved overnight. The least we could do now is to have the Reconstruction Authority ready with the appointment of its office bearers and terms of reference to begin the mammoth task at hand.
What are your specific concerns about the budget?
This problem this time is that Mahat presented the budget more as a politician, and not as an economist. Fiscal discipline is important in a liberal economy. But he has made a huge mistake by setting aside 10 percent of the budget target to be meet from domestic loan. Secondly, he wants to spend the savings of last year. Now, we should make sure we are pumping the money into productive sectors that have the possibility of making returns. The problem is that most of the budget is allocated to regular expenses, which is risky.
More than 60 percent of the budget is spent on administrative expenses, which means a huge amount of the budget will not be utilised for employment generation, capital formation and financial growth. Besides, look at the source of the capital expenditure, which is essentially foreign aid and we are not sure if we have received them. The donors have their own conditions. They want project documents, which we do not have yet. Besides, the perennial problems such as political influence, transfer of employees, implementation capacity and systematic weakness are already there.
So what happens now and these challenges are hardly unique to this Finance Minister?
Chances are that the loaned money will be spent in unnecessary programmes. But if the budget is spent as planned, well and good. I see a chance of inflation. The size of the budget is huge with a huge loan component. When you take huge loans and cannot spend them in productive sectors, it will increase the inflation. The budget this year is inflationary.
There is talk that Madhes finds special mention in this year’s budget?
There is nothing new to it. The Madhes has been receiving the same amount of budget for similar programmes. The plans to complete the Postal Road or to build deep tube-wells or irrigation canals are nothing new. It only seems to have been pitched in the budget as a strategic measure to address the grievances of the Madhesi people. The programme should have been more specific and focused on the existing problems, instead of making a generic announcement for the entire Madhes. For instance, parts of the Tarai districts that lie south of the Mahendra Highway have low levels of literacy and high poverty rates as the population living there is predominantly Dalit. The region is backward in terms of employment, education and health facilities. The budget could have instead brought a focused programme for this population. Further, it’s not just about the Madhesi population in the Tarai belt, half the population of Nepal lives there. Frankly, I don’t think the budget is proportionate to the Tarai population.
Will the Postal Road improve the situation of the region?
What the Tarai needs is more economic activities, awareness, employment, health and education. There is vast segment of the poor population in the plains that are not integrated in economic activities. The situation is appalling. Roads are not a solution to everything. Look the situation of Kailali and Kanchanpur. You hardly see trucks trasporting goods from there but instead see goods being transported to these districts.We do need roads. But more importantly, we must seek to address specific problems in specific areas. There is a group of experts and politicias who believe that infrastructure—roads, hydropower projects, bridges—is the panacea for underdevelopment. So, while we do need roads and hydropower projects, we also need to invest on human development. We have to invest in health and education, of children and the elderly. If we are to tackle poverty, the state should give utmost priority to the rural people and marginalised communities.
The budget for education and health has been reduced significantly; this is impractical. Arguing that five percent of total budget for health constantly suggests there is no problem in the health sector is not true. And allocating merely 12 percent of the budget to education at a time when the number of universities are ever increasing is also impractical. How can we expect the education sector to flourish when we are not ready to increase investment in it? To decrease investment in social sectors is not a good sign.
How do you view the step to allocate budget for the federal structures?
The budget has mentioned road construction to connect federal units and develop Kathmandu as federal capital. It should have mentioned the provincial level structure and guidelines, which is the duty of central government. There is already an agreement for carving eight provinces and there should have been a basic outline on their financial regime. What will be the prototype of eight provinces and its relation with central government? This is also a part of state restructuring. All the ministries should think of replicating the work done by a ministry—like institutions at the local level. The government can then appoint experts to draft an outline to replicate the ministries.
The proposed Federal Commission will also be entrusted with the responsibility to decide on the Village Development Committees (VDCs) and municipalities. The budget offered packages to merge VDCs which is a good move. The problem is that there are only government employees in the VDCs. Suppose, two VDC secretaries agreed for a merger, then what will happen? We have to ensure participation of the public.
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