The government has set a target of 6 percent economic growth rate for the fiscal year 2014-15. Nepal’s average economic growth rate during the last decade remained at 4.1 per cent, hovering between 2 to 5 percent. Finance Minister Dr. Ram Sharan Mahat, popularly labelled as a liberal economic policy crusader, thinks that the budget projections and the corresponding waves “will kick-start the economy”. His announcement has drawn mixed response from economists and experts. Given the continued underperformance in the capital expenditure, of the government, some experts have dubbed the government’s as “biting more than it can chew”. On the other hand, some other experts see it an achievable target. Siromani Dhungana of New Business Age spoke to two renowned economists on the issue:

 

‘‘It is not an easy task to lure private investment’’

 

The government has planned to graduate from the status of least-developed country to the status of developing country by 2022. To achieve this, it needs to have 9.2 percent average growth rate for the coming eight years. In this context, 6 percent growth target seems to be reasonable. But the budget unveiled by Dr Ram Sharan Mahat has failed to revitalise dream of economic growth. 

 

The budget has failed to outline actions necessary to materialize the growth target into reality. The growth target seems to be set without meticulously studying the requirements. It would not be unrealistic if the government had initiated homework and accelerated necessary economic activities before announcing the budget. Given the lack of necessary groundwork and the existing economic scenario, achieving 6 percent economic growth rate during the current fiscal year is almost impossible.

 

Delayed monsoon is expected to affect agriculture productivity in the current fiscal year, which in turn will definitely affect the economy. 

 

Further, this budget exhibits status quoist traits, lacking clear direction and vision. It has given continuity to traditional projects and programmes pattern and in doing that has failed to envisage any meaningful intervention that could materialize its commitments into reality.

 

Even though it has assured policy reforms, a point much welcomed by the private sector, the assurance seems to be as rosy as the budget itself considering the fact that the policy reform process has not been initiated yet. Since policy reforms cannot be completed over night, fulfilling these commitments during this fiscal year is not possible. If the government sincerely wanted to translate its words into action, it would have already begun the policy reform process.

 

Investment from the private sector is an important prerequisite to achieve economic growth rate target. Despite positive reaction from the private sector, I doubt if they will invest as expected given the fact that the investment climate remains constant to what it was last year. It is not an easy task to lure private investment and I think, the reality will be different than being portrayed by the Finance Minister.

 

Containing inflation is another challenge in achieving this growth rate. The expansionary nature of the budget will fuel more liquidity in the market that will stimulate aggregate demand of the economy. This will result in higher inflation and it seems the government will fail to contain inflation at 8 percent. Since the government has failed to introduce any tangible measures to control it, people at the bottom of the income ladder will suffer from it.  Despite its promise, it is sure that the government cannot come up with assertive actions to end illicit practices such as syndicate and cartel.

 

The government has failed to put forward concrete measures to tackle other economic problems like crumbling manufacturing sector, whopping trade deficit and continued hurdles at the local level in implementing big infrastructure projects. 

 

Furthermore, continued underperformance of the government in capital expenditure will also pose obstacle to achieve the growth target. The capital budget allocated (18.9 percent) will be insufficient when compared to high recurrent expenditure. Adding to it, the budget has not provisioned necessary institutional reforms to ensure improvement in capital expenditure.

 

Considering its language and some attractive programmes in the hydropower sector, it seems that the budget has taken a positive direction. But the overall commitments made by it are not realistic and therefore not achievable. This government should not forget that it is easy to make commitments but hard to deliver them. Though presently the Finance Minister has succeeded in creating hope among business community through this budget, its ambitious nature will come to the fore with the passage of time.

 

‘‘FM has been successful in raising hopes to improve the fragile economy’’

 

This is the first full-fledged budget that was unveiled on time in the last four years. Given the improved economic activities, improved investment climate, movement of macroeconomic scenario in positive direction and a favourable political climate, this fiscal year’s 6 percent economic growth rate target seems achievable. During the FY 2013-14, the government had projected 5.2 percent economic growth rate, hence overall economic activities are expected to take positive direction during this fiscal year. Through this budget, Finance Minister Dr Ram Sharan Mahat has been successful in raising hopes to improve the fragile economy of the country and this hope is not baseless. 

 

The rising flows, though marginal, of fresh loans to the private sector and bullish trend in the share market are evidences of improved business climate. Thus, the private sector investment is expected to increase during this fiscal year. Based on the initial reaction, we can say that the budget has further succeeded in boosting confidence of the private sector, which will encourage them to inject more capital in the economy. 

 

The government seems committed to expedite capital expenditure and since this government is comparatively stable than the erstwhile governments, capital expenditure performance will automatically improve during this fiscal year. Adding to it, timely introduction of a full fledged budget will have positive impact on capital expenditure. Last year, the administration was focused more on CA election but this will not be the case this fiscal year. 

 

Market forces are next basis to claim that growth rate target is achievable. Consumption is expected to increase and other economic activities in the market are also moving in positive direction. The country has been continuously witnessing increment in consumption expenditure, as it stood at impressive 18 percent growth on average in the last nine years. Consumers’ willingness to spend will help in the mobility of money in the market, which will in turn contribute in gaining the growth target. 

 

Remittance money has been the main factor behind the rapid growth in consumption expenditure in the recent years. If the government can channelize remittance money into more productive sector by encouraging migrant workers to invest in small and medium enterprises that will add muscles to the government’s plan of gaining the objective.

 

Another sector, which can tremendously help in gaining the target, is the tourism sector. Political stability has improved overall growth of this sector. During last fiscal year, income from tourism sector rebounded over 30 percent and the share of tourism sector to GDP increased to 2.4 percent. Owing to improved political scenario, growth in this sector, along with the service sector, are expected to be better in the current fiscal year. There are fears in the market that the delayed monsoon will affect productivity of agricultural sector. But a few weeks' delay won’t affect the overall economy considerably. 

 

Though increasing industrial performance, containing inflation and ensuring social securities programmes are challenges for the government, sincerity to implement the programme will overcome these challenges.