In many ways, Baburam Bhattarai government has been a disappointment on political and economic fronts. When he came to power in August 2011, many, including this newspaper, had welcomed him in the hope that he would implement much-needed economic reforms in the vital sectors and reenergize the yawning economy. Such high hopes were obvious given his above-average performance as the finance minister in the government formed after the CA election in 2008. However, 18 months down the line, such hopes have faded, and based on recent half-yearly statistics released by the Ministry of Finance, the overall economic performance of this year is going to be much worse than the past years. We have the following few reasons to state.
At a time when most South Asian economies are revising their economic growth forecasts upward, Nepali government downgraded its forecast to 4.1 percent from its target of 5.3 percent. Given the deepening political instability that has deeply eroded investors’ confidence and fuelled many unexpected headwinds, the growth is likely to hover around 3.6 percent. Similarly, inflation continues to remain above double-digits, whereas the annual target was to contain it around seven percent. As a result of rapid deindustrialization due mainly to toxic combination of labor unrests and acute power shortage, the trade deficit has increased alarmingly by 24 percent.
However, of all the economic ills, dwindling capital expenditure that mainly finances development activities has lately become the most worrisome issue. Undoubtedly, weak expenditure is one of the major causes of slow development pace of Nepal. That is the reason why experts say that Nepal is poor not due to the lack of resources, but mainly due to weak expenditure capacity. The latest government statistics has once again proved that past reforms in public expenditure have not been able to cure the ills.
According to the data, the overall capital expenditure shrunk by almost 20 percent compared to last year. This is an awful decline, and we believe it is one of the testimonies to the fact that the current government has failed to bring much-needed change that enhances implementing capacity.
We have reiterated the need for rigorous reforms that should deal with the deep-rooted systemic problems persisting at development-related ministries, which absorb three-fourths of the development budget. It is a fact that the government keeps on increasing the number of projects and the size of the budget every year, but pays no attention to the need for improving their institutional capacity to execute development projects. For example, the Ministry of Physical Planning and Construction, which gets the biggest fund for road construction, hardly spends beyond three-fourths of the allocated budget in total.
Against this background, we think there is an urgent need to initiate a major institutional reform in the way programs are implemented. It generally takes months to compete complex procedures of awarding contracts. When contract is awarded, the contractors take at least another month to manage laborers and equipments. So the construction works begun in February continue till the arrival of monsoon in May end. If we manage to bring a new budget before the three months prior to the beginning of a fiscal year, and if we cut short the contract-awarding procedures through e-bidding as many countries have successfully done, we think we can stretch the project implementation period at least to seven months from the current three months.
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