Summary of Nepal's New Budget for Financial Year 2081/82
Finance Minister Varshman Pun presented a budget of 18 trillion 60.3 billion rupees for the financial year 2081/82, beginning July 1st. This budget, 6.2% higher than the previous fiscal year and 21% above the revised estimate, aims to tackle economic and social challenges, fostering confidence among citizens and stimulating the economy.
Key Allocations:
Capital Expenditure: Rs 3 trillion 52 billion (18.9%)
Current Expenditure: Rs 11 trillion 40 billion (61.31%)
Financial Management: Rs 3 trillion 67 billion
Provincial and Local Transfers: Rs 4 trillion 8 billion 27 million
Revenue and Loans:
Revenue Estimate: Rs 12 trillion 67 billion
Shortfall: Rs 5 trillion 47 billion to be covered by Rs 2 trillion 17 billion in foreign loans and Rs 3 trillion 30 billion in internal loans.
Economic Goals:
Economic Growth: Target of 3.1%
Inflation: Limit to 6.3%
Last year’s growth was projected at 6% but actual growth was only 0.8% due to lower-than-expected revenue collections.
New Initiatives:
Digital and Green Economy Reforms: Plans to create an IT hub and aim for 30 trillion in IT exports over 10 years.
Tourism: Target to attract 1.6 million tourists, development of tourist centers, and new infrastructure at Tribhuvan International Airport.
Economic Triangle Project: Connecting Chitwan, Butwal, and Pokhara through public-private partnerships.
Nepal Startup Fund: One billion rupees allocated to encourage innovation.
Domestic Liquor Production: Legal arrangements for production, branding, and marketing.
Opposition Response: Former Finance Minister Prakasharan Mahat criticized the budget for being unrealistic and lacking clear priorities, doubting its ability to deliver results or implement necessary reforms.
Review:
A budget is a financial plan that outlines expected revenues and expenditures over a specified period, usually one fiscal year. It is a critical tool for governments to manage their economic resources and ensure sustainable development. Countries typically separate their budgets into various categories, including revenue expenditure, capital expenditure, and financial management. Revenue expenditure covers the costs of running government services and programs, such as salaries and maintenance. Capital expenditure involves investments in infrastructure and development projects that generate future economic benefits. Financial management encompasses the strategies for managing government debts and financial assets. By allocating resources to different sectors, countries can address both immediate needs and long-term development goals.
The Nepal Budget Review for the fiscal year 2081/82 offers a comprehensive overview of the country's financial plans. It covers budget allocation, sources of income, sectoral allocations, macroeconomic indicators, and tax changes. The total budget for 2081/82 is set at 18.60 Kharba, with revenue expenditure slightly reduced from 11.42 to 11.40 Kharba, while capital and financial expenditures have increased to 3.52 and 3.67 Kharba, respectively. The primary sources of income are tax revenue, debt financing, and foreign grants. Tax revenue is the largest contributor, accounting for 67.75% of the total income, followed by debt financing at 29.4% and foreign grants at 2.8%.
Macroeconomic indicators reveal a mixed performance over the previous fiscal years. The Gross Domestic Product (GDP) has steadily increased from 4976.6 Arba in 2078/79 to 5704.8 Arba in 2080/81, while inflation has decreased from 8.08% to 4.61%. However, there have been significant declines in import and export growth rates. The trade balance remains negative, although the deficit has reduced from -1720.4 Arba to -1053.4 Arba. Domestic and external debts have also increased, reflecting the country's reliance on debt financing.
Economic projections for 2081/82 are optimistic, with an expected economic growth rate of 6% and an inflation rate of 5.5%. The budget emphasizes key sectors such as education, physical infrastructure, urban development, energy, and agriculture. For instance, the budget for education, science, and technology is set at 203.66 Arba, representing 10.95% of the total budget. Physical infrastructure and transport receive 150.33 Arba, while urban development and energy sectors are allocated 92.63 and 87.55 Arba, respectively.
The budget also outlines specific initiatives aimed at fostering economic growth and improving public welfare. These include the establishment of a Rs. 1 billion Nepal Startup Fund, the creation of direct and indirect jobs in the IT sector, and strategic roadshows targeting tourists from India and China. Tax reforms are another highlight, with reductions in tax rates on interest from foreign loans and exemptions of VAT on essential goods like vegetables and fruits.
Despite its strengths, the budget has notable weaknesses. It relies heavily on debt financing, which could increase the national debt burden and pose fiscal risks. The allocation for social security is limited, and the funding for agriculture, a crucial sector for the national economy, appears inadequate. Additionally, the budget lacks detailed implementation plans, which are essential for ensuring the effective execution of proposed projects.
Opportunities identified in the budget include attracting more foreign grants and investments, expanding renewable energy capacity, enhancing IT infrastructure, and boosting tourism. These initiatives align with global sustainability goals and can significantly contribute to Nepal's economic development. However, there are also threats, such as global economic uncertainties, inflationary pressures, challenges in tax compliance, implementation risks, and potential social and political instability.
In conclusion, the Nepal Budget Review 2081/82 presents a well-rounded plan that addresses key areas of economic and social development. The focus on education, infrastructure, energy, IT, and entrepreneurship is commendable and aligns with the country's long-term growth objectives. However, the budget also highlights significant challenges, particularly in terms of debt management, social security, and agricultural investment. To maximize the budget's potential, the government must ensure efficient implementation, monitor progress closely, and be prepared to adapt to changing circumstances. By addressing the identified weaknesses and threats, and leveraging opportunities, Nepal can achieve sustainable economic growth and improve the quality of life for its citizens .