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Quick thoughts on #Nepal's FY2021 budget. https://bit.ly/FY2021nep
Given the uncertainty and circumstances, the finance minister has done a decent job. It tries to strike a balance between responding to the economic, lives, and livelihoods disruptions caused by the COVID-19 pandemic, and party-backed programs & projects. Missed opportunities too
The size of the budget (NRs 1474.6 billion) is lower than FY2020 budget estimate, but 37.4% higher compared to FY2020 revised estimate. https://bit.ly/FY2021nep
FY2021 budget outlay comprises of NRs 948.9 billion as recurrent spending (64.4% of total outlay), NRs352.9 billion as capex (23.9%), and NRs 172.8 billion as financial provision. Total budget amounts to 35.9% of GDP, including 8.6% for capital spending. https://bit.ly/FY2021nep
A total revenue target of NRs 889.6 billion (21.7% of GDP) has been set for FY2021. Total central receipts (total revenue plus foreign grants) is to be NRs 950.1 billion (23.2% of GDP). Compared to FY2020 revised estimate, revenue growth target is 22%.
Compared to FY2020 revised estimate, revenue growth target is 22%.
Budget deficit of NRs 524.5 billion to be financed by foreign loans equivalent to NRs 299.5 billion & domestic borrowing of NRs 225 billion. Government expects foreign aid (grants and loans) to cover about a quarter of its expenditure needs. Domestic borrowing will cover 15%
Compared to the revised estimate for FY2020, the government is planning to increase net foreign borrowing by 88.7% to NRs 179.7 billion (4.4% of GDP) and net domestic borrowing by 77.4% to NRs 276.4 billion (6.7% of GDP). https://bit.ly/FY2021nep
Overall, fiscal deficit is projected to be about 8% of GDP. Primary deficit is projected to about 4.8% of GDP. High domestic borrowing squeezes liquidity for private sector, jacks up interest rates and crowds out private sector investment. https://bit.ly/FY2021nep
52.7% of planned recurrent budget is going to subnational govts in the form of fiscal transfers and unconditional grants. Within recurrent spending compensation of employees has decreased but overall recurrent budget is up by 35.2% compared to FY2020 RE. https://bit.ly/FY2021nep
Almost 64% of planned capital budget is going for civil works, 18.7% for constructing or purchasing buildings, and 5.2% for land acquisition. Compared to the FY2020RE, capital spending has been increased by 47.6%. Vehicle purchase budget down by 34.6%. https://bit.ly/FY2021nep
COVID-19 has severely affected government’s finances in FY2020. The government is expected to utilize just 70% of total budget allocated for FY2020. Total receipts are expected to be 73% of FY2020 budget estimate. Foreign loans and grants are lower too. https://bit.ly/FY2021nep
Focus is on immediate-term only with surge in budget for healthcare & employment. The challenge is also to prop up demand (through cash transfers, subsidy & tax concessions) and to maintain supplies of essential goods and services (graded easing of lockdown). Recovery strategy?
The COVID-19 specific refinancing facility and recovery funds are not really going to be effective if businesses do not demand for it. Time to be more generous on economic relief package. https://bit.ly/FY2021nep
Due to higher spending and lower receipts (which itself is ambitious), fiscal deficit is expected to increase to around 8% of GDP in FY2021. Bringing this down in the coming years requires a medium-term fiscal consolidation plan. https://bit.ly/FY2021nep
Revenue mobilization growth target is around 22% compared to FY2020 revised estimate. Expectation of foreign loans, foreign grants and domestic borrowing is also high. These are ambitious and unrealistic. Govt is receiving receive 40% of the expected foreign loans & 50% of grants
GDP growth target of 7% is unrealistic. No expectation of a V-shaped recovery with the current state of lockdown, supplies disruption, subdued income & consumption, and uncertainties.
COVID-19 has created a critical juncture for the economy to overhaul laws, regulations and institutions so that pace and pattern of structural transformation is growth-enhancing. Looks like the budget missed that change. https://bit.ly/FY2021nep
Government-backed employment should only be a temporary social protection measure to address distress faced by the poor people. It should not be the prime source of employment. Create conducive environment for private sector to prosper and create jobs. https://bit.ly/FY2021nep
Finally, what is the budget execution plan to ensure that capex is timely and fully (or nearly fully) utilized? https://bit.ly/FY2021nep
