On 29 May 2021, the government of Nepal unveiled the annual budget for FY 2021/22, with a total budget size of NPR 1647.57 billion, which is 11.73 percent higher compared to FY 2020/21 budget of NPR 1,474.64 billion. Out of the total budget, NPR 678.61 billion has been allocated for recurrent expenditure, NPR 347.26 billion has been allocated for capital expenditure, and NPR 207.97 billion has been allocated for financing purposes. NPR 386.71 billion has been allocated as the fiscal transfer.
As for the source of financing, the government has set a target of collecting NPR 1,002 billion through tax and non-tax receipts, NPR 63.37 billion through foreign grants, NPR 309.2 billion through loans, and NPR 250 billion through domestic borrowing.
Major Highlights of the Budget
With the second wave of the COVID-19 pandemic ravaging the country’s health system and shattering the economy once again, the government, as in the previous fiscal year, has tried to prioritize the control of the COVID-19 crisis and economic recovery through this budget.
COVID-19 Control and Treatment
The government has allocated NPR 37.53 billion for the control and treatment of COVID-19. NPR 26.75 billion has been allocated for the procurement of COVID-19 vaccines. NPR 4 billion has been allocated for the procurement of medical equipment and testing kits. Likewise, the government plans on providing a capital grant of 50 percent to hospitals for the installation of oxygen plants and a 50 percent waiver on electricity fees for oxygen production throughout the COVID-19 crisis period. Moreover, VAT, Customs duty, and Excise duty have been exempted for the import and distribution of oxygen cylinders, concentrators, and liquid oxygen.
COVID-19 Relief Measures
The government has announced a 20 percent discount on daily groceries purchased from the Food Management and Trading Company and Salt Trading Company throughout the lockdown period. Likewise, the government has also announced 100% waivers on the consumption of up to 20,000 liters of water and 20 units of electricity per month during the lockdown period. License and renewal fees for highly affected businesses such as travel & tourism, public transport, entertainment businesses, handicraft businesses, health clubs, beauty parlors, and such will be waived for the upcoming fiscal year. The government has also allocated NPR 13 billion for refinancing and concessional loans for SMEs affected by the pandemic. Highly affected businesses are also to be levied only one percent Income Tax, and the loss can be carried up to 10 years. The new budget has also included the provision of 50 percent to 90 percent Income tax relief for businesses based on their annual turnover. Similarly, NPR 1 billion has been allocated as funding for startups. Startups will be granted loans of up to NPR 2.5 million at a rate of one percent. The budget also ensures waiver of income tax for startups for up to five years.
The government has allocated a staggering NPR 122.77 billion budget for Nepal’s heath sector for the upcoming fiscal year from NPR 90.69 billion in the previous year. Owing to the pandemic, NPR 5.60 billion has been allocated for procurement of medicine and NPR 2.50 billion for free treatment of various diseases. Likewise, transport allowance for health volunteers has been increased to NPR 12,000 from NPR 3,000. Similarly, the government has allocated NPR 1.30 billion for the construction of infectious disease hospitals in all provinces. NPR 6.15 billion has been allocated for the expansion of health services in 396 basic hospitals in rural areas. NPR 7.50 billion has also been allocated for the expansion of health insurance programs at all local levels.
Employment and Social Security
The Prime Minister Employment Program (PEMP) has been allocated a budget of NPR 12 billion with the aim of generating an additional 200,000 employment opportunities in the upcoming fiscal year. Likewise, NPR 400 million has been allocated to facilitate employment for 100,000 people through skill-based training, and NPR 1 billion has been allocated to strengthen institutions providing technical, vocational, and skill training to generate 25,000 employment opportunities. In comparison to the previous FY 2020/21, although same number of overall employment opportunities have been targeted this year as well through an almost similar budget allocation size, the scope of facilitating employment through skill-based training has been widened from 50,000 people to 100,000 which is an ambitious target. Further, the budget also focuses on increasing the monthly salary of all government employees by NPR 2,000. Similarly, the government has also announced that youths will be provided loans of up to NPR 2.5 million at five percent interest rate with their university degrees as collateral.
Under social security, the government as increased all kinds of social security allowances by 33 percent and has increased the senior citizen allowance to NPR 4,000 per month. A total budget of NPR 100 billion has been allocated for social security allowances which is an increase by 48 percent from the previous FY.
The Ministry of Industry, Commerce and Supplies has been allocated NPR 13.58 billion. The budget for the upcoming fiscal year has sought to provide remedy to industries affected by Covid-19, including tourism, agriculture and small businesses by providing income tax exemptions from 50 to 90 percent. As per the exemption, enterprises whose annual turnover is less than NPR 2 million will be eligible for 90 percent tax exemption; those whose annual turnover is between NPR 2 million-NPR 5 million will be eligible for 75 percent tax exemption; those whose annual turnover is more than NPR 5 million will be eligible for 50 percent tax exemption.
Further, to boost tourism, the government plans on scrapping visa fees for foreigners. The excise duty on Electric Vehicles (EV) has also been abolished and the customs duty has been reduced. Likewise, the government announced tax benefits and free land leasing facility for the top 10 EV manufacturers to set up factories in the country. NPR 2 billion has been allotted for industrial infrastructure development.
The government allocated a total of NPR 45.09 billion for the agriculture sector in the upcoming fiscal year. NPR 7.98 billion was allocated to the Prime Minister Agriculture Modernization Project. NPR 12 billion has been allocated as a grant for the production of chemical fertilizers and made provisions to avail up to 50 percent capital grant for pesticide factories. Subsidies on seeds have also been announced. The budget also envisions establishing agricultural markets and E- Haat Bazaars in every province and farming of cash crops around highways which is a bold and arduous move.
The Ministry of Education, Science and Technology (MoEST) has been allocated a budget of NPR 180.04 billion for the coming fiscal year, indicating a 4.8 percent increase from the previous FY. Within this, NPR 10 billion has been allocated for the “President Education Reform Program”, while NPR 8.73 billion has been allocated to expand the mid-day meal program to benefit 3.5 million students. The government also announced the “One health worker in each school” campaign considering the impact of the COVID-19 pandemic on the education sector.
In addition to these sectors, the government has also focused on other sectors and programs including:
- NPR 15.34 billion has been allocated for the expansion of the East-West Highway.
- NPR 10.03 billion has been allocated for Railway development.
- The Kathmandu-Terai fast track has been allocated NPR 8.15 billion.
- The upgrading of the postal highway will be allotted NPR 6.39 billion.
- The construction and renovation of airports have been allocated a budget of NPR 20.31 billion.
- NPR 43.54 billion has been dedicated to the water supply network.
- NPR 3.20 billion has been allocated for the restoration of the Madan Bhandari highway.
- The government has also planned to create a central park from Narayanhiti to Tripureswor (Greater Tundikhel project)
- Waiver of renewal of road tax for EVs for the next five years, and full replacement of fossil-fuel vehicles in the next 10 years.
Final Views on the Budget
The new budget focuses largely on addressing the control and treatment of COVID-19 with emphasis on procuring vaccines, building the necessary infrastructure, and ensuring the availability of medical supplies including oxygen. Similar plans were made in the previous budget as well, but the progress was very disappointing. Considering that, although a huge chunk of the budget has been allocated for vaccine procurement, it is not clear on how the government actually plans of procuring them. Thus, it may become challenging for the government if plans are not laid out from the start.
On the economy and business front, the relief measures for COVID-19 affected businesses have been welcomed by the private sector. The government’s decision to increase the amount of income tax exemptions, the attempt to provide relief to the tourism sector, refinancing facilities and concessional loans, plans to encourage startups and the decision to promote EVs can be regarded as commendable. However, the NPR 12 billion budget for the PEMP has been skeptical, as many believe that this budget could be misused and has a high chance of turning out to be unproductive as in the previous years. Likewise, the budget also seems to have missed out on relief measures for the informal sector and daily wage workers, which can also be considered as one of the major weaknesses of the budget.
While the government’s decision to ban plastic bags below 40 microns, and to replace fossil-fuel vehicles within the next decade is appropriate, even though hard to achieve, its announcement of pursuing the mining sector as a means to reduce trade deficit would bring adverse implications environmentally, socially as well as economically.
The annual budget for the fiscal year 2021/22 seems quite ambitious and while there are a lot of positive aspects that the budget has addressed, the endorsement might be quite challenging. Another difficult challenge can be seen as achieving the government’s economic growth rate target of 6.5 percent. With elections scheduled in six months, many experts are skeptical about the endorsement of such a huge budget. There is also the possibility of a third wave of COVID-19 if the vaccination is not expanded soon. With prohibitory orders still in place, the private sector would not be able to expand trade, which would put immense pressure on the collection of revenue. Therefore, the government needs to first expand its vaccination drive and create an environment where the private sector can work smoothly. If the private sector can work smoothly the economic growth expected by the government might be achieved.