The Finance Minister of Nepal, Dr Yuvaraj Khatiwada, recently extrapolated the melancholic picture of the country’s economy. Fiscal indiscipline has severely affected the financial situation and has left the state coffer virtually empty. The key highlights of the white paper are presented in the tables below:
Sectoral Challenges:
| Structural Aspects | Financial Sector | Other sector |
| Consumption Expenditure is 90% of the total GDP. | Access to finance is at a dismal situation and the banking system is outdated. | Agriculture sector involves 2/3rd of human resources although it contributes only to 1/3rd of GDP. |
| Trade deficit is ballooning at an alarming rate. | Financial institutions have limited presence across the country. Commercial banks are yet to open branches in 379 local bodies. | The industrial sector is uncompetitive and highly politicized. |
| Manufacturing sector is being contracted and restraining employment opportunities. | Of the total credit, only 16.3% and 10.6% has been invested in Manufacturing and Construction sector. | Various challenges lie in the operation of State Owned Enterprises – lack of clear policies in funding, management. |
| Not accounting informal business in the national economy gives incorrect GDP figures. | Management and governance of cooperatives and microfinance is a big challenge. | Lack of country-goods based segregation of import, constrained export base, lack of industry friendly loan policy of financial institutions key challenges. |
| Expenditure to revenue ratio is 110%. | Remittance grew by 1.6% as compared to 5.2% during the corresponding year. | Foreign imports are replacing goods that Nepal is able to produce – primarily agriculture produce.
|
| Foreign assistance | Public expenditure | Treasury |
| Projects that Government of Nepal is capable of doing are being conducted with foreign assistance. | Administrative expenditure is inflating by 17% per year. | 10 lakh registered under Income tax payers – 53.5% don’t provide details
1.9 lakh registered under VAT payers – 30% do not provide details. |
| Over the last 5 years, only 51.5% of the total committed amount has been received. | Ineffective utilization of capital expenditure as 70% of the budget is spent in the last quarter. | 47% of total revenue imparted by import based revenue. |
| Development projects financed by the foreign assistance have a sluggish completion rate. | Over the last 5 years, pension and self-adjournment expenditure has been increased by 156%. | Tax system based on import – 27% of total revenue is imparted by VAT – 64% of which is collected from custom points and 36% from internal revenue. |
| Although high assistance is required from foreign countries in terms of fund, knowledge and technical assistance, framework for implementation of assistance is weak. | Financial imprudence is inherent to fiscal management. Budget is allocated without proper sourcing of revenue. | Increase in domestic consumption and import not reflected in revenue due to small tax base. |
| In FY 2073/74, only 27.4% of foreign loan and 32.4% of grant was utilized. | Big projects were announced by the cabinet of ministers without the consent of Ministry of Finance. | Challenges in custom points – decreasing the quantity of import, stating lower price than original price, classifying high cost goods under low cost to evade tax, slow construction of ICP at border. |
Nevertheless, Minister Khatiwada has cited opportunities for development. Political stability, government’s commitment to promoting good governance and prosperity, willingness of foreign partners to work with Nepal in development agendas are some of the key factors that shall push development forward. In addition, presence of adequate natural resources, geopolitical positioning and the youth population were noted as great assets for Nepal.
