National Budget 2020/21: An Analytical Review


Total Budget

The government on May 28th presented a NPR 1,474.64 billion budget for the fiscal year 2020/21, where NPR 948 billion has been allocated for recurrent expenditure, NPR 352 billion has been allocated for capital expenditure, and NPR 172 billion has been allocated as financing. The budget for the upcoming year is 4 percent less compared to the FY 2019/20’s budget of NPR 1,532.97 billion.

Figure 1: National Budget over the last five fiscal years
Source: Ministry of Finance

Moreover, the government has also set a revenue collection target of NPR 889.62 billion through tax and non-tax receipts. The government seeks to receive foreign grants and loans amounting to NPR 60.52 billion and NPR 299.5 billion, respectively; while the resulting deficit of NPR 524.50 billion is expected to be financed through domestic loans of NPR 225 billion.

Figure 2: Percentage share of government resources for fiscal year 2020/21
(Source- Ministry of Finance)

Major Highlights of the
Budget:

As per the government
policy and programmes, the government had identified a few sectors that
needed prioritization for the fiscal year 2020/21. The sectoral budget
allocation for these sector are:

Health

The budget for the health
sector has been raised to NPR 90.69 billion from NPR 68.78 billion for the
current fiscal year, an increase by 32 percent. Given the Covid-19 pandemic,
NPR 6 billion has been allocated to procure medicines and equipment as well as
to treat and control the spread of the coronavirus. Similarly, the budget also
focuses on expanding tests in high-risk areas to prevent further outbreak of
the virus, providing free health insurance of up to NPR 5,00,000 for all health
care workers, and upgrading the existing Covid-19 specialty health centers into
full-fledged hospitals with specialty services.  

Employment and Social Security

The Prime Minister
Employment Program’s scope has been widened and allocated a budget of NPR 11.60
billion with the aim of generating an additional 200,000 employment
opportunities. Likewise, NPR 1 billion has been allocated to facilitate
employment for 50,000 people through skill-based training, and NPR 4.34 billion
has been allocated to strengthen organizations providing technical, vocational,
and skill training to employ 75,000 people, including those from the informal
labor market sector and returnee migrant workers. The budget also envisions
creating jobs for 40,000 people through small farmers credit; 1,79,000 jobs
through Youth and Small Entrepreneur Self Employment Fund; and 50,000 jobs in
the private sector. Similarly, all social security schemes will continue as
usual. Total budget of NPR 67.50 billion has been allocated for social security
allowances.

Industries

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 25-74 percent. As per the exemption, enterprises whose annual
turnover is less than NPR 2 million will be eligible for 75 percent tax
exemption; whose annual turnover is between NPR 2 million-NPR 5 million will be
eligible for 50 percent tax exemption; those whose annual turnover is more than
NPR 5 million will be eligible for 25 percent tax exemption. Similarly, the
budget has reduced the customs duty on import of seeds and agricultural tools,
allowed a 20 percent income tax exemption for the tourism sector, and waived
value added tax (VAT) on import of pharmaceutical raw materials.

Agriculture

The government has
envisioned to promote the ‘one local level, one agricultural product’ through
the Prime Minister Agriculture Modernization Project for the upcoming fiscal
year. The agriculture sector has been allocated NPR 41.40 billion, where NPR 1
billion has been separated to procure chemical fertilizers; and NPR 1  billion has been allocated to establish 200
food banks at the local level. Similarly, the concept of farmers credit card is
also to be promoted to ensure the availability of credit to farmers before the
harvesting seasons. 

Education

The Ministry of Education,
Science and Technology (MoEST) has been allocated a budget of NPR 171.71
billion (11.64 percent of the total national budget) for the coming fiscal
year. Within this, NPR 6 billion has been separated to enroll volunteer
teachers for Science, Mathematics and English subjects, while NPR 1.2 billion
has been allocated to expand the mid-day meal program. However, the university
budget distributed through the University Grants Commission has been reduced to
NPR 17.43 billion from NPR 17.62 billion for the new fiscal year.

In addition to these
sectors, the government has also focused on other sectors and programmes
including:

  • NPR 2.32 billion has been allocated to
    expand irrigation, and NPR 1.31 billion to expand lift for irrigation.
  • NPR 43.10 billion is allocated for the
    Drinking Water and Sanitation Ministry.
  • Housing, building and urban
    infrastructure has been allocated NPR 37.80 billion.
  • Youth and Sports has been allocated NPR
    2.36 billion.
  • NPR 8.66 billion for railways, NPR 16.3
    billion for road maintenance, and NPR 19.42 billion for airport construction.
  • 1,300 MW electricity is to be added to
    the national grid with NPR 4.13 separated for alternative energy.

Thoughts on the budget

How does the budget look in overall?

This fiscal year, the
budget has been downsized to NPR 1,474.64 billion, which can be taken
positively as it is an indication that the budget has acknowledged ground
realities and is not exuberant in the usual ways. While the budget does try to
make certain improvements, there are certain aspects which might need
reconsideration. The growth target of 7%, which has been set for the next
fiscal year is considerably high acknowledging the impacts that the COVID-19
pandemic can have in the future. The set growth target seems to be guided by
the assumption that the pandemic’s effect will be minimized within a month or
two. Nevertheless, the growth target of 7% in comparison to the growth that we
would be achieving in FY 2019/20, is possible. Primary estimations as per the
economic survey show a possible 2.3% growth. However, the estimations have used
the figures of until mid-March 2020, after which we have experienced more than
2-months of lockdown. Due to which, the growth for the FY 2019/20 is bound to
take a hit.

Some positive aspects of the budget

The increment in the budget
for the health sector addresses the need of the hour while re-emphasizing
health to be a major priority area. The health sector was allocated a total of
NPR 90.69 billion; where NPR 6 billion was allocated to purchase medicines and
equipment required immediately for the COVID-19, and NPR 12.40 billion was
allocated for building health infrastructures. While the overall allocation was
an increase of NPR 21 billion in comparison to last year, an investment
specifically for health infrastructures is highly appreciable as
infrastructures in the area have done poorly in the past. Similarly, sectors
like employment and agriculture have also been well addressed. The budget
largely talks about relief measures in different situations, which comes to
address the lack of mentions in the government policy and programmes. The
establishment of a NPR 50 billion fund to provide MSMEs with loans at 5%
interest is also unique to government initiatives.

Where could the budget have done better?

On the contrary, there were
a lot of repetitive programs that could have been avoided for this year, even
though the budget allocation for them has been minimal. Some programs such as
conducting the study for the establishment of tourism school could have been
avoided this year. The national budget has also fallen back in prioritizing
education. The sector received a mere 1% increase from NPR 163.76 billion in
current fiscal year to NPR 171.71 billion in the upcoming fiscal year. This
additional budget is inadequate to implement volunteer teacher mobilization,
mid-day meal programs and two other initiatives that were announced by the
government. There has also been an addition in the national pride project, as
the Mahakali Irrigation Project has been added to the list with an allocation
of NPR 10.25 billion. However, the problem with this is that it might spread
priorities over the national pride projects too thinly as there are way too
many of them. While the budget has made some efforts to manage the
unexplainably long and ambitious policy and programmes, a lot of programs in
the budget seem unlikely to be implemented from the upfront – as per our past
track records, the capacity of our state bodies and the bottlenecks in our
implementation.

In certain ways, there can
also be assumptions made that the budget undermines the impact that the
COVID-19 pandemic can have in Nepal. The budget seems to be built on an
assumption that the impact of COVID-19 will drift away within a month or two,
reinstating normality into the economy. The employment and social security
structures that the budget imagines fit the existing scenario, and expects less
deterioration. It is the same for agriculture, where much more could be done.
As per the economic survey, absolute poverty stood at 16.67% in FY 2019/20.
But, this could go up greatly due to the COVID-19 pandemic. In addition, we could
even see more migrant workers return than what we have been planning for. Thus,
the mechanisms structured in the budget might just come short of actually
addressing what is required.

What needs to be done in the future?

While there were a lot of vocal pressures from in-and-outside the parliament regarding the need to cut down costs, the government may have just planted a seed for it with this year’s budget. Though the government hasn’t made any bold departures, they may have taken some small steps – depending on the implementation of these steps. The government plans to terminate various offices and departments which have overlapping or no responsibilities and cut down on various allowances given to government officials. There could have been much more done here, but this might well be the start. But even with the cut down of the costs, the ratio of capital expenditure has gone down to that of the recurrent expenditure in comparison to the last year. As per the budget, recurrent expenditure in FY 2019/20 was NPR 957.10 billion whereas it is NPR 948.14 billion in FY 2020/21, and capital expenditure was NPR 408 billion in FY 2019/20 whereas it is NPR 352.19 billion in FY 2020/21. Looking forward, we should definitely look at increasing the capital expenditure and reducing the recurrent expenditure. Until then, promises of cost cut downs as made in this year’s budget might bring lesser impact, and might not be able to fulfil the gap that might be made if we do not get the expected foreign loans and grants.



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