Economists stress policy reforms to tackle structural problems in economy

KATHMANDU: Economy experts have said the problem in the economy is multi-faceted as more budget has to be allocated for the payment of loans and interest than the capital while the recurrent expenditure is more than the revenue. In the post-budget discussion programme organised by the Society of Economic Journalists-Nepal (SEJON), former Finance Minister Yuba Raj Khatiwada, Prof Dr Shivaraj Adhikari, Head of Central Department of Economics, Tribhuvan University, opined that the Nepali economy was in a policy trap. They said the effects of the economic situation were evident in the budget for the upcoming fiscal year 2023/24. Due to increasing recurrent expenditure, and shrinking revenue, the budget deficit is expanding rapidly, due to which internal debt will increase and this will again affect the monetary market, said Adhikari. The budget deficit has already reached Rs 271 billion. The budget deficit plays a role in the rapid expansion of internal debt. This will increase the public expenditure during the rest of the year, which will further increase the current deficit and increase the demand for loans, said Adhikari. He stressed the need for policy reforms to escape from the new fiscal space and structural problems. The Head of Central Department of Economics said the government's announcement to cut back the expenditure has cut the capital expenditure even more, which means the allocation is not efficient. He also reminded that if the revenue target is not met, the internal debt will increase again. According to former Minister Khatiwada, the economy has fallen into a policy trap as there is competition in distribution-oriented programmes rather than production-oriented programmes. According to him, the current situation is that the budget for development and construction has to be reduced while the obligation of general expenditure is increasing, and no matter how much improvement is said, the budget for the next fiscal year is based on this concept. He said although it is good to set an economic growth target of 6% to boost the economic recession, the investment required for this will be insufficient. He has also suggested not to raise internal debt too much as the national economic system is falling into the trap of internal debt. He also said the finance minister is facing the challenge of normalising the disruption in the tax system from the current year's budget. Finance Minister Mahat admits economy has fallen into policy trap. Addressing the programme organised by SEJON, Finance Minister Prakash Sharan Mahat said it is clear that we are in a policy trap. He asserted, "The current problem is from yesterday and not today. If we cannot accept the problem, it will be difficult to solve the problem." "We had limited time, no space to do homework and despite that, I have tried my best," he said. According to him, the allocation could not be made efficient since social security, loans and interest obligations cannot be neglected. "By accepting that there is no easy escape from the policy trap, I have tried to see how other reforms can be made and the economy can be increased," Minister Mahat said. He said the government has announced to make the capital expenditure effective. "If the implementation of capital expenditure is good, foreign aid will also increase and this will ease the resources to some extent," He said and mentioned that the government's next focus will be on implementing the budget. The finance minister asserted that as mandatory obligations had to be added, the budget increased from Rs 1.69 billion to 1.75 trillion. Minister Mahat clarified that there is no self-interest motivation to change any rate of revenue and claimed that the change in tax on electric vehicles will not discourage consumers. Finance Minister Mahat said that tax collection will be increased even if the government has to go that far to discipline tax administration. Many exemptions have been scrapped as the list of VAT exemptions increased and affected the tax itself, said the minister.