November 28, 2010 Sujeev Shakya

Beyond Budget

The annual jatra, which had more exciting events in the parliament and has been discussed for the last four months, is over. We think the economy and budget are synonymous and after the presentation of the budget and usual fanfare of comments, seminars and workshops, we stop thinking and talking about the economy. It is perhaps our annual jatra mindset.

Most of the salaried workers in Nepal are only bothered about ensuring that they get their increment letter and do not bother much about their performance appraisals or other regular feedback mechanisms. Similarly, service providers want their annual contracts to be signed and do not care whether they continuously provide good service or take care of customer grievances. Therefore, budgets have become a money distributing vehicle rather than a tool to ensure that the fiscal and other matters are consistently and constantly followed up.

There was not much expectation from the budget this year, but a few provisions that have been provided is noteworthy to mention. Provisions relating to easing bottlenecks for facilitation of mergers is something that should spark mergers in the banking and insurance industry. There is a draconian provision in tax laws that taxes mergers considering deemed income, which means that you have to pay taxes without having physically earned anything. Perhaps, the same needs to be extended to the other sectors also, where such mergers can be approved on case to case basis. However, for acquisitions, the bottleneck provisions in the Companies act, which restrict raising acquisition finance, restrict the ability to successfully complete acquisitions. This is the high time to make our laws contemporary in line with global practices.

The key worrying factor with the budget that has just come is that there are no provisions indicating that we are moving in the direction of a market friendly economy rather than moving back to the state controlled economy. There are no mentions of taking privatisation ahead be it in the form of reforming the state owned enterprises or providing provisions that would boost investments in infrastructure development, especially hydropower. Special Economic Zones (SEZ) find no mention neither do we see provisions that encourage foreign direct investments. The way we continue to dole out money to different local authorities and government agencies without making them accountable, the trend for using the budget as a tool to be used to fund political constituencies seems like not stopping.

Similarly by going after salaried employees in the high income bracket tends to show the intent of the government as to how they do not want Nepalis to earn. If foreign CEOs, who come and fail to restructure ailing government banks, can earn globally competitive salaries, why should not Nepali CEOs be able to do that? The broader issue of not being able to manage corporate governance has been tackled through these stupid provisions of capping salaries. Similarly, then what about Non-Executive directors in banks and other institutions actually maintaining offices and competing with CEOs in managing the business? How will some budget provisions regulate this grave issue of non-segregation of ownership and management?

Some of the glaring shortcomings are not being able to address the issue of pumping liquidity to the system to harness money that is yet to enter the formal system. The Foreign Employment Bond falling on its flat face should have tempted the government to allow private banks and financial institutions to create products that will tap this latent market of remittances. Similarly, the fact that anomaly in tax provisions on mutual fund is yet to be corrected as there is no incentive for people to buy mutual funds that are taxed at higher rates than individuals. We should not stop talking about the economy till the next budget, but require constant debate and discussions that will ensure policy changes and reforms that lead to Nepali economy becoming a market friendly and oriented, along with the government constantly taking the back seat as a regulator.

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