Nepali Times
Editorial
The economics of politics



Even at the best of times, balancing the Nepali budget is a thankless and exasperating job. But budget-making in the midst of an unprecedented national crisis is an even bigger challenge. Madhukar Rana and Shankar Sharma have our deepest sympathies.

There isn't much that number-crunchers can do when everything adds up to minus. Revenue from trade has plummeted because trade is down, export receipts have crashed, tourism is at an all-time low and even remittances are sluggish. On the other hand there are huge new demands on expenditure from the military.

The finance wallas are tantalised by the prospect of expanding the tax-base. This may sound good in theory but with the economy withering, shops shutting, industries closing, there just isn't enough wealth being created to be taxed. Even Maoist extortionists have realised this.

Upon assumption of office, Madhukar Rana promised to take VAT back to 10 percent but now he has floated a trial balloon of taking it up to 15 percent. Traditionally, shortfalls in revenue are met through internal borrowing but inflation now rules that out. It leaves only one option: beg.

But February First has put a freeze on many grants and even multilateral budgetary support has been suspended because of the slow pace of reforms. With current expenditures spiraling out of control, it doesn't take a genius to figure out that the national exchequer is in very deep crisis. The salaries of teachers, civil servants and other recurrent expenditure is not going down. Money has to be set aside for debt servicing. The Home Ministry this week issued a public tender notice in the state media for weapons from international suppliers. Where is the money going to come from? Development.

Less development spending means fewer jobs which in turn will fuel the insurgency. If winning hearts and minds is a part of the counterinsurgency strategy, axing development is going to alienate the people even more.

Singha Darbar faces an impossible task: finding an economic solution for a political problem. If aid is to be resumed, February First needs to be rolled back. To reduce security expenses, there has to be a genuine attempt to mainstream the Maoists. To increase economic activity, political contestation has to be amicably resolved. These are challenges worthy of a statesman.


LATEST ISSUE
638
(11 JAN 2013 - 17 JAN 2013)


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