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Liquidity crisis can hardly be addressed by this fiscal policy

Kamlesh Agrawal

June 19, 2022

6 MIN READ

Liquidity crisis can hardly be addressed by this fiscal policy

KATHMANDU: There are two sides to the budget. It is pleasant and promising. That is the reason why the private sector has welcomed it. The budget is based on policies and programs presented by the government.

The efficiency of allocation and the government lies not in the budget allocation alone, but in the effective planning to implement the plans.

What is established by the research is the budget allotment turns effective if it is sufficient enough to address the project meant to be completed within the given duration.

Where is the source of revenue of 1,240 billion mentioned in the budget? The government urges the private sector to come up with the sources, should not the government clarify the sources as well?

The amount mentioned is 25.50 percent of the current Rs 4,852 billion as per the new GDP calculations. It is the largest in South Asia.

69% of this total budget is the revenue. Does the economy expect 100 billion as revenue in the given situation?

What is the value addition between Make in Nepal and Made in Nepal? We all need to understand. As per the new customs policy, the government has provisioned one dollar for commercial purposes.

There is a problem in the current economy.

The global economy shrunk by around 20 percent for nearly two years due to the coronavirus outbreak. It is recuperating gradually.

Similarly, the Russo-Ukrainian War created many new economic challenges and opportunities as well.

When we have a 65 percent input-based economy with India, India has been sending goods and supplies to us only after meeting their needs first. We should not forget that India imposed restrictions on rice and sugar as it wanted to meet the demands of those items in the domestic market first.

We have to make the modality of feeding the citizens first and then exporting the goods outside.

For this, there is no alternative to moving toward a self-reliant economy and solving this new challenge. The two paths to a self-reliant economy: import substitution and promotion of productive industries. This requires a lot of planning and research.

We have not yet developed a productive industry for two reasons: we do not have a competitive capacity, and we have not developed the infrastructure accordingly. There is a lack of coordination among the local bodies.

Especially the industry should be protected. And only if we have a ‘Long-Lasting Industrial Sector’, and rather than gaping in customs for customs protection if we make electrical subsidies, then the only electronic sector will get promoted. This time the customs duty has been increased on every item.

Petrol prices have risen by 200 percent since the Russia-Ukraine war. The devaluation of the Nepali currency was about 15 to 16; now it has reached 24. We don’t know how far it will go now.

The prices of all commodities have gone up significantly. Logistics costs have also increased significantly.

At present, no matter how many visit agreements are made in India, there are non-trade barriers the importers have to pay a lot. Today, the current economy cannot support this 7 percent enforcement rate.

In addition to it, smuggling has also affected the business. The value of the economy lies in trade. So now we have to go for value addition of industry and trade rather than separation. We should find out what makes us more valuable.

At the beginning of 2022, the World Bank had prepared a report on three issues. Food shortages, rising petroleum prices, and financial viability. Today it is very easy to get a loan. With 256 billion liquidity pulled out of the market, prices are rising beyond control.

What is the value addition between Make in Nepal and Made in Nepal? We all need to understand. As per the new customs policy, the government has provisioned one dollar for commercial purposes.

This has helped in the operation of the government. If it is stopped, how can it be compensated? So there has to be a calculative policy.

The government cannot withhold any import in the current situation. Liquidity management can hardly be addressed by this fiscal policy.

For, as per the fiscal policy, we need 8 percent GDP growth. As of now, it is really difficult to establish the correlation between the fiscal policy and monitoring policy.

At the beginning of 2022, the World Bank had prepared a report on three issues. Food shortages, rising petroleum prices, and financial viability. Today it is very easy to get a loan. With 256 billion liquidity pulled out of the market, prices are rising beyond control.

So would any nation be able to help with such a weak world economy? More than 25 percent of the GDP is spent on the current expenditure.

How the money will come for infrastructure so that the country can be led toward development and prosperity is difficult to say. Let’s hope time will address the rest.

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