Budget Analysis - 72/73

Sunday - 2nd August, 2015 | ResCon

The Government of Nepal promulgated budget for the fiscal year 2072/2073 on 7/14/2015. This year the Government has allocated a total of Rs819.46 bn for the budget which is 33% more than the figure from FY71/72 and 58% more than the figure from FY70/71.

The main reason behind such a huge jump on the figure this year is due to allocation for reconstruction and rehabilitation work – which is around Rs74 bn. If we take this component out of the budget for this year, the overall budget increment is around 20%.

The Government has set aside an aggressive goal for economic growth of 6% which is the same goal which it had set last year. However, Nepalese economy grew only by 3.04% last year as it was severely impacted by the Gorkha earthquake and its subsequent aftershocks. Given the damage caused by the earthquakes, it will be seemingly impossible for the Government to meet the growth rate of 6%.

With such a big budget, it is obvious that the money supply will go up this FY. Though Government is trying to mop up excess liquidity from the market, it will be an uphill task to limit the inflation to below 8.5% this year.

As in previous years, this year too, the budget is on the deficit side. The Government is planning to finance the deficit through Foreign Loan (Rs94.96 bn), Domestic Borrowing (Rs88 bn) and Savings (Rs48.56 bn).

Pleas find below the comparative analysis of budget for FY70/71, FY71/72 and FY72/73.

  FY70/71 (a)
FY71/72 (b)
FY72/73 (c) % Diff (a&b)
% Diff (b&c)
Total Budget (bn) 517.24 618.1 819.46 19% 33%
Current Exp (bn) 353.42 398.95 484.26 13% 21%
Capital Exp (bn) 85.1 116.75 208.87 37% 79%
Fin Management Exp (bn) 78.72 102.39 126.33 30% 23%
Income Source          
Taxes (bn) 354.5 422.9 475 19% 12%
Foreign Aid (bn) 43.7 49.52 94.96 13% 92%
Foreign Grant (bn) 69.54 73.38 110.92 6% 51%
Internal Fund (bn) 49.5 72.28 138.56 46% 92%
Expected g (%) 5.5 6 6 9% 0%
Expected Inflation (%) 8 <8 8.5 NA NA
Announced On 7/14/2013 7/14/2014 7/14/2015 NA NA
Stock market on budget day          
NEPSE Index 511.07 1028.94 946.46 101% -8%
Market Cap (mn) 507,362.44 1,049,753.12 972,981.25 107% -7%

Keeping aside the rehabilitation and reconstruction work, the Government’s top three priorities for this year is on Education sector (Rs98.64 bn), Energy sector (Rs59.45 bn) and Agriculture sector (Rs26.2 bn).

The agriculture, engery and tourism sectors have been the mainstay of our economic growth every year. More than previous years, this year these sectors will be playing even more important role in keeping up the momentum. From modernizing agriculture processes to providing conducive environment for electricity generation to promoting Nepal as the “best tourist destination” in the world, the Government is all geared to hit the growth rate of 6% this year.

On the stock market front, the NEPSE index and Market Cap went down by over 7% as compared to mid-July last year. There was nothing special in the budget that excited investors to throng to stock market. However, with potlical parties bent on promulgating new constitution this year, we expect stock market will hit the bull run to go over 1,000 mark.

With the massive devastation caused by the main quake of April 25 and barrage of subsequent aftershocks then after, our economy has been hit hard than ever before. Even though the Government has kept an aggressive growth rate of 6%, ADB has lowered the expectation from 5.1% to 4.5% for this year. Needless to say, the Government must focus on productive sector so as to push the GDP up. At the same time, proper channelization and utilization of every rupee is the need of the hour. The journey ahead is difficult but with proper planning and coordination, nothing is impossible.