Despite low capital expenditure and less borrowing from the private sector followed by rising inflation, the government today claimed that it still could achieve the 5.5 per cent economic growth rate targeted by the fiscal policy and supported by monetary policy.
Better performance of the agriculture and service sectors would help achieve growth for the current fiscal year, said finance minister Ram Sharan Mahat at the Mid-Term Budgetary Review for the current fiscal year 2013-14, here today at the Finance Ministry.
“Positive political developments and its impact on investments apart from good agricultural output will also help achieve target economic growth rate,” he said, adding that the industrial sector is, however, still poor. “Seven to eight per cent growth is possible only by increased investment and its efficiency.”
The five-time finance minister Mahat also lamented the poor investment performance by both the government and private sectors.
“The failure to spend capital budget has swelled government treasury apart from low borrowing from the private sector that has flooded the banking system with excess liquidity,’ he said, adding that it could, however, hit the growth prospects.
The government has Rs 65 billion in its treasury at the moment, while banks and financial institutions have excess liquidity of around Rs 50 billion.
As of February 27, the government has been able to spend only 19.72 per cent capital expenditure, according to Mahat. “However, there is still an additional demand of Rs 20.89 billion but in the unproductive sectors.”
The minister also said that he would cut the budget of the projects failing to spend and divert the funds to better performers.
While, the capital budget has shown poor performance, the recurrent expenditure has seen increment. “There has been an additional demand of Rs 12.84 billion under the recurrent budget by security agencies, increased salaries of government employees and a rise in expenditure for foreign trips and the Constituent Assembly (CA) election, he added.
However, the government is planning to bring guideline to reduce recurrent expenditure.
Hoping that an early budget could help ensure the better capital expenditure, he said the government is planning to bring the budget before the fiscal year ends.
Inflation target revised upward
KATHMANDU: The mid-term budget review has revised inflation upward to 8.5 per cent from eight per cent. A rise in money supply due to the second CA election and supply constraints that led to an increase in food prices pushed the inflation to double digit in the fifth month. Mahat said that food prices jumped by 13 per cent despite increased production which suggested that there is a problem in the supply system due to middlemen. The review also suggested to address supply related problems to reduce inflation, apart from monetary instrument.
Trade deficit to continue to balloon
KATHMANDU: The review has also showed serious concern on ballooning trade deficit. Trade deficit stood at Rs 288.76 billion in the first half of the current fiscal year, whereas the ministry has estimated it to reach Rs 550 billion by the end of the current fiscal year. The total trade deficit stood at Rs 480 billion in the last fiscal year. The remittance cannot help float the economy, Mahat said, adding that there is an urgent need to enhance competitiveness of domestic products and increase exports.