Nepal's economy reels in political stalemate (Feature)

By Pratibha Tulhadar Nov 2, 2010, 6:06 GMT

Kathmandu - Nepal is heading towards a severe economic crisis with its public sector paralysed as the budget is fast running out in the absence of a government.

On Monday, the legislature failed in its 15th attempt to elect a prime minister, further delaying solutions for the Himalayan nation's teetering economy.

The budget delay has started to take its toll on crucial sectors such as the administration, health and education, while overall economic activity has slowed down.

As the nation prepares for another national holiday, the Hindu festival of Tihar, the pending budget is a major concern for public servants.

'It might not impact some of us, who work with local bodies, but most of the government employees don't know if they will receive a salary this month,' said mining engineer Archan Dawadi, who works for the government's District Development Committee.

The flow of foreign aid decreased and revenue collection was down 9 per cent in the past three months, according to the Ministry of Finance.

'The only reason for the revenue to suffer is the delay in budget presentation,' said Revenue Secretary Krishan Hari Baskota.

The government has had to turn to the central bank for 15 billion Nepalese rupees (21 million dollars) to pay immediate expenses. The political situation is affecting the economy of one of the poorest nations in the world, with a gross domestic product per head of only 1,200 dollars.

'Development work has been hampered as we have plans but we're uncertain about how much money should be allocated for those projects since there isn't a full budget,' Dawadi said.

Last week, the Asian Development Bank (ADB) warned that development assistance from donors would be affected if a budget was not announced soon.

'There will be a slowdown in foreign aid and some new projects may not be started,' Sultan H Rahman, director general of ADB South Asia, said.

The World Bank has estimated Nepal's gross domestic product growth rate for the fiscal year that ended in July at 3.5 per cent, below the government's projection of 5-per-cent growth.

The government lacks funds to pay its employees, including ministers, the army, police and the Maoist combatants. The office of the prime minister barely managed to pay its employees last month. The 44 members in the caretaker cabinet are not likely to receive their combined salary of 80,000 dollars this month if there is no budget.

'After the budget runs out, they might not even have money to pay themselves, which is one reason to hope that they will pass a budget, whether it's partial or full,' said analyst and newspaper columnist Binod Bhattarai.

The political parties have been at loggerheads over the budget. The caretaker government has been insisting it will have a full budget by mid-November. The Maoists, who are the strongest party in parliament and have been threatening to obstruct it, say the move would breach the rights of a caretaker government.

The finance minister's request to the parliamentary speaker last week to schedule an announcement of a full budget has gone unanswered.

Central bank Governor Yuvraj Khatiwada warned that the absence of a full budget was impacting the national economy, and said the political parties were to blame. The business sector has been calling on politicians not to allow the budget to become 'an excuse for political games.'

The political turmoil in Nepal, which is recovering from a decade-long civil war, deepened when prime minister Madhav Kumar Nepal resigned on June 30, under Maoist pressure.

A provisional 1.5-billion-dollar budget, announced by the caretaker government in July, runs out in mid-November. That partial budget was expected to be followed by a full budget after the formation of a new government. However, four months after premier Nepal's resignation and 15 rounds of voting, lawmakers have failed to elect a new head of government.

The Maoists, the Communist Party of Nepal-Unified Marxists Leninists and an alliance of four regional parties refrained from voting, thereby denying the required majority to the lone candidate, Ram Chandra Poudel. Poudel, a member of the second-largest party, the Nepali Congress, refuses to withdraw.

According to Nepal's interim constitution, the elections will continue until he quits.

'It is an absurd situation,' Bhattarai said. 'As things stand now, the politicians don't seem to be concerned about economic management, which is a reason to worry in terms of the ability of the Nepali economy to recover.'

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