KATHMANDU, Oct. 16 (Xinhua) -- With the Nepali government struggling to raise enough revenues from the economic activities in the country amid the COVID-19 pandemic, generating resources has been a daunting task.
On the first day of his assuming office on Thursday, Finance Minister Bishnu Poudel decided to approve a proposal of seeking loan amounting to 200 million U.S. dollars from the World Bank.
The Himalayan country is increasingly relying on external assistance along with internal loans. The Nepali government's revenue collection has not been sufficient even to meet the growing administrative expenditure.
During the first quarter of the current fiscal year 2020-21 that began in mid-July, the government collected 1.42 billion U.S. dollars while administrative expenditure stood at 1.66 billion U.S. dollars, according to the Financial Comptroller General Office of Nepal, a government agency that keeps record of income and expenditure of the Nepali government.
"One of key challenges for the new finance minister of Nepal is generating enough resources as the slumped economic activities resulted in decrease in revenue amid the coronavirus pandemic," Govinda Nepal, a senior economist, told Xinhua on Thursday.
More than 120,000 people have so far been infected from the virus ravaging the economy, according to Nepal's Health Ministry.
In the last fiscal year 2019-20, Nepal's revenue collection against the gross domestic product (GDP) decreased for the first time after ascending for 10 years, due to the impact of COVID-19 on tax collection, according to Nepal's Finance Ministry. The Nepali government collected 9.29 billion U.S. dollars in the last fiscal year.
Nepali economists and business people said the government needs to find ways to increase economic activities by following health protocol strictly.
Currently, both the Nepali government and the private sector are not spending high to revitalize the economy.
According to the Financial Comptroller General Office, most spending of the government is for the administrative purpose but not implementing the mega infrastructure projects.
The spending by the private sector has also gone down substantially with demand for loan from the enterprises decreasing sharply during the first two months of the current fiscal year compared to same period last fiscal year, according to Nepal Bankers' Association, a grouping of the commercial banks' CEOs.
Credit expansion of the commercial banks increased by just 93 million U.S. dollars during the first two months of this fiscal against the rise of 450 million U.S. dollars during the same period last fiscal year, according to the association.
With demand for loans decreasing, the banks are facing the problem of excess liquidity. "The banking system currently has massive excess liquidity of 1.44 billion USD due to decreased demands of loans amid the coronavirus crisis," Gunakar Bhatta, spokesperson at Nepal's central bank, told Xinhua on Friday.
Given the private sector not borrowing from the banks, economist Govinda Nepal said the government needs to facilitate the private sector by removing bottlenecks that they are facing.
"The increase in public expenditure is one way to boost investment from the private sector too," Pashupati Murarka, former president of Federation of Nepalese Chambers of Commerce and Industry, an apex body of Nepal's private sector, told Xinhua on Thursday.
"For example, implementation of the government's construction projects creates demands for construction materials. So, industries involved in production and sales of construction materials such as cement and iron and steel can invest more."
Nepali private sector has also sought specific support for the country's micro, small and medium enterprises (MSMEs) which have been badly affected.
According to a study of the International Finance Corporation (IFC), the private sector arm of the World Bank Group, over 80 percent of Nepal's MSMEs suffered slump in sales during the lockdown imposed by the Nepali government for nearly four months till July 21.
The study released last month showed that 45 percent of the firms had granted leave of absence to employees while 27 percent had reduced working hours. The MSMEs contribute 22 percent to Nepal's economy and employ 1.75 million people, according to the IFC.
"Most of the MSMEs don't have working capital to run the businesses," said Murarka. "The government needs to help them by injecting certain funds."
Even though the Nepali government has announced pancakes like providing interest subsidy on the loans and postponing the payment deadline of their loans, Nepali business community says that it is not enough.
"At least the Nepali government needs to assure the private sector that the government is behind them to revive their industries. Even with token support, the government can boost confidence in the private sector," said economist Nepal, who is also a former member of the National Planning Commission.
During the nearly four-month long lockdown which ended on July 21, as many as 61 percent of Nepal's enterprises closed completely with activities of the MSMEs, tourism and transport sector coming to a grinding halt, according to a Nepali central bank's study released in July.
Economists in Nepal said that support to the MSMEs would help create jobs and creation of jobs would help create demands in the market.
Industrialist Murarka thinks that it is necessary to boost economic activities by following health protocol strictly that would help create demands of goods and services.
One silver lining for the Nepali government is that remittances which are key source of import financing, have continued to remain healthy. "Remittance and positive balance of payment are some good indicators," said Bhatta, spokesperson at the central bank. Enditem