Deependra Bahadur Kshetry is the Vice-Chairman of the National Planning Commission (NPC). Renowned economist Kshetry had also worked as the Governor of the Nepal Rastra Bank (NRB) for a brief period. An M.A. in Economics from the Tribhuvan University (TU), he also completed the Master of Agriculture Economics from the University of New England, Armidale, New South Wales.

He had started his carrier from the central bank where served for about three decades.

He says that the new polices and programmes of the government focus on employment generation, creation of more investment-friendly environment and prioritization of potential sectors. He, however, is of the opinion that peace and political stability are prerequisites for achieving a double digit economic growth.

Laxman Kafle of The Rising Nepal talked to Kshetry on various issues concerning the government’s policies and programmes, and the budget for the upcoming fiscal year. Excerpts:

What sorts of policy and programme will the government introduce for the next fiscal year?

The government will focus its policies and programmes for the next fiscal year focus on job creation and different other activities for achieving the economic growth. Creating a more investment-friendly environment in the country will also be a top priority.

Apart from them, the government will also concentrate its efforts on the ongoing ambitions programmes and projects aiming at making a prosperous new Nepal. The policies and programmes also target to offer relief to the people and address their growing expectations.

The country’s present political and economic situation will guide the new fiscal year’s policies and programmes. The government will give continuity to poverty reduction efforts because poverty has become an obstacle to the country’s economic development initiatives.

Although the previous policies and programms also stressed employment generation and making a more congenial climate for investment, we could not make any significant achievement. Since internal sources will not be sufficient for us to accomplish the targeted economic growth, we need to attract more foreign and domestic investments. Without having foreign investments, the country will not move to the path of economic prosperity.

The fiscal policies will target mega and important projects such as the Mid-Hilly Pushpa Lal Highway, Kathmandu-Terai Fast Track and the second international airport at Nijgadh.

Moreover, the government is laying much focus on the construction of regional airports at Lumbini and Pokhara, infrastructural development, irrigation projects like Sikta project and strategic bridges. An increased budget will be allocated for such important projects in order to complete them soon. We are allocating budget for the projects to be run under different ministries through a single window system.

How will be the budget size for the next fiscal year?

We are confident that we will be able to direct the country’s development process as per the needs and the changed aspirations of the people through the next fiscal year’s budget. There is a need for making the development process more decentralized and inclusive.

A practical part of the budget is that it has to meet the policies and programmes. The next fiscal year’s budget will be of Rs. 429 billion. The NPC has given a ceiling to the ministries.

The new budget will focus much on the Ministry of Education, Physical Planning and Works and Ministry of Local Development. Besides, the budget will also prioritize the agriculture and tourism and other sectors.

The budget is being prepared under a Medium Term Expenditure Framework. Now, we are giving ceiling of budget to the ministries under this framework. We have encouraged the ministries to prepare the budget as per their expenditure capacity under the ceiling. An additional amount will be allocated for addressing the increasing administrative costs.

Although we have set a ceiling of around Rs.429 billion for the coming fiscal year’s budget, the demand was more than double. It is useless to allocate additional budget if the ministries are unable to expend it properly.

What is the NPC planning to give due priority to the prioritized sectors?

The country has failed to develop the fixed priority sectors mainly due to a resource deficit. In almost all the plans made so far, the agriculture, tourism, hydropower and infrastructure sectors have been accorded top priority. But due to lack of sufficient resources, we have not been able to make desired results. We have yet to develop a system of allocating budget as per the development needs and priorities of the country. This is both in terms of production sector and geographical region.

Apart from the infrastructure, agriculture and tourism sectors, we have given top priority for the hydropower sector. All of these sectors create more jobs. First of all, we have to have a more favourbale investment climate for luring foreign investors. For this, the political parties should reach a consensus and promulgate the new constituent on time.

Until now, the country has not centralized the major priority sectors due to lack of political consensus.

Capital expenditure has remained quite low this fiscal year. Does the NPC have any plan to increase the capital expenditure in the next fiscal year?

The capital expenditure was quite low in the previous years. However, the capital expenditure has been increased this year, to some extent. During the first seven months of the current fiscal year, the capital expenditure stood at around 31 per cent against 15 per cent in the same period last year. The expenditure is expected to go up during the remaining months of the current fiscal year.

Despite the increase in the capital expenditure, this is not satisfactory. One of the reasons for this could be that the budget could not reach the various Village Development Committees (VDCs) on time due to lack of timely approval of the projects. So, we are planning to mobilize budget in such VDCs on time. Political instability has hit the utilization of the budget. We have planed to regular monitor the expenditures of ministries.

Development projects at the local level have not been running efficiently in the absence of elected local bodies. The budget could also not be expended as per its target because of its delayed announcement.

The budget will be announced at normal period if the political parties reach an understanding. We have to focus both on announcing as well as approving the budget on time.

Similarly, the Ministry of Finance and the NPC are positive towards transferring the capital budget to other needy projects if any development project is found to have a low spending.

The government has announced the Nepal Investment Year (NIY) 2012/13. What are the government’s plans to make the NIY a success?

The first priority of the new policy is to create a more congenial investment climate in the country. This will alone contribute to making the event a success. We have to attract more foreign investments for the entire development of the country. Our internal resources are not sufficient for achieving the target of economic development. We now need to amend the existing Acts and policies for taking the potential investors in confidence.

We have to identify important factors which create problems for investors. At the same time, we have to consider national interests. We are facing a power outage. We need foreign investment to tackle such an energy crisis. During the NIY, the government has planned to bring in foreign investments for more than 50 projects. They are associated with infrastructure development, agriculture, hydropower, among others.

The government and the concerned stakeholders should create a business-friendly environment. We will receive a lot of foreign investments. This will help us achieve a double-digit economic growth within four-five years.

The central bank reports show that the economic condition of the country is improving. How is the reality?

Although there have been negative economic indicators of the country for the last few years, all the macroeconomic indicators have remained positive for the last few months. The country’s economic growth is likely to stand at 4.6 per cent against targeted 5 per cent. This is a positive aspect. Similarly, inflation is projected at 7 per cent. The balance of payment is in surplus.

Similarly, the capital market has also shown a green signal for the last three weeks against declined sharply. The remarkable gain in the share market shows that the political consensus is the most important factor for the national economy.

Similarly, the inflow of remittance has gone up by 35 per cent during the first seven months of the current fiscal year. but we have failed to utilize it in productivity sectors. As a result, the import of luxurious good has been increasing. This does not help development activities.

Widening trade imbalance and excess liquidity are affecting the national economy despite some positive economic indicators. The government should increase productivity by investing resources in productive sectors for enhancing the export trade. The excess liquidity has also become a problem for banking sector. So, banks and financial institutions should mobilize deposits properly. If interest rates are reduced, there will be an increased level of investments in the country.

Finally, as a senior economist, what is your vision for achieving sustainable economic development of the country?

First of all, political stability is the most important factor for the sustainable economic development. The political parties should forge a consensus regarding an economic model and prioritized sectors. This will open up doors for the development of the national economy.

As peace and economy are inter-linked, political consensus determines the course of the national economy. We can see that the unstable government and political insatiability have been hindering the development activities as well as the national economy. The political parties must be honest and materialize their commitments.