KATHMANDU: While presenting the annual budget on September 19, 2008, then finance minister Dr Baburam Bhattarai had surprised many by forecasting a revenue growth of over 31 per cent to Rs 141.72 billion for the fiscal year 2008-09.

At that time many said Dr Bhattarai — whose Maoist party had just emerged as the largest political force through the first Constituent Assembly election — had fired a shot in the dark.

But by the end of the fiscal year, he proved everybody wrong by successfully achieving the target. Overnight, he started receiving praises for not only being ambitious but actually working towards achieving the goal.

So where did that growth come from? Mainly imports.

During that financial year, total imports jumped by 28.2 per cent as against 14 per cent in 2007-08 and 12 per cent in 2006-07. Result: collection of customs duty surged by 34.4 per cent in the year, while mobilisation of value added tax — almost half of which are collected from imported goods at customs points — went up by 27.1 per cent, statistics of Nepal Rastra Bank (NRB) show. Similarly, excise duty collection — most of which are again collected from customs offices — registered a whopping growth of 44.9 per cent in that year.

With the rise in imports and very little focus on exports, trade deficit — the difference between exports and imports — in that year widened by 33.3 per cent to Rs 216.77 billion. Coincidentally, revenue collection in that year had also gone up by exactly 33.3 per cent, NRB's data show.

However, many did not take notice of the widening trade deficit at that time and spent most of the time praising Dr Bhattarai for enhancing the efficiency of the tax administration. His job, no doubt, needs praise as during his time in office, collection of income tax, which is solely raised from within the country, also surged by 43.9 per cent. But how did the rest of the growth come from? No one asked that question that time.

So, a similar practice continued the next year as well when Surendra Pandey sat on the driving seat of the Ministry of Finance, following the fall of the Maoist government.

He forecast a revenue growth of around 24 per cent for fiscal year 2009-10 and achieved the target. But in that year, imports surged by 33.2 per cent and trade deficit widened by 46.5 per cent to Rs 317.67 billion, NRB statistics show.

Since then every government has been tempted to forecast a revenue growth of almost a third than that of the previous year, but at the cost of making the country more import dependent. Little wonder, trade deficit widened to Rs 479.82 billion at the end of last fiscal year.

"For a landlocked country like Nepal, which has to bring in raw materials and capital goods from abroad to manufacture most of the goods here, growth in volume of imports should not be seen in a negative light," chief of the research department at NRB Dr Min Bahadur Shrestha told The Himalayan Times. "In fact, lower imports at times suggest sluggishness in industrial activities as they tend to indicate fall in shipments of raw materials and capital goods," he further said.

Agreed the country has to import everything including petroleum products, capital goods and raw materials, required to give impetus to the industrial sector and exports from abroad. No one can also deny the fact that petroleum products make up almost 20 per cent of the country's total imports.

But are these imports aiding exports as well?

"No," said Dr Shrestha.

The evidence is export figures.

In last fiscal year, for instance, exports went up by mere 3.6 per cent as against 15.4 per cent recorded a year ago. And during that year the value of Nepali currency had also fallen by around 10 per cent. The rupee has further weakened since then.

It is generally said a weaker currency promotes exports and discourages imports, as foreign buyers get more of local currency while exchanging dollars they bring in to purchase goods, while domestic traders have to pay more of local currency to buy foreign currency.

As the currency weakened, import growth was limited to 11.3 per cent in the first quarter of the current fiscal as against a growth of 36.1 per cent recorded in the same period last fiscal. But a similar trend could not be seen in case of exports as they went up by only 11.3 per cent in the first quarter as against 14.9 per cent recorded in same period last fiscal. Considering annual inflation of around 10 per cent, the export growth recorded in the first quarter could be called negligible.

"This shows our export policies have failed to work properly. And without raising exports we can never narrow down trade deficit," Dr Shrestha said.

Luckily, the widening trade deficit has not had an impact on balance of payments — total financial transaction made by a country with other countries, thanks to migrants working in Gulf countries and Malaysia who are sending home around Rs 1.5 billion per day.

But the country's reliance on imports to give a boost to the government's revenue collection has put finance ministry officials on their toes as import growth is waning lately.

Source: Rupak D Sharma- THT

KATHMANDU: While presenting the annual budget on September 19, 2008, then finance minister Dr Baburam Bhattarai had surprised many by forecasting a revenue growth of over 31 per cent to Rs 141.72 billion for the fiscal year 2008-09. At that time many said Dr Bhattarai — whose Maoist party had just emerged as the largest political force through the first Constituent Assembly election — had fired a shot in the dark.

But by the end of the fiscal year, he proved everybody wrong by successfully achieving the target. Overnight, he started receiving praises for not only being ambitious but actually working towards achieving the goal.

So where did that growth come from? Mainly imports.

During that financial year, total imports jumped by 28.2 per cent as against 14 per cent in 2007-08 and 12 per cent in 2006-07. Result: collection of customs duty surged by 34.4 per cent in the year, while mobilisation of value added tax — almost half of which are collected from imported goods at customs points — went up by 27.1 per cent, statistics of Nepal Rastra Bank (NRB) show. Similarly, excise duty collection — most of which are again collected from customs offices — registered a whopping growth of 44.9 per cent in that year.

With the rise in imports and very little focus on exports, trade deficit — the difference between exports and imports — in that year widened by 33.3 per cent to Rs 216.77 billion. Coincidentally, revenue collection in that year had also gone up by exactly 33.3 per cent, NRB’s data show.

However, many did not take notice of the widening trade deficit at that time and spent most of the time praising Dr Bhattarai for enhancing the efficiency of the tax administration. His job, no doubt, needs praise as during his time in office, collection of income tax, which is solely raised from within the country, also surged by 43.9 per cent. But how did the rest of the growth come from? No one asked that question that time.

So, a similar practice continued the next year as well when Surendra Pandey sat on the driving seat of the Ministry of Finance, following the fall of the Maoist government.

He forecast a revenue growth of around 24 per cent for fiscal year 2009-10 and achieved the target. But in that year, imports surged by 33.2 per cent and trade deficit widened by 46.5 per cent to Rs 317.67 billion, NRB statistics show.

Since then every government has been tempted to forecast a revenue growth of almost a third than that of the previous year, but at the cost of making the country more import dependent. Little wonder, trade deficit widened to Rs 479.82 billion at the end of last fiscal year.

“For a landlocked country like Nepal, which has to bring in raw materials and capital goods from abroad to manufacture most of the goods here, growth in volume of imports should not be seen in a negative light,” chief of the research department at NRB Dr Min Bahadur Shrestha told The Himalayan Times. “In fact, lower imports at times suggest sluggishness in industrial activities as they tend to indicate fall in shipments of raw materials and capital goods,” he further said.

Agreed the country has to import everything including petroleum products, capital goods and raw materials, required to give impetus to the industrial sector and exports from abroad. No one can also deny the fact that petroleum products make up almost 20 per cent of the country’s total imports.

But are these imports aiding exports as well?

“No,” said Dr Shrestha.

The evidence is export figures.

In last fiscal year, for instance, exports went up by mere 3.6 per cent as against 15.4 per cent recorded a year ago. And during that year the value of Nepali currency had also fallen by around 10 per cent. The rupee has further weakened since then.

It is generally said a weaker currency promotes exports and discourages imports, as foreign buyers get more of local currency while exchanging dollars they bring in to purchase goods, while domestic traders have to pay more of local currency to buy foreign currency.

As the currency weakened, import growth was limited to 11.3 per cent in the first quarter of the current fiscal as against a growth of 36.1 per cent recorded in the same period last fiscal. But a similar trend could not be seen in case of exports as they went up by only 11.3 per cent in the first quarter as against 14.9 per cent recorded in same period last fiscal. Considering annual inflation of around 10 per cent, the export growth recorded in the first quarter could be called negligible.

“This shows our export policies have failed to work properly. And without raising exports we can never narrow down trade deficit,” Dr Shrestha said.

Luckily, the widening trade deficit has not had an impact on balance of payments — total financial transaction made by a country with other countries, thanks to migrants working in Gulf countries and Malaysia who are sending home around Rs 1.5 billion per day.

But the country’s reliance on imports to give a boost to the government’s revenue collection has put finance ministry officials on their toes as import growth is waning lately.

Source: THT