Nepalmountainnews Report | 30 Jun 2008
Dr Ram Sharan Mahat, Minister for Finance and joint general secretary and central committee member of the Nepali Congress, has been heading the ministry since May 2006. Between 1995 and 2002, he served as finance minister in a series of administrations led by Sher Bahadur Deuba, Krishna Prasad Bhattarai and Girija Prasad Koirala. He was Minister of Foreign Affairs in Bhattarai's government from 1999-2000.
Here are the excerpts of talking with Dr Mahat on the current economic scenario and possible challenges facing the upcoming government.
Excerpts:
How do you assess the present economic scenario of the country?
Dr Mahat: From the macroeconomic perspective, we could not have expected a better situation, even in the face of political turmoil and other conditions that still exist in the country. 
The GDP is expected to grow at the rate of 5.6 percent. All sectors of the economy, except manufacturing, are doing fairly well. We have maintained financial stability. Deficit is under control; it is around 3 percent now. Inflation is about 8 percent. Revenue growth is around 26 percent. Two years ago when we took over, revenue growth was minus 3 percent. We have contained internal borrowing.
Financially, we are in a comfortable position. We have been able to meet all budgetary expenses such as the cost of extra security, election and oil. The increase in salary is under control. We have been able to finance a number of development projects.
Growth in public capital expenditure is high. The aid scenario is favorable. The BOP situation continues to be good. The foreign exchange reserve is at its peak. But on the export front, we have been unable to make any headway. Exports have declined. This is a serious problem.
Another weakness is the investment climate which is far from satisfactory. The reasons are non-economic. The culture of violence and impunity is taking its toll. Because of labor unrest and frequent bandas, productivity is going down.
What are the reasons behind such a positive economic scenario? How do you explain the achievement?
Dr Mahat: The main factor is the peace process which has helped to normalize and revive economic activities. Macro-stability has helped to create a favorable atmosphere. Past investments in rural infrastructure has helped to expand the economy and commercialize agriculture.
Our fiscal management has been prudent. Even the IMF has called it "responsible fiscal management". We have made tariff adjustments and streamlined revenue management. We introduced incentive-based revenue administration in some key revenue offices with good results and tried to control leakages.
Another aspect was expenditure management. Recurrent expenditure is under control even in the face of difficulties and pressures. We have tried to ensure that no investment project suffers for lack of funds. We have realigned the budget after a mid-term evaluation to transfer funds from projects with poor implementation. We have not indulged in reckless internal borrowing.
What are the major economic challenges for the next government?
Dr Mahat: We are handing over the economy in good condition. But the biggest challenge is still the culture of violence and intimidation which still looms large over the country. There has to be total industrial peace. Investors are confused because of often contradictory statements coming from political leaders. The challenge before the new government, which will be led by the Maoists, is to create business confidence and investment. Just saying that they intend to develop capitalism is not sufficient. It must be backed by conduct, commitment and action. Declining productivity is eroding our comparative strength. Grand populist rhetoric will not do. We are in a competitive world and you have to be competitive to attract capital which is in demand everywhere.
How will the Maoists coming to power change the country's economic policy or environment?
Dr Mahat: How can I comment on Maoist economic policies that have not been announced? The fact is that they cannot decide unilaterally. It should be based on consultation and consensus. There is this framework of the three-year Interim Plan which is a consensus document. They have raised people's expectations. I believe they will be more responsible after taking leadership of the government. The biggest challenge is to maintain financial stability. But the Maoists seem more inclined towards populism which may sound good to the ears but is unsustainable. They claim that they will follow a liberal economic policy. They also talk of Marxist doctrine and nationalization. Whatever may be their philosophy, they will have to reconcile with the reality of the modern world.
Maoists should understand that unionism will hamper the economic growth and discourage foreign investors.
How have donors been assessing the political development of the country? Will they be favorable to the Maoist policy and support development activities?
Dr Mahat: They have expressed their readiness to support the Maoist-led government. I am sure they will also continue to provide assistance as long as the reform programs continue and good governance is ensured. They will watch how the Maoists run the government. Generally, they all have good wishes for this country and any legitimate government. They are ready to provide their resources and support for development activities provided we genuinely implement our plans and programs. If investment-friendly policies continue and a good investment climate is created, foreign and domestic investments will also increase.
Lastly, we have to remember that in the last two years, we have managed to bring over Rs 100 billion mostly as grants for the country's development. This is a break from past patterns. This is a landmark development. This amount will be in the hands of the new government to be spent mainly in the coming two-three years.
Do you foresee a reversal of the reform process once the Maoists head the government?
Dr Mahat: I am confident that the reform process will continue. There is no alternative to the reform process. Even communist countries such as China and Vietnam have adopted market-friendly policies. If you want to raise growth, then you have to go for a market-friendly policy and maintain macro-stability. Social justice measures and antipoverty programs will have to continue.
What kind of budget do you see coming? What are your expectations?
Dr Mahat: At the moment, it is not clear who will present the budget. Normally, people have very high expectations. It is not good to expect too much from the budget. Our so-called comrades say that the next budget should change the sky over this country. A single budget will not bring about a major change in society. It will direct the economic course only. I mean it gives a definite direction. So if the upcoming budget gives definite direction for a favorable investment climate and friendly economic policies, it will help the country's economy. Concern for the downtrodden, marginalized and the poor and rural development are important. Social justice should go along with economic growth.
How will the upcoming budget give priority to infrastructure development?
Dr Mahat: Obviously. We have given priority to infrastructure development. We are committed to major hydropower and road projects. We already have a BOOT law to facilitate private investment in infrastructure. The government has invited tenders for building a fast-track road along the Bagmati corridor. This will link Kathmandu with the tarai through Bagmati corridor. It will be an express highway. And we are planning to build an international airport as well.
You do not have to do anything or bring about major policy changes. You need to have the will to implement the policies and plans. It may, at the most, need fine tuning. That's all. Our laws are investor-friendly. So everything depends on how strong the government will be. Our investment in the last decade has expanded the road network close to 20,000 km from about 7,000 km previously. Rural electrification, roads, drinking water and irrigation will continue to account for a major part of the government's investment.
There has been much discussion on setting up an industrial force. What is the reason behind the delay?
Dr Mahat: My own understanding of industrial force is different from that of the Ministry of Home and the police. It is not about raising the strength of the police force in a traditional way with more posts and more personnel. That will not ensure industrial security. The industrial community wants a force that can ensure their personal and industrial security, and they are ready to pay for it. The industrialists need armed persons who can provide security and will be under their control.
Even now, they have security provided by private security agencies, but they are unarmed. The industrialists want armed personnel and they will pay the costs themselves. They are ready to pay for their security, but the government must develop a scheme jointly supported by the industrial sector and the government. Much consultation with the industrial community will be required before the force can be conceptualized. We need a force which will meet their requirements. Unfortunately, there hasn't been sufficient discussion. Courtesy: The Kathmandu Post
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