The private sector is pushing for a massive capex booster to revive the economy

Nepal’s private sector hopes the government will target a larger capital expenditure in the upcoming budget to support higher economic growth amid the ongoing economic slowdown.

According to the constitution, the annual budget must be presented on the 15th day of the Nepalese calendar month of Jesta, which falls on May 28 this year.

At a pre-budget debate organized by the Economic Journalists Association of Nepal (SEJON) in Kathmandu on Thursday, they presented their wish list for the government to address in the 2024-25 budget.

They said that government infusion of capital into the economy would encourage the private sector to invest.

Over the years, private investment has remained sluggish, and imports of capital and intermediate goods have declined. On the other hand, public consumption and investment contracted, driven by austerity measures and lower revenue collection.

The annual expenditure of the three tiers of government is currently Rs.500 billion. With the private sector contributing four times more to the national economy than the government, the total cost would be Rs 2.5 trillion.

Economists and statisticians say there is no scope for Nepal to achieve double-digit economic growth rate in the immediate future due to low investment by the government and private sector.

The country’s statistics office recently said that Nepal’s growth rate will not slow down or grow, given current investment. It will be stable.

Chandra Prasad Tagal, president of Nepal Confederation of Commerce and Industry, the apex private sector body, said the budget should come out in a way that encourages the private sector to invest wholeheartedly.

„As the confidence of the private sector has declined, we recommend that the government come up with an 'Investment Decade’ plan.”

„If someone brings investments in an industry that can create employment for 100 people, such businesses should be given special incentives,” he said.

He said special priority should be given to start-ups, export oriented industries and tourism sector.

Tagal said the budget should also bring in a reinvestment scheme that would allow any company to reinvest more than 40 percent of its profits.

„The situation in banking and financial institutions is alarming,” Tagal said. “The balance sheets of most banks are not encouraging till mid-April. If this situation is left unchecked, it can have many ramifications.”

Tagal said certain percentage of funds from Social Security Fund, Citizens Investment Trust and Employees Provident Fund should be invested in development and infrastructure to create jobs.

Kamlesh Aggarwal, president of the Nepal Chamber of Commerce, said government data showed the economy had slowed, particularly in the retail, wholesale, construction and manufacturing sectors.

Even during the devastating earthquake of April 2015, Nepal’s economic growth remained subdued, but the introduction of tight monetary policy has impacted economic growth since 2021-22.

In the budget for the current financial year, customs duty has been increased and even taxes on onions and potatoes have been imposed. „Taxation not only increases revenue but also increases smuggling,” Agarwal said.

Rajesh Aggarwal, president of Nepal Industry Federation, said that due to non-payment by the government to the construction sector, the number of defaulters is increasing and they are being blacklisted one after another.

There is a false claim in the market that the private sector has invested loans in land and stocks, which is not entirely true, he said. „Most of the private sector investments have gone into hydropower and the hospitality sector.”

He said the 13 per cent VAT in Nepal and the 5 per cent Goods and Services Tax (GST) in India have created price differentials in goods, encouraging smuggling. „This issue needs to be addressed as a proper tax policy will increase government revenue.”

Nepal Bankers Association President Sunil KC said the banking sector has historically been in a difficult situation. „Currently, commercial banks can lend Rs 500 billion, but the private sector is unable to borrow. This shows low confidence in private sector investment.

He said there are more than 50 million accounts in the banking and finance sector, but only 1.8 million take credit.

For more than 500 unregistered SMEs to have access to finance, the government should come up with a challenge fund to support them and boost investment.

KC said digital lending and linking government systems online will make it easier for customers and also reduce operational costs of banks and other offices.

To increase private sector investment, investment in transmission line should be opened to private sector, he said.

“Government should come up with the concept of venture capital as banks are not willing to bear that level of risk to invest in IT and startups. [a competitive financing facility to disburse donor funding for international development projects] Through the budget to encourage the banking sector to promote startups.

K.C. said that the credit of the banks is increasing. He said that due to the failure of the government to pay on time in the construction sector, the outstanding debt is high.

To increase foreign direct investment, hedging issues should be resolved in the budget, said K.C. Foreign investors are subject to an additional 10 percent tax, which should be completely waived. He said special tax exemption should be given to promote green economy.

Achyut Wakhle, an economic and political analyst, said: To increase productivity, the sector must first be identified. If no new source of revenue is found, it will create a major problem in the next 3-4 years, Wagle said.

Public debt is rising and unless the economy is restructured, there is no good sign, he said. „Subsidizing the agriculture sector alone will not solve the problem, commercial scale production is needed,” he said.

Finance Minister Barsha Man Ban said that boosting the confidence of the private sector through policy reforms is a priority. Budget will be prepared without any influence.

„The budget will address the current economic slowdown,” Pune said, adding that the government would focus on its spending capacity.

„If we can’t reach 7 percent or 7.5 percent in economic growth, we will be in the back seat.” “To increase growth, we have to spend. We will create an investment-friendly environment to bring in private sector and foreign investment,” he said.