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REVIEW ON

MONETARY AND FISCAL POLICY


OF NEPAL (2012/13)

Submitted To Khim Singh Dhami, M.Phil Faculty, Macroeconomics and Global Economy Uniglobe College, Pokhara University

Submitted By Bibek Khadgi Roll No. 30, MBA (Finance) Term III

February 13, 2013

MONETARY POLICY 2012/13


The monetary policy for 2012/13 has been made public together with the review of current economic and financial situation of the country and implementation status of previous monetary policy. Necessary adjustment has been made in the policy stance, targets and instruments in the current monetary policy on the basis of analysis of the domestic and external economic outlook. The monetary policy of 2012/13 has pointed out its major objectives of maintaining price stability, external sector stability, financial sector stability, promoting financial access to the general public and facilitating high and sustainable economic growth. The monetary policy 2012/13 has also considered the macroeconomic stability, economic growth, employment, social and inclusive development and other programs and policies outlined in the three year plan. In addition, the plan and policies adopted by government in latter periods have also been well thought-out while formulating this monetary policy. Moreover, the current monetary policy has also incorporated the suggestions from the interaction with different stakeholders such as Nepal government, Nepal Bankers' Association, Development Bankers' Association, Nepal Financial Institutions' Association, Nepal Micro Finance Bankers' Association, commerce and industries associations, Credit Consumers' Association, entrepreneurs and businessmen. Furthermore, the policy identifies that the monetary management is to be carried out cautiously by considering risk to inflation from unstable oil price in international market and excess domestic demand on one hand and possible adverse impact on economic growth and financial sector stability from inadequate monetary liquidity and credit growth on the other. The monetary policy has outlined the status of macroeconomic indicators indicating higher economic growth in comparison to the past two years. Major macroeconomic indicators like inflation, government revenue mobilization, budget deficit, export growth etc. stood at their best level compared to previous year. The inflation was at lower level and revenue mobilization remained high while budget deficit and export growth were able to be brought at desired limit. Despite the high trade deficit, current account surplus remained at higher level and BOP surplus reached a historical level, leading to remarkable increase in foreign exchange reserve. A positive sign has been seen in sluggish share market and real estate transactions. Increased deposit mobilization of BFIs has put an end to liquidity crunch in banking system. The declining trend in the lending rates is creating a favourable environment for investment. Despite favourable 1

economic scenario, as mentioned above, the expansion of credit toward productive sector has not been at the desired level. With background of gradually recovering global financial crisis, still deepening and feeble recovery position of Euro Zone debt crisis and sluggish growth rates of neighbouring two emerging nations i.e. India and China, the policy has reviewed the growth of Nepalese real GDP of 4.6 in 2011/12 to be satisfactory compared to 3.6 a year earlier. In the review year, the growth rates of agriculture and non-agriculture sector were estimated at 4.9 percent and 4.3 percent respectively which stood at 4.5 percent and 3.4 percent respectively a year ago. Bottlenecks including power and fuel shortage, political instability, among others were identified as the adverse impacts that constrained the growth rate of industrial sector which was estimated at 1.7 percent compared to 2.9 percent in the previous year. Total consumption to GDP ratio was estimated to have dropped to 90.0 percent in FY 2011/12 compared to 91.4 percent in the previous year. Likewise, total investment to GDP was estimated to have increased marginally to 32.8 percent in the review year compared to 32.5 percent in the previous year. The rate of inflation moderated in FY 2011/12 as compared to the previous year on account of positive impact of moderate monetary expansion in previous year and decline in food inflation to single digit in current year from double digit during the last four years. The moderation in food inflation was attributed to favourable weather conditions leading to better crops and drop in food inflation in India. However, upward adjustment in petroleum prices and depreciation of Nepalese currency against US dollar caused non-food inflation to remain at the higher side. The average inflation rate during ten months of FY 2011/12 had stood at 8.3 percent as compared to the annual average inflation rate of 9.6 percent in the previous year. The y-o-y inflation in first five months of 2012 remained at 10.4 percent as against 8.8 percent during the same period of the previous year. In addition, the policy identified it as a challenging job to keep the annual inflation rate within the target of 7.0 percent due to supply constraints, frequent price rise of petroleum products, continuous rise in wage rate and pressure from rising food prices in recent period. During the review year, on cash basis, total government spending increased by 12.9 percent to Rs. 305.92 billion compared to an increase of 12.6 percent in the previous year. Out of total expenditure, recurrent expenditure stood at Rs. 231.79 billion while capital expenditure stood at Rs. 40.83 billion. Similarly, financial expenditure stood at Rs. 33.31 billion in the review year. Resource mobilization of the GoN was estimated to have grown by 30.0 percent to Rs. 297.89 2

billion and revenue collection was estimated to have grown by 22.2 percent to Rs. 244.15 billion compared to previous year. The external sector experienced historic high BOP surplus of Rs. 113.22 billion during the eleven months of FY 2011/12 figure for which was the deficit of Rs. 335.6 million in corresponding period of previous year. The appealing BOP surplus was owe to improvement in world economic outlook, high surplus (Rs. 61.56 billion) in the current account arising from the increase in value of merchandise exports and inflows of remittances due to the depreciation of Nepalese rupee against the US dollar and surplus in the net services coupled with the substantial surplus (Rs. 15.15 billion) in the capital account. Another objective of monetary policy of 2012/13 is to carry-out monetary management. As per the broad money survey data, broad money (M2) or the monetary liquidity has increased by 17.9 percent in the eleven months of FY 2011/12 compared to the growth of 8.5 percent in the corresponding period of the previous year. Broad money has expanded during the review period on account of remarkable increase in NFA led by high BOP surplus. However, the initial target of broad money expansion was just at 12.5 percent. The domestic credit merely grew by 6 percent as compared to target of about 13.7 percent mainly due to reluctant behaviour of BFIs to lend in new sectors. In 11 months of 2011/12, total claims on private sector rose by 11.6 percent as compared to 14.5 percent in the corresponding period of the previous year. It was estimated to have increased by 12.5 percent on account of improvement of credit-deposit ratio of BFIs and decreasing trend of lending rate. Policies adopted by NRB to channelize credit to productive sectors like agriculture; energy etc. by reducing credit to unproductive sectors have begun to show positive results. Accordingly in the first eleven months of FY 2011/12, banks' credit to agriculture sector increased by 60 percent to Rs. 22.70 billion as against a decline by 15.7 percent in the corresponding period of the previous year. Credit to construction sector increased by 17.4 percent in eleven months of review year as compared to a growth of 5.7 percent in the corresponding period of the last year. Similarly, credit to industrial production sector increased by 22.8 percent, wholesale and retail trade by 13.6 percent and transportation, communication and public services by 18.6 percent during the review period. NRB has devised the policies to bring informal financial transactions into formal channel and improved economic growth which has begun to show the positive results. This has created favourable situation for BFIs to maintain the required credit-deposit ratio as per NRB's directives and to extend credit by lowering lending rate. To avoid systemic risk on payment system, NRB 3

has been providing liquidity to BFIs facing liquidity problem due to systemic and structural reasons through open market operation, lender of last resort facility, refinance facility and standing liquidity facility. NRB has been using open market operations as the main tool to manage liquidity in the banking system. Liquidity is managed through open market operations on the basis of liquidity indicated by weekly liquidity monitoring and forecasting framework. NRB mopped up net liquidity of Rs. 7.66 billion through open market operations in FY 2011/12 of which Rs. 8.40 billion was mopped up through outright sale auction and Rs. 0.74 billion was injected through repo auction. Likewise, the commercial banks have been primarily using interbank transactions for their short-term liquidity management. Total inter-bank transaction of commercial banks stood at Rs. 212.77 billion in FY 2011/12. For further easing of liquidity management through inter-bank transactions, continuity has been given to prevailing provision under which "A, "B and "C class licensed institutions could involve in inter-bank transactions among each other against good loan or any other acceptable collateral under specified conditions. However, such loan and advances from inter-bank transaction can only be used for short term liquidity management and for making payment to depositors. This provision is helpful to manage systemic liquidity problem and to reduce risk related to inter-bank transactions. In the mean time, NRB has been selling/purchasing foreign exchange to maintain exchange rate stability and to facilitate liquidity management. NRB injected liquidity of Rs. 258.28 billion through the purchase of USD 3.19 billion from commercial banks in FY 2011/12. It had injected Rs. 174.30 billion through the purchase of USD 2.41 billion in the previous year. Similarly, NRB purchased INR 133.72 billion from Indian market through the sale of USD 2.66 billion. Monetary Policy Stance Tight monetary policy was essential to control possible inflationary pressure in the days ahead arising from monetary expansion of last year, instability on price of petroleum product and devaluation of Nepali currency with US dollar. On the other hand, at this juncture of improved real effective exchange rate of Nepalese currency and record high BOP surplus and comfortable foreign currency reserve, loose monetary policy was equally important for achieving high economic growth through credit expansion and boosting economic activities. Thus, NRB has adopted cautious and balanced policy stance by remaining vigilant about possible inflationary pressure from expansionary monetary policy and contraction in economic growth from contractionary monetary policy. Financial sector stability has been emphasized essential for monetary stability. Monetary policy will play an active role on enhancing public confidence 4

towards BFIs by encouraging their merger and by promptly resolving their liquidity and payment problems arising from poor corporate governance. Besides, monetary policy has been oriented to enhance financial literacy and to increase the credit to deprived sector. Competitiveness of Nepalese products has been increasing in international market due to improvement in real effective exchange rate in later period. In such scenario, monetary policy is directed towards attaining external sector stability by reducing trade deficit via export promotion by availing credit to export oriented industries in domestic as well as foreign currency. A base rate system has been planned to introduce in lending and process of implementing interest rate in order to stabilize short term money market rates within certain band avoid the risky fluctuations of such rates. Economic and Monetary Objectives The monetary policy for FY 2012/13 has set the target of attaining economic growth of 5.5 percent, limiting inflation at 7.5 percent and maintaining foreign exchange reserves sufficient to cover imports of goods and services of at least eight months. In addition, to ensure adequate credit flow broad money growth will be maintained at 15 percent. In the context of fixed exchange rate of Nepalese rupees with Indian currency, exchange rate has been taken as intermediate target to achieve monetary policy objectives. Excess liquidity estimated by NRB using Liquidity Monitoring and Forecasting Framework (LMFF) and private sector credit from BFIs are taken as operating targets of monetary policy. The intermediate target and operating target of monetary policy will be reviewed by considering newly developed monetary theories and practice of different countries. In addition, the policy has identified achieving targeted inflation from monetary policy implementation as tough since Nepalese inflation is affected by Indian price and non-monetary factors. Total domestic credit is projected to increase by 16.0 percent in 2012/13. Private sector credit by BFIs is expected to increase by 16 percent in FY 2012/13 as compared to 12.5 percent in FY 2011/12. This level of private sector credit growth is expected to be supportive for achievement of 5.5 percent of economic growth. Monetary Policy Instruments An open market operation has been continued as major instruments for monetary policy implementation based on the status of policy targets, liquidity situation and its projection. The use of instruments such as repo and reverse repo for short term liquidity management and outright sales and outright purchase for medium term liquidity management will be continued. 5

Bank rate has been redefined by specifying its use so as to make it an effective instrument of money market. Provision has been made to use bank rate for lender of last resort (LOLR) facility and discounting government securities. Bank rate has been set at 8 percent but the existing provision of determining rate by adding 3 percentage penal rate on weighted average of 91-days treasury bills rate or prevailing bank rate, whichever is higher, has been repealed. Subject to economic and financial indicators, bank rate will be changed for making it an effective instrument in the implementation of monetary policy. To encourage credit flow to productive sector, general refinance rate is reduced to 6 percent from existing rate of 6.5 percent in agriculture and hydropower and 7 percent on other specified productive sector. This facility will be available for the maximum period of 6 months against good loans of BFIs. BFIs shall not charge more than 9.0 percent from clients under refinance scheme. Considering improved liquidity situation and rapid growth of money supply, cash reserve ratio (CRR) to be maintained by BFIs has been revised as 6 percent for A class financial institutions, 5.5 percent for B class financial institutions and 5 percent for C class financial institutions from existing 5 percent to all categories. Penal rate on noncompliance of CRR has been changed as bank rate for the first time, one and half times bank rate for second time and double the bank rate for third or more times. Maximum period of repo and reverse repo auction has been reduced to 28 days from existing 45 days by considering the comfortable liquidity situation of money market. Conduct of repo and reverse repo auction against the collateral of development bonds in addition to treasury bills will be continued as OMO. Maximum maturity period of interbank transaction among commercial banks, development banks and finance companies has been set at 7 days. Further, it has been planned to initiate online bidding system on auction of treasury bills and development bond. The policy also speaks out for feasibility study to activate secondary market of government securities. With a view to increase access to micro finance services, there is a mandatory provision for deprived sector lending. The deprived sector lending requirement has been revised so that the commercial banks, development banks and finance companies must lend 4 percent, 3.5 percent and 3 percent of their total loans to the deprived sector respectively. The respective ratios were 3.5 percent, 3 percent and 2.5 percent earlier. Such ratio will be increased at an annual rate of 0.5 percentage point during the next three years in order to increase the contribution of financial institutions in the income and employment generation activities of the deprived sector. With a view to encourage deprived sector lending, the provision that does not require additional 20 6

percent loan loss provision for the loans provided directly or indirectly to the deprived sector on group/individual/institutional guarantee has also been continued. An arrangement will be made to grant license to class 'D' financial institutions to operate in areas with limited access to financial services. There is a provision on branch expansion by class 'C' financial institutions that requires additional paid up capital of Rs. 20 million for Kathmandu Valley and Rs. 5 million outside Katmandu valley. With a view to expand banking services in areas with limited access to financial services, this provision of additional capital requirement has been waived in 2011/12. The ongoing financial sector reform program will be continued in 2011/12. Under this program, the restructuring of Nepal Bank Limited and Rastriya Banijya Bank Limited, re-engineering of Nepal Rastra Bank and the capacity enhancement of financial sector will be implemented. The existing provision of capital adequacy required to be maintained by banks and financial institutions has been given continuity. In order to enhance supervisory capability of NRB, the process of requesting for necessary assistance from international consultants has already been initiated. In addition, in the context of need of effective information management system for effective supervision of banks and financial institutions, special attention will be paid in mechanization of information system for a quick, reliable and factual transmission of information between NRB and other licensed banks and financial institutions.

FISCAL POLICY 2012/13


Despite all the political dilemma and limbo, the Government had issued the one third budget for FY 2012/13 on 15 July 2012 based on the expenses of the previous fiscal year following "Empowering the Government to withdraw money for services and activities from Consolidated Fund Ordinance, 2012" to address the immediate needs with a desire that a full-fledged budget will be brought as soon as possible through consensus which in fact has not been possible till this date. The fiscal policy has identified that due to lack of annual budget, uncertainties hover in the area of economic policy and implementation of development programs and projects. There was no significant progress in the capital expenditure allocated for the development projects because of this uncertainty which has kept most of the development budgets freezed or utilized improperly. Macroeconomic Situation The fiscal policy has estimated that real GDP (basic price) growth rate to reach at 5.1percent and nominal GDP (producers price) to reach at 5.3 percent both of which was at 4.6 percent a year before. So, this reflects the increased volume of goods and services produced in the nation for the year 2013. The inflation is targeted to bring at the improved level of 8 percent which was 10.4 percent in first five months of 2012/13 and at average of 8.3 percent in corresponding period of previous year. The capital market, NEPSE has shown positive trends with the index booming up over 500 points. The y-o-y stock market capitalization witnessed a significant surge of 62.4 percent to Rs. 471.52 billion in mid-December 2012. The ratio of market capitalization to GDP stood at 30.3 percent in mid-December 2012. The ratio was 21.2 percent a year ago. However, the external sector of Nepal i.e. trade is still at its worse condition leading to high trade deficit. Till first five months of FY 2012/13, exports have increased by 9.4 percent to Rs. 32.88 billion and imports have increased by 26.8 percent to Rs. 225.39 billion respectively. During the same period of previous FY, export and import increased by 17.8 and 14.5 percent respectively. Both of these figures hurt the economy of the country. Total trade deficit during five months of 2012/13 surged by 30.3 percent to Rs. 192.52 billion compared to an increase of 16.3 percent in the corresponding period of the previous year. Trade deficit with India increased by 33.7 percent during the review period compared to a growth of 6.7 percent in the same period of the previous 8

year. Trade deficit with other countries increased by 24.6 percent compared to an increase of 37.0 percent in the corresponding period of the previous year. Because of higher growth rate in imports than exports, the export import ratio decreased from 16.9 percent to 14.6 percent which again is indicating higher imports and lesser exports. The overall BOP recorded a surplus of Rs. 1.60 billion during five months of 2012/13 compared to a surplus of Rs. 61.19 billion in the corresponding period of the previous year. The gross foreign exchange reserves increased by 1.4 percent to Rs. 445.59 billion in mid-December 2012 from a level of Rs. 439.46 billion as at mid-July 2012. Such reserves had increased by 35.4 percent to Rs. 368.63 billion in the corresponding period of the previous year. Out of total reserves, NRB's reserves declined by 2.5 percent to Rs. 366.18 billion during the review period from a level of Rs. 375.52 billion as at mid-July 2012. On the basis of trend of import during the five months of the current fiscal year, the current level of reserves is sufficient for financing merchandise imports of 10.1 months and merchandise and service imports of 8.6 months.

Fiscal Situation During five months of 2012/13, government budget remained at a surplus of Rs. 23.17 billion. The budget surplus had stood at Rs. 8.03 billion in the corresponding period of the previous year. A higher rate of growth in resource mobilization relative to government expenditure led to a surge in the budget surplus during the review period. The total government spending decreased by 2.6 percent to Rs. 85.83 billion in contrast to an increase of 48.0 percent in the corresponding period of the previous year. The delay in adopting a full-year budget for the FY 2012/13 has been attributed to such a decrease in the growth rate of total expenditure during the review period. During the period, revenue mobilization of the Government of Nepal grew by 25.3 percent to Rs. 97.34 billion. Increase in import and consumption contributed to such an increase in the revenue mobilization. Of the total revenue mobilization, VAT revenue grew by 16.6 percent to Rs. 33.12 billion during the review period. Despite a rise in VAT revenue pertaining to imports, the growth rate of VAT revenue decelerated to 9.6 percent while the customs revenue rose by 42.0 percent to Rs. 22.87 billion compared to an increase of 14.7 percent in the corresponding period of the previous year. The rise in the imports including the imports of high tax yielding vehicles and spare parts contributed to such a growth in customs revenue. Likewise, the excise revenue increased by 19.8 percent to Rs. 14.71 billion compared to an increase of 12.8 percent in the corresponding period of the previous year. Increase in the imports of high excise 9

tax yielding vehicles and reforms in excise administration accounted for such a growth of excise revenue whereas income tax revenue increased by 37.1 percent to Rs. 13.71 billion during the review period. Positive impact of reform in income tax administration and taxpayer education campaign launched recently accounted for such an increase in the income tax revenue. In contrast, non-tax revenue increased to Rs. 8.74 billion. During five months of 2012/13, foreign cash loans of Rs. 0.84 billion and foreign cash grants of Rs. 7.67 billion were received by the Government of Nepal. A higher revenue growth rate and austerity measures adopted in public expenditures has identified as the enabling factor to maintain fiscal balance in the transition period. However, the positive trends like robust external sector, economic growth rate close to the target and satisfactory fiscal balance were seen in Fiscal Year 2011-12. These statistics revealed that the aggregate macro-economic indicators have been positive. These positive indicators have provided strong basis to expand economic activities, carry out big project of physical infrastructures and attract investment in the field of industry and service sector. Major Programs The annual budget seeks forward to lay foundation of the inclusive, high economic growth, employment generation, and equitable distribution, people-oriented and self-reliant economy based on the principle of social justice. The policy has emphasized on the public, private and cooperative as the foundation of economy by strengthening the role of private sector in the economy. The structural change of economy is aimed to be achieved through commercial transformation of agriculture, use of water, land and forest, industrialization based on local resources and raw materials of the country, new dimension in the tourism sector, use of information and technology, and finally accelerating the research and development. To promote private sector investment, investment friendly environment, encouragement of foreign investment for the benefit of national interest with comparative advantage through eliminating the obstacles related to legal, policy, procedural, infrastructure related matters, administrative, labor relation and security matters. To make the taxation system progressive, widen tax base, increase compliance of tax related laws, build effective mechanism to control revenue leakages and enhance administrative capacity for the mobilization of domestic resources to build selfreliant economic base.

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To foster the economic development of the country, a special heed is paid towards the promotion of investment and investment environment. For this purpose the improvement of self-reliance economy on agro-based productions, protect and promotion of industries which are established for import substitution and are based on local raw materials are deemed essential. Public Private Partnership Policy for the development of physical infrastructure, integrated Investment Act, Industrial Enterprise Act, arrangement of industrial security, subsidy for the export-based industries, establishment of Infrastructure Development Bank etc are some major provisions to be made by the government to increase participation of the private sector in creating vibrant and sustainable economy. Various excellence awards like Prime Minister Entrepreneur Award, women entrepreneur award, excellent farmer award etc. has been announced to encourage the entrepreneurship. The policy has focused to formulate agriculture development strategy for the commercialization, modernization and diversification of agriculture which is to be put together through 10 years' food and nutrition security plan, public storage law, compost and bio-fertilizer, subsidy provided to improved seed and technology, bio and chemical fertilizer, subsidy on seed of rice, maize, tomato and off-season vegetables etc. It further has emphasized on preparing seed vision- 2025, and conduct comprehensive maize production, provide subsidy on equipments for seed processing, grading, packaging and storage, establish ventilated cold storage, promote selfreliance on production of orange, apple, pomegranate, lemon, banana and provide assistance to farmers to control the disease on cardamom and replace cardamom gardens. Also, increase export of high value agriculture base products including organic coffee, orthodox organic tea, mushroom, honey and garlic is identified while the target to be self reliant on fish and meat, consolidation of dairy farm, distribution of chilling vat, milk analyzer and power tiller. The budget seeks to expand One Village One Product Program in 22 districts and encourage One District One Product plan which will be supported by providing interest subsidy to the farmers through cooperatives, conduct feasibility study of multipurpose cold storage in all 5 regional development centers; provide subsidies on agro-products, plant and high value herbal products. Mid Hill Highway (Puspa Lal Marg), Kathmandu Terai Madhesh Fast Track, Hulaki Highway, Construction of Regional Level Airport at Pokhara and Lumbini, Budhi Gandaki, Upper Tamakoshi Hydropower Project, Melamchi Drinking Water Project, Sikta, Ranijamara and Babai Irrigation Project, Koshi, Gandaki and Karnali North, Mahakali Irrigation, Karnali Zone 11

Irrigation Development Project, Medium Irrigation and Sunsari-Morang and Bagmati Irrigation Projects in full capacity, Chameliya, Trishuli 3 "A", Rahughat and Kulekhani III Hydro Electricity Project etc are among some national pride projects that will be conducted for physical infrastructure development of the country. To cope up with the energy crisis, arrangement for the operation of multi-fuel plant at Duhabi and Diesel plant at Hetauda by the private sector and reform the structure of Nepal Electricity Authority has been suggested so far. Similarly, broadening and reform of Kathmandu roads, encouraging private sector to conduct Metro and Mono Rail Services in Kathmandu Valley has also been prioritized. To make basic education mandatory, the government has come up with idea of free secondary education and cost sharing model of higher education. In addition, some of the major programs to be conducted are Literate Nepal Campaign Program, build physical infrastructure of schools, distribute free textbook, free scholarship and day meal, conduct feasibility study for One District One Polytechnic Program in Baitadi, Rolpa, Baglung, Rautahat, Gorkha and Bhojpur districts, include vocational education in curriculum of secondary level education, continue to convert public schools of hilly region into residential schools, manage hostels in Kathmandu for poor and deserving students, establish universities in each development regions and affiliate the campuses of these regions into those universities. Similarly, in health sector, the government plans to make basic health service free, provide free immunization for children, establish Nutrition Rehabilitation Centre, conduct safe motherhood program, make health insurance program and initiate super specialized health services outside Kathmandu Valley as well by strengthening regional and zonal hospitals. Funding Provisions The one third amount of budget especially arranged through ordinance which empowers the government to withdraw money for services and activities from consolidated fund and to spend by appropriation. In addition, the ordinance has authorized the government to make public expenditure of Rs.351.93 billion, out of which Rs. 51.29 billion is to be charged over the consolidated fund and Rs. 300.64 billion is to be charged from the budget fund. Similarly, Rs.246.87 billion is allocated for current expenditure and Rs.51.34 billion has been allocated for capital expenditure while Rs.53.71 billion has been appropriated for financial management. Necessary budget has been provisioned for election, which is the main priority of the government. Apart from the election, the necessary amount is also allocated for army integration 12

and for the establishment of National Development and Security Directorate. The budget has ensured of no scarcity of fund for regular operation of peace, security and day to day administrative functions. Moreover, the one third budget has made provision for various allowances and facilities being provided under social security scheme, free medicine for general public, food for patients in the hospitals, food for prisoners and detainees including salary, allowances and pensions for civil servants. Necessary counterpart fund i.e. agreed fund to be invested by government of Nepal has been arranged for donor funded projects. Furthermore, without revealing the project itself, the budget ensures that adequate funds have been arranged for ongoing top priority national pride projects. Government has made its best attempt to continue the ongoing incomplete projects within the limitations of the ordinance. Revenue policies that are under implementation since last year will be continued. The tax rates as per the Finance Act, 2011 will remain unchanged. Both the monetary policy and fiscal policy has been announced basically to facilitate the economic growth through monetary management and management of government revenues and expenditures respectively. Monetary policy is again a continuation to the previous policies apart from some new provisions like base rates. In other hand, the fiscal policy lacks the concrete framework for the development of infrastructures of the country, how the funds will be utilized and the like.

References ____(2012). Monetary Policy for FY 2012/13. Kathmandu: Nepal Rastra Bank. ____(2012). Recent Macro Economic Situation of Nepal (Five Months Data). Kathmandu: Nepal Rastra Bank. ____(2012). Special Arrangement for Revenue and Expenditures for FY 2012/13. Kathmandu: Ministry of Finance.

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