Balen Shah Government Completes Six Months Amidst Economic Challenges and Unmet Expectations

Kathmandu. The government led by Balendra Shah (Balen), which came to power with the slogan of good governance and a nearly two-thirds majority in parliament, has completed six months. The government, formed on March 13, has completed 10 percent of its five-year term. The public, business community, and investors had high expectations for good governance, economic reform, and swift service delivery from a leadership that received such strong public support and mandate, which is rare in history. However, after 10 percent of the term has passed, what do the economic indicators show? We will discuss this in this article. When reviewing the government's achievements in the economic sector, all dimensions of the overall economy must be examined. However, regarding the state of the economy, economists like Chandramani Adhikari state that there is no room for optimism compared to the previous government. According to him, the economy is essentially in the same state as it was before the government was formed; only a few indicators have changed. Previously, price increases were under control in the market. Inflation, which started to rise slightly last year, has increased further now. Although the monthly data from the central bank shows a small figure, the reality is much higher, he says. Besides this, other indicators remain the same. The problem of excess liquidity in the financial sector persists. The private sector has not yet been able to demand new loans. The capital market is still around the same level as before the government was formed. The trend of increasing internal debt has not stopped; this rate has reached about 45 percent of the economy. Furthermore, the environment for domestic investment has not improved. The investment climate, weakened by natural disasters and vandalism during protests, has not yet recovered. There are no young people who have abandoned the idea of going abroad with the intention of doing something within the country; the lines at the airport are still the same. On the other hand, the positive aspects of the economy from before still remain. The biggest positive aspect is the sufficient foreign exchange reserves of the country. According to the central bank's data, Nepal currently has reserves to import goods and services for about 20 months. The main reason for this is the smooth inflow of remittances. And the main underlying reason for this is the 'raw labor' exported by Nepalis. Therefore, this indicator cannot be considered positive either. Now let's talk about imports and exports. Data from the Department of Customs shows a significant improvement in imports and exports in just two months. Along with this, government revenue has also increased recently. According to the Ministry of Finance, revenue has increased by 12 percent in the last two months alone. However, the basis for the increase in exports and revenue is not strong. Imports increased recently due to oilseeds exported from Nepal. But, with India reducing tariffs on oil from other countries, this industry is now likely to be in jeopardy. The main reason for the increase in revenue is imports. Looking at the data, revenue collected at customs points accounts for a large share. Economists like Adhikari believe that only revenue growth based on domestic production and employment can be considered sustainable in the economy. Looking at the situation above, the Balen government appears to have failed everywhere. So, from where should we look at the government's achievements? Any new government can contribute to the economy in two ways. The government can increase the confidence of investors and stakeholders. First, this is determined by the government's commitments and the trust in them. Second, the government itself can improve delivery. This instills hope in the general public and helps the private sector move at the same pace as the government. Some of the efforts initiated by the government after its formation had given hope. The cancellation of political appointments made by the previous government, although procedurally incorrect, was viewed positively. Similarly, the government's effort to keep government agencies free from middlemen was also commendable. Despite these efforts, economists like Adhikari say that citizens have not received expected results recently due to the government itself. He cites a few reasons for this. Fear Among Investors: The Style of Intimidation Using Police To make the economy dynamic, a secure environment for conducting trade, business, and industry is the first condition. Investors must have confidence that their investment is secure, their property is secure, and the profits earned are safe. However, in the last six months, the government's working style has spread fear among investors instead of instilling such confidence. Although there is no exact data, economists like Adhikari say that capital flight is currently occurring from the country. He attributes this mainly to the government not embracing the minimum principles of the rule of law. 'Specifically, those who have made mistakes should be punished through legal and fair investigation. But when people are arrested arbitrarily by the police, investors and the general public do not have a good perception of the government, and confidence is not developed,' says Adhikari. 'This seems to be the main reason for the lack of improvement in the investment environment now.' Decisions Without Study and Policy Instability The success of any government depends on its policy stability and consistency. To have clear policies and laws, it is essential to conduct adequate studies, research, and seek the help of experienced experts. However, the six-month tenure of the Balen government has been a victim of impulsive decision-making and backtracking. The unrealistic taxes imposed during the budget-making process are an example of this. Through the budget, the government implemented taxes such as the education equality tax, health equality tax, and VAT on electricity, and increased capital gains tax rates without any concrete study. However, due to widespread opposition and the impracticality of these decisions, the leadership was forced to change them within three months. Adhikari analyzes that this tendency has reduced trust in the government. Failure to Control Inflation Another very important aspect of the economy is inflation control and the market supply system. Due to various reasons, from natural disasters to a lack of market management, there has been inflation and scarcity recently. Economists like Adhikari analyze that there is a real price increase of 15-20 percent in daily necessities and services like food, vegetables, pulses, education, health, and transportation, which are the largest expenses for middle and lower-middle-class families. Although the central bank's data shows overall inflation around 5 percent. He states that government data is based on major markets and wholesale, and due to middlemen and retail traders, prices in the retail market have increased excessively. He says that there is no work done to monitor this real price in the retail market or include it in the data. The situation is similar in the transportation sector. He says that the practice of charging 1000-1200 for a place where the fare is fixed at 800 is not reflected in the data. Due to all these reasons, the purchasing power of the general public is decreasing, and the value of money is depreciating, he says. He states that the market monitoring and control of middlemen appear to be completely unaware and ineffective. Efforts for Digital Service Delivery but Opposite Results The government has announced the digitalization of services to make service delivery faster and more transparent. This is a positive step in itself. However, the implementation in practice is extremely pathetic. The old problem of server downtime when trying to get services persists. He says that the reason for all this is the government's tendency to operate in the old way. 'Increasing administrative capacity does not mean the administrative capacity of becoming a boss with that red pen. What kind of capacity do we need? We need to increase technical capacity with institutional capacity,' says Adhikari. 'Making everything digital is good. But the problem of server downtime is still there. Such problems need to be solved.' He analyzes that this is due to a lack of coordination and consultation among various bodies under the government. Disaster Management and Relief Distribution Chaos The government's management capacity was also tested during recent floods and disasters. Although there were some positive efforts in search and rescue during the disaster, the lack of institutional and technical capacity of the government was clearly visible, Adhikari commented. 'The leadership failed to assess in time our rescue capacity, what equipment we have, and what external help is needed,' says Adhikari. 'The biggest chaos was seen in relief distribution. Although the government announced to distribute relief through a single-door system, it could not be managed properly.' He commented that a post-disaster needs assessment has not been done even a month after the disaster, and there is no clear action plan for reconstruction. How Much Hope Now? The government still has four and a half years left in its term. Although the first six months have not yielded favorable results, Adhikari says there is still hope that the government can deliver well in the coming days if it improves its working style. 'Since it is a youth government and lacks experience, there might have been some shortcomings initially. If these are acknowledged and corrected while moving forward, there is room for doing well in the coming days,' he says. 'However, the current working style will not work.'