Cost-cutting measures should be bolder

A salient feature of the national budget for the fiscal year 2020-2021 is the higher share of capital budget over recurrent budget. As expected, the Covid-19 pandemic has disrupted planned activities and the government has frontloaded or brought forward a lot of capital works in the 12th Plan.

While the plan is to offset the impact on the gross domestic product from Covid-19, the change in trend of spending could be a food for thought for planners and decision makers.

To make up for the revenue lost by 14 percent, the government came up with some fiscal measures. Without domestic revenue from important sectors like tourism, the only way is to tighten the belt.  However, measures like controlling travels, deferring LTC payments, withholding transfer grants and monetising the vehicle quota are temporary measures. It will be paid at a different time.

All attention and resources are focused on the pandemic with the economy taking the toll. Experts globally are analysing that it will take years for economies to recover. At home, tourism, which is the highest revenue generator after hydropower, is the hardest hit. Tourists are expected partially only by 2022 and to the current level by 2025. It will be a long time before we recover.

The government’s cost-cutting measures should be bolder than deferring a few incentives.

To the envy of those in the private sector, civil servants were not affected at all. In fact, they have benefited from the contingency plans like the loan deferment and interest waiver besides the voluntary house rent waivers, at the cost of government.  There are arguments that the benefits are nothing compared with the loss civil servants incurred from the restrictions on travel- from travel and daily allowances.

It will be difficult to take back what is already given. Civil servants received a salary hike last year. No elected government would take back what they pledged and implemented, but when there is not much coming into the government’s coffer, the only way to save is by restricting spending.  Before Covid-19, what we earn in domestic revenue was enough to meet our recurrent expenditure and contribute a little to the capital budget. But the situation has reversed.

To revive sectors like the construction, trading and manufacturing, the government needs to spend. The private sector is almost begging the government to release funds from the capital budget for infrastructure development activities. If we can cut on recurrent expenditure, there will be more to spare on capital works.

Cost cutting measures should not be restricted to civil servants. There are about 12,600 employees with the state owned or DHI companies who are not affected at all if even revenue is affected. These employees still enjoy numerous allowances and draw the same salary as if nothing has happened. They are also beneficiaries of the government’s fiscal measures.

It is not late to be judicious with the resources. Why should we pay, for instance, fuel allowance for an employee who works from home or work only on alternate days? There are ways we can cut cost without affecting the income. If SOEs can cut cost and improve revenue, there will be more to contribute to the government coffer in taxes and dividends.

The uncertainties surrounding Covid-19 could mean the impact could last longer.  Can we still afford to be generous?

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