US embassy cable - 05KATHMANDU2403

UNCLAS KATHMANDU 002403 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR SA/INS 
 
E.O. 12958: N/A 
TAGS: ECON, EAID, EFIN, ABUD, NP 
SUBJECT: GOVERNMENT'S REVENUE COLLECTION POOR 
 
REF: KATHMANDU 2308 
KATHMANDU 1537 
 
POOR GROWTH IN GOVERNMENT'S REVENUE COLLECTION 
--------------------------------------------- - 
 
1.  (SBU) THE GOVERNMENT OF NEPAL'S RECENT INCOME AND 
EXPENDITURE FIGURES, RELEASED BY NEPAL'S MINISTRY OF 
FINANCE (MOF) ON OCTOBER 26, SHOW THAT TOTAL REVENUE 
COLLECTION RECORDED A GROWTH OF ONLY 0.6 PERCENT IN THE 
FIRST QUARTER OF FY 2005/06. (NOTE: FIRST QUARTER IS FROM 
JULY 16 TO OCTOBER 15.  END NOTE.)  MEDIA REPORTS 
DESCRIBED THE GROWTH RATE AS ONE OF THE LOWEST IN RECENT 
YEARS.  BRIHASPATI RAJ PANT, MOF REVENUE DIVISION UNDER 
SECRETARY, TOLD EMBOFF THAT REVENUE COLLECTED DURING THIS 
 
SIPDIS 
PERIOD WAS BELOW TARGET, BUT IT WOULD BE PREMATURE TO 
CONCLUDE THAT THIS TREND WOULD CONTINUE THROUGHOUT THE 
YEAR.  PANT ADDED THAT ACTUAL COLLECTION FIGURES COULD NOT 
BE ASCERTAINED BECAUSE DIFFERENT COLLECTION CENTERS COULD 
NOT SUBMIT REVENUE STATEMENTS IN TIME DUE TO LENGTHY 
NEPALI HOLIDAYS COINCIDING WITH THE DEADLINE FOR 
SUBMISSION OF REVENUE STATEMENTS.  (NOTE: IN THE 
GOVERNMENT'S BUDGET FOR FY 2005/06, THE REVENUE COLLECTION 
TARGET WAS SET AT USD 1.15 BILLION, OUT OF WHICH, 
ACCORDING TO THE MOF, THE TOTAL REVENUE COLLECTED DURING 
THIS PERIOD WAS USD 177 MILLION, ONLY 15.5 PERCENT OF THE 
ANNUAL TARGET.  END NOTE.) 
 
DEVELOPMENT EXPENDITURES DECLINED, OTHERS INCREASED 
--------------------------------------------- ------ 
 
2.  (U) THE FIGURES RELEASED BY THE MOF SHOW A DECREASE IN 
THE GOVERNMENT'S DEVELOPMENT EXPENDITURES, WHILE 
ADMINISTRATIVE, SECURITY AND OTHER EXPENSES HAVE INCREASED 
DURING THE FIRST QUARTER.  SPENDING ON DEVELOPMENT 
ACTIVITIES DURING THE FIRST QUARTER OF FY 2005/06 WAS USD 
6.2 MILLION, WHICH IS 43 PERCENT LESS THAN THE USD 11.0 
MILLION SPENT DURING THE SAME PERIOD IN THE PREVIOUS 
FISCAL YEAR.  IN CONTRAST, THE GOVERNMENT'S RECURRENT 
EXPENDITURES, INCLUDING ADMINISTRATIVE AND SECURITY 
EXPENDITURES, AND PAYMENTS OF INTEREST ON LOANS, GREW BY 
6.2 PERCENT TO USD 169.44 MILLION, COMPARED TO USD 155.56 
MILLION LAST YEAR.  IN ADDITION TO REGULAR EXPENSES, THE 
MOF INVESTED USD 17.5 MILLION IN SEPTEMBER TO BAIL OUT 
NEPAL OIL CORPORATION (NOC) FROM A FINANCIAL CRISIS (REF 
A).  ACCORDING TO THE MOF FIGURES, THE CUMULATIVE TREASURY 
DEFICIT AS OF OCTOBER 15 HAD REACHED USD 31.15 MILLION. 
THE GOVERNMENT HAD A SURPLUS FUND OF USD 21.55 MILLION AT 
THE END OF THE SAME PERIOD LAST YEAR. 
 
COMMENT 
------- 
 
3.  (SBU) ALTHOUGH POOR REVENUE COLLECTION IN THE FIRST 
QUARTER OF FY 2005/06 HAS RAISED CONCERN OVER THE 
GOVERNMENT'S ABILITY TO MEET ITS REVENUE TARGETS, NEPAL 
COULD STILL DO SO.  DUE TO IMPROVED ECONOMIC ACTIVITIES, 
BETTER RESULTS ARE POSSIBLE IN THE MONTHS TO COME.  SINCE 
THE CURRENT MAOIST CEASE-FIRE WAS ANNOUNCED, TOURIST 
ARRIVALS AND INTERNAL MOVEMENT OF PEOPLE HAVE BOTH 
INCREASED, AND PRODUCTION AND CONSUMPTION OF GOODS AND 
SERVICES HAVE ALSO RISEN.  AN EXTENSION OF THE MAOIST 
UNILATERAL CEASE-FIRE IS PIVOTAL FOR THE CURRENT UPBEAT 
ECONOMIC MOOD TO CONTINUE.  HOWEVER, IF THE SECURITY 
SITUATION DETERIORATES, NEPAL WILL FACE A BLEAK ECONOMIC 
FUTURE. 
 
MORIARTY