Dr. Yubaraj Khatiwada, the former finance minister of Nepal resigned on September 4, 2020 after the expiration of his tenure as The Finance and Communication and IT Minister of Nepal. The technocrat, despite being backed by Prime Minister K.P Sharma Oli, resigned from the post after the PM had to give in to the constant pressure from the opposition party.
Dr. Khatiwada is certainly a technocrat having vast experiences in the field of finance after all he was the former governor of Nepal Rastra Bank. So, how did he fare as a finance minister; a more political position for a bureaucrat? Let’s try to uncover how he fared in his tenure at the ministry.
An expert; a technocrat
While some appraised him and some criticized him; everyone agreed that he is a technocrat in his field and his background supports it. He holds a Ph.D. in Monetary Economics from Delhi School of Economics and has a Master’s degree in economics and public administration from Tribhuvan University.
As glistening as his educational background is, so are his work experiences. He was a member of the National Planning Commission for the Government of Nepal from 2002 AD to 20005 AD. In the same commission, he was appointed as vice-chairperson in 2009-10 AD and again in 2015-16 AD.
Furthermore, Dr. Khatiwada was a senior economist in the regional center of UNDP for Asia and the Pacific from 2006 AD to 2009AD. His illustrious work experience does not stop here. He worked at Nepal Rastra Bank as Head of Economic Research Department from 1999 AD to 2002 AD and later, was appointed in the tempting position of the Governor of NRB in 2010 AD; a position he held till 2015 AD. Moreover, he was a postgraduate faculty at TU and a visiting faculty member at TU and KU from 1992 AD to 2001 AD.
Dr. Khatiwada’s impressive background is highly and rightly admired by the people. While he was inducted as the finance minister of Nepal in the newly formed Oli government, it created optimism among the general public and business community. People were hopeful that the economy will head in the right direction.
The appointment of a technocrat and expert who has more bureaucratic experience than a political one created much optimism amongst the people for the success of the then-new government. This speaks volumes as to how highly people admire Dr. Khatiwada as an expert.
However, what he gains as a technocrat, he lacks as a politician. He is not known for being a good politician. It’s rare in Nepalese history that a minister from a non-political field succeeds in gaining the trust of the public.
According to economist Govinda Nepal, “He faces charges of not being accommodative, as any other finance minister with a political background could have been”. But a minister from a political background would only try to fulfill the political interest of his respective party, yet Dr. Khatiwada being a technocrat that he is, might deserve more credit for using data and bureaucracy in handling the ministry.
Great planner, worse executor?
Dr. Khatiwada was criticized for not being a good executor and the data supports it. He was appointed on March 18, 2018 AD (Chaitra 2, 2074 BS), towards the end of fiscal year 2017/18 (2073/74). He presented budgets for the fiscal year 2018/19, 2019/20 and 2020/21 and led the finance ministry for the implementation of two budgets; having resigned after announcing the budget for fiscal year 2020/21.
During his reign in the ministry, he was able to attract a good amount of foreign grants; apparently Rs.59 Billion in 2018/19, Rs. 57.99 billion in 2019/20 and estimated Rs. 60.52 billion in 2020/21.
Whether the grant is good or bad is purely subjective. However, his criticism lies in the fact that he was unable to utilize even 25% of the capital budget. The government was expected to implement its strategy of making Nepal a prosperous nation, yet this expectation felt flat on the ground when reality hit hopeful Nepalese.
While the effects of the corona virus surely hindered the economic progress and hence the objectives for the budget for fiscal year 2020/21 focused on mitigating the effects of the pandemic. However, the government had such huge plans for the nation and these plans were confidently presented in the past fiscal policies, yet, the execution was surely not there.
The objectives of the budgets for fiscal year 2018/19 and 2019/20 were really optimistic. The budgets focused to eradicate immediate poverty, utilizing resources, opportunities, and capabilities, to achieve rapid economic development and so on. Yet, the data represent quite different scenarios.
According to the office of Financial Comptroller General, in fiscal year 2017/18, the capital expenditure stood at 14%, in 2018/19; when Khatiwada was rightly in charge, the capital expenditure slightly increased to 16% but in 2019/20 it plummeted to a mere 13%. This speaks volumes as to how poor the government was in executing the budget.
The government was criticized for sluggish capital spending in fiscal year 2018/19 and Dr. Khatiwada had promised to change this scenario in 2019/20. Yet, the data present a different case. The stats present the government is only spending a mere 2 percent budget per month. For the development of infrastructures in fiscal year 2019/20, the government had allocated Rs. 408 billion and in the first half of the fiscal year, the government spent only Rs. 52 billion.
Furthermore, the government was accused of manipulating the data to show inflated performance. The introduction of a three-level government should in theory be a pathway for greater progress and greater budget utilization towards development activities. Yet, that has not been the case. Former advisor of the Ministry of Finance, Mr. Keshab Acharya said that the problem of weak spending persists because of the government’s inability to mobilize the administrative system and the government’s inability to involve the private sector in development works.
Lastly, the finance minister being more a bureaucrat than a political figure is attributed to be the reason for the sluggish utilization of capital budget. Hence, Dr. Khatiwada might be considered a great planner but he supposedly lacked the ability to execute his plans.
Relation with the investors
The NEPSE index plunged by 12.04 percent between March 1 and March 5, 2020, when Dr. Yubaraj Khatiwada was re-appointed as the finance minister after completion of his two years tenure. This speaks volumes of his relationship with investors. Dr. Khatiwada is criticized for failing to earn the trust of investors and the private sectors. Seeing him as a rigid bureaucrat and a strict tax-man, the investors got worried about new tax rules requiring them to disclose their income source while investing more than one million and hence started selling their shares which drove the market down.
Similarly, Dr. Khatiwada is said to be in contempt with the businesspeople as he was allegedly trying to end the tripartite control of politicians, bureaucrats, and businessmen on the Nepalese economy by targeting the business people; supposedly the weakest link. This clouded his relations with the investors and private sectors.
Moreover, he was accused of being reluctant to consider the private sector’s concerns. The budget for fiscal year 2020/21 is already facing criticisms mainly on the issue of 80% tax imposition on electric vehicles and on tax on chocolate. Immediately after his appointment as the finance minister, he instructed the customs officials not to recognize the invoice price of goods while imposing the customs duty to ensure that the importers don’t cheat on taxes through undervaluation of their goods. This also stopped the book importers to import books with US dollar price tags. This also did not go well with the investors and the private sectors.
Dr. Khatiwada was the antagonist to the investors since his tenure as the governor where his monetary policies were not well received by the investors. The situation did not change as he continued to play the role of antagonist for the investors through fiscal policy. In addition to this, he was not well received by the investors when he presented white paper even when the fiscal policy was about to be announced.
The former president of the Federation of Nepalese Chambers of Commerce and Industry criticized Khatiwada for failing to live up to the expectations and argued that the private sector is fairly disappointed with him for failing to introduce a fiscal policy to support small businesses amidst the pandemic. However, all the laws and policies he introduced was supposedly targeted towards fraudsters and tax evaders. Yet, many people claim that not all are tax evaders and that the policies really suppressed the private sector and investors. Hence, Dr. Khatiwada held and still holds an antagonistic figure amongst the investors.
Does not deserve harsh criticisms?
An expert in the ministry is really a good thing for the economy. While a politician has to rely on his advisor to come up with policies, Dr. Khatiwada, an expert himself handled the policy formulation greatly. Whatever the critics say, Dr. Khatiwada has certainly made his contribution to the Nepalese economy.
During the fiscal year 2017/18, the economic growth rate stood at 6.7 %. After his appointment, he made his first budget announcement for fiscal year 2018/19 and implemented the budget. The economic growth rate during 2018/19 stood at 7%.
The effects of COVID-19 impacted the economy, and although the growth rate projection for fiscal year 2019/20 was made to be around 8.5%, the pandemic slowed the economy and the growth rate stood at 2.3% which Khatiwada claims is satisfactory. However, the experts argue that the growth rate is likely to go to negative for the fiscal year 2019/20. However, with the world economy taking a hit due to pandemic and Nepal’s tourism year 2020 being canceled, the economic growth rate of 2.3 % may be acceptable considering the fact that before the Oli government was formed, the economic growth rate stood at 4.6% on average on the last decade.
Additionally, the import growth rate in the last decade up to fiscal year 2017/18 stood at 20% on average which has declined to 7.9% in the last three fiscal years. Similarly, with the increase in exports, the trade deficit was significantly reduced during his tenure.
Additionally, there were efforts to control tax evasion as well. According to Economist Govinda Nepal, Dr. Khatiwada should be admired for his efforts as he introduced a policy of recognizing only those transaction details which are submitted to the tax authority while applying for bank loans.
Adding to his works, being a former governor, he had a good relationship with the World Bank, as a result, he was able to bring in a substantial amount of foreign aids during his tenure to support post-earthquake reconstruction and developmental activities. Hence, as an expert and a technocrat, he tried to bring in his experiences as governor to the finance ministry and tried to improve the overall economy of the nation.
To wrap up, having an expert with vast experiences appointed in the ministry; a more political organization is really a good sign considering the fact that many ministers heavily rely on their expert advisors. Yet, not having a political experience can really be challenging which the former finance minister seemed to have faced. He was vastly criticized for his poor relationship with the public and also for being a rigid bureaucrat. The investors have been his harshest critics. However, his achievements and efforts to uplift the nation’s economy and reduce tax evasion should certainly not be overlooked.