KATHMANDU Nov 1 Nepal's government will run
out of spending money in two weeks time if a political row that
has blocked a new budget drags on, the finance minister said on
Monday, making it unable to service its loans or pay salaries.
The Himalayan republic, South Asia's poorest economy, has
been without an effective government since Prime Minister
Madhav Kumar Nepal resigned in June, bowing to pressure from
Maoists former rebels who want to head a new coalition
But lawmakers have failed to elect a new leader because no
party commands the majority in parliament needed to rule, and
the haggling for power has delayed the annual budget which was
meant to be passed in mid-July, the start of the financial
The government has been spending from an interim budget
allowed under the interim constitution, but money from that
runs out on Nov. 16, Finance Minister Surendra Pandey told
"This will be very serious and our credibility will be
lost," he said. "We will have no money left even to pay for the
food for the inmates of jails, old-age pension and run
day-to-day administration beyond that day."
Officials said Nepal had no commercial debt. Outstanding
foreign loans from international donors including the World
Bank, the Asian Development Bank as well as some countries such
as Japan totalled about $3.5 billion as of mid-March.
The Manila-based Asian Development Bank, Nepal's largest
international donor, said development projects funded by aid
agencies could slow down if the government failed to pay its
share in the absence of a budget.
"If the deadlock continues development projects will face a
serious crisis," Sultan Hafeez Rahman, ADB's director general
for South Asia, said during a recent visit.
Nepal's economic growth, hit by years of conflict and
political turmoil, fell to 3.5 percent in the fiscal year that
ended in mid-July, down from 4 percent in the previous year.
Pandey said growth was unlikely to look up until the
political deadlock had been resolved.
"This is a problem created politically and is pushing the
economy towards a dangerous direction," he said.
"This could be affected further as the government can not
collect taxes until the budget is passed. We may face a
liquidity and credit crunch."
Analysts say the political row showed lack of trust between
mainstream parties and the Maoists, who ended their decade-long
civil war and gained a surprise victory in national elections
two years ago.
The Maoists say the caretaker government cannot prepare the
budget and insist that political parties must agree on a new
coalition which should prepare the new budget for approval.
The delay in forming a new government government could
heighten frustration in Nepal, complicating efforts to bring
permanent peace to a country that is still emerging from an
insurgency, analysts said.
Nearly a quarter of Nepal's 28 million people live on a
daily income of less than a U.S. dollar and households in the
remote countryside rely on remittances from millions of their
relatives working in the Middle East, Malaysia and Korea.
But Pandey said even that source of income was shrinking.
"Our remittance receipts are declining as many Nepalis
working abroad have either lost their jobs or are earning less
due to global recession," he said.
(Editing by Krittivas Mukherjee and Miral Fahmy)