The current fiscal policy is one of the riskiest policy ever made in Nepal. The government has a huge expectation and is planning to bring some real change with development activities. But with a hike in tax in almost every sector including income tax, the current fiscal policy poses a huge risk to Nepalese economy.

The previous economic growth rate of Nepal’s economy was around 7% and was seen as a sign of progress. Economist and government have predicted similar growth rate. Government is optimistic about two-digit growth rate. I’m not sure what government is thinking, but based on the prediction of economic growth rate government has increased tax rate for corporate, import, personal income, and almost everything.

If Nepal’s economy is able two achieve two-digit growth rate, current tax rate increase can be justified; however, if it fails to do so, inflation of two digits is imminent. The tax increase can be seen as a roadblock to economic growth rate — can even result in negative growth rate. With the increase in import tariffs, the government is hoping to control trade deficit, however, due to lack of home-made alternative, I cannot assume much affect in import.

The finance mister (Former governor of Central Bank) has boldly claimed that the current fiscal policy is the best one. While the result would be unnoticeable for two years, he is pretty much sure we will be seeing economic boom after 2nd year.

The government is trying to achieve best, however, the fiscal policy is also the riskiest one.

· If Nepal is not able to achieve growth rate as predicted, inflation will go up. Don’t be surprised if it hits two digits.

· The government has a plan for tons of development projects including metro rail, hydro projects, ship, highway and train tracks. If the government isn’t able to commence these projects, the problem of deflation may arise.

· Low growth rate and high government expenditure can result in a state of stagnation, causing high unemployment, inflation, and low economic growth rate. This can be considered as the worst case scenario.

It seems like government tried to achieve too much too soon in short time, risking the economy. The tax rise will mostly affect small and medium industries. The only supporting pillars of these changes (and Nepalese economy) is remittance; the flow of remittance might facilitate these changes to some extent. By not increasing the budget for social security and subsidies government has somewhat tried to implement some damage control. Since the newly merged communist party and alliance have a majority, the government is expected to be stable and there would be a lesser roadblock. Also, it is expected to ease decision making and implementation process.

Considering the fact that current finance minister is expert on Nepali economy let see how things will go. Hopefully, we will be able to see a change after two years. It would be a miracle and extraordinary feat if the government is able to do a things right this year. Negative growth is imminent and shouldn't come as a surprise.