Contrary to the initial optimism that Nepal's economy would resume a normal course of growth and development and that the people's miseries compounded during the conflict would see gradual improvement following the assumption of government leadership by the new political leaders, the available indicators point out that the government has failed in its duty to manage the economy.

The policies and actions undertaken by the government have remained short of competence, maturity and vision so crucial for leading an economy in transition along the path of normalcy and recovery. The policies adopted are not coherent, systematic, stable and economy-friendly. The policies are more oriented toward increasing risk, cost and inefficiency in the economy. Instead of providing a sound environment for extricating the economy from the quagmire of instability and uncertainty that characterised the time of the conflict, the government's actions have rather generated further uncertainty and confusion among the broad spectrum of the stakeholders of the economy.

Even the much-hyped growth in revenue could not prove a meaningful exercise since a huge cash surplus has been remaining idle in the central treasury in the face of Nepal's economic slowdown and under-developed socio-economic infrastructure. In an environment of global economic slowdown when governments across the world are providing fiscal stimulus to rejuvenate their economies and curtail recessionary tendencies, it is not comprehensible why the government in Nepal is wasting the precious national resource by keeping it idle in the vault. It is also an irony that the Rs8.7 billion worth of domestic loans raised by the government from the market at a competitive rate of interest during the first seven months of the current fiscal year has also remained unutilized.

During these seven months, capital expenditure on cash basis declined by 20.1 percent in comparison to a respectable growth of 79.1 percent during the same period in the previous year. The share of capital expenditure in the total expenditure of the government has fallen to 14.2 percent in this period of the current year from a ratio of 20.5 percent during the same period in the previous year. A fiscal policy that raises resources and keeps them idle when economic growth is decelerating could be termed as a pro-cyclical one, implying that the fiscal policy supports further economic slowdown instead of supporting a recovery. So, the government is accountable to the people for the national loss attributed to its incompetence as reflected in such illogical actions and contradictory policies.

The revenue mobilized also does not support the fundamentals of the economy, signalling future risks regarding the prospects of increasing the revenue based on administrative efforts. VAT and customs duties during the seven months have increased at a slower rate, whereas imports have accelerated. Imports increased by 25.5 percent in comparison to the previous growth of 18.5 percent. Excise has risen, but manufacturing output has fallen. The government's reliance on non-tax revenue has raised the growth rate of non-tax revenue while the growth rate of tax revenue has slowed. Accordingly, the share of tax revenue in the total revenue fell to 81.9 percent from the previous share of 85.2 percent, and that of non-tax revenue rose to 18.1 percent from the previous share of 14.8 percent. This indicates that the government is more inclined to raising user charges and deploying ad hoc administrative measures than laying a sound and sustained basis for revenue generation and enhancing capacity to identify and assess taxes that comprise more than four-fifths of the revenue.

Regarding developments in the financial sector, the growth rate of domestic credit in general and private sector credit in particular has fallen. The major components of the credit categories, especially the productive sectors, have witnessed a slackness in credit growth. Currency in circulation during these seven months increased by Rs18.4 billion (18.4 percent) compared to a growth of Rs6.8 billion (8.2 percent) previously. Demand deposits contracted by 3.4 percent compared to the previous growth of 2.1 percent. The share of currency in the narrow money increased to 69.4 percent from its previous share of 67.1 percent, and the share of demand deposits accordingly declined. These developments suggest that business confidence in the economy has received a setback, and the prospects for investment and growth have become unfavourable. The economy's production and productivity trends are likely to suffer in such an environment. This would be unfortunate for a country like Nepal where development outcomes are at a modest level and popular aspirations for rapid development outcomes are galloping.

The price situation is particularly worrisome in Nepal. When inflation rates in the world and in neighbouring countries are falling, Nepal has witnessed no let up in escalating prices, particularly of daily necessities like food items consumed by the people in general. It is believed that Indian prices have a large say in Nepal's price behaviour, but it is inexplicable that the inflation rate in Nepal has remained at 14 percent compared to the near-zero rate in India. Core inflation that excludes rice and rice products, vegetables and fruits, fuel light and water and transport also rose sharply vis-à-vis the rate that prevailed during the same period in the previous year.