Finance minister vows to reform budget for efficiency and results

KATHMANDU: Deputy Prime Minister and Finance Minister Bishnu Prasad Paudel has pledged to overhaul Nepal’s fiscal year 2082/83 (2025/26) budget to ensure allocation efficiency and implementation effectiveness. Speaking at a pre-budget discussion on “Allocation Efficiency and Realistic Budget,” organized by the Society of Economic Journalists-Nepal (SEJON), Paudel promised extensive restructuring and prioritization of programs to make the budget realistic and results-oriented.

Paudel acknowledged a “significant gap” between budget allocation and execution, citing the addition of over 11,000 projects to the project bank this year as evidence of inefficiencies. “I’m not here to dig more holes but to fill them,” he said, seeking stakeholder support. He committed to prioritizing projects, enforcing fiscal discipline, and limiting federal budgets to nationally significant initiatives, excluding small-scale projects better suited for provincial or local governments.

Paudel highlighted rising current expenditures driven by unforeseen liabilities, such as teacher demands and social security costs, exacerbated by competitive pressures to lower pension ages despite increasing life expectancy. He emphasized prioritizing long-delayed multi-year projects and focusing investments on infrastructure like the East-West, Hulaki, and Mid-Hill Highways. Paudel also assured that fiscal policies would align with the constitution, leveraging the work division report to enhance federal efficiency.

Stakeholders at the discussion stressed the urgent need to address systemic flaws in the budget cycle. Former Chief Secretary Dr. Baikuntha Aryal presented data showing that over the past 50 years, Nepal spent an average of 86.97% of its allocated budget, indicating chronic underspending. In the last 13 years, current expenditure averaged 84.76%, capital expenditure 67.80%, and financial management 81.52%, with an overall spending rate of 80.58%. Post-constitution, only three years saw expenditure above 80%. Sectors like defense, public security, recreation, culture, and religion often overspend, while capital-intensive areas critical for development fall below 80%.

Aryal identified issues including flawed budget formulation, inefficient allocation, excessive demands relative to resources, and budgets for unprepared or unstudied projects. He criticized weak links between allocation, expenditure, and outcomes; last-minute budget additions; and rising liabilities from pensions, social security, foreign travel, fuel, and medical costs.

Non-compliance with medium-term expenditure frameworks, indecisiveness, insufficient funding for ongoing projects, frequent public procurement law amendments, duplicate allocations, and donor conditions like multiple approvals further hinder progress. Delays in land acquisition, forest clearance, poor coordination, weak contractor capacity, shortages of labor, equipment, and materials, local obstructions, and frequent staff transfers also reduce capital expenditure. Dr. Aryal suggested third-party cost estimations, stronger monitoring, and fostering employee motivation, noting the Ministry of Finance’s role in facilitating resource spending.

National Planning Commission member Dr. Prakash Kumar Shrestha highlighted three budgetary contradictions: expansive budgets that shrink during implementation, a federal deficit contrasted by surplus across all government tiers, and weak project prioritization. He noted that the project bank, restructured this year, reduced projects from over 18,000 to above 7,000, with federal funding now prioritizing projects costing over NPR 30 million. Shrestha emphasized aligning the project bank with medium-term expenditure frameworks and improving coordination.