Fiscal liquidity improves as Nepal Government cash balance hits record level

KATHMANDU: Nepal’s cash balance position has shown a notable rebound in the current fiscal cycle, with government reserves rising sharply to Rs 253.02 billion by mid-December 2025, indicating improved short-term liquidity management and evolving fiscal dynamics in the national economy.

Data on the Cash Balance of the Government of Nepal (GoN) reveal significant fluctuations over the past six fiscal years, reflecting the country’s shifting revenue performance, capital expenditure patterns, borrowing trends, and broader macroeconomic pressures.

In FY 2019/20, the government maintained a cash balance of Rs 141.17 billion, which increased to Rs 194.70 billion in FY 2020/21. The upward trend continued into FY 2021/22, when reserves peaked at Rs 227.69 billion.

This period coincided with higher external inflows, cautious spending during pandemic recovery, and delayed capital project execution, which collectively kept liquidity parked in the government account.

However, the trend reversed sharply in FY 2022/23, when the cash balance plunged to Rs 71.98 billion. The drop was largely associated with increased recurrent spending, higher fiscal pressures, revenue shortfalls, and post-pandemic economic adjustment challenges.

Lower revenue mobilization from imports — a key source of government income — and rising debt servicing obligations also contributed to tightening fiscal space.

A mild recovery was seen in FY 2023/24, with the balance rising to Rs 99.27 billion, followed by a stronger improvement in FY 2024/25, when reserves increased to Rs 130.73 billion.

The latest figure of Rs 253.02 billion by mid-December 2025 represents the highest level in the period under review, more than tripling the low seen two years earlier.

What the Cash Balance Indicates

The government’s cash balance reflects the funds available in the treasury to meet immediate obligations such as salaries, subsidies, debt servicing, and development spending. A higher balance improves the government’s ability to manage short-term liquidity shocks, reduces reliance on emergency borrowing, and supports macroeconomic stability.

The recent surge suggests slower capital expenditure disbursement in the early months of the fiscal year, improved revenue collection momentum, or timing differences between revenue inflows and expenditure commitments.

In Nepal’s context, capital spending traditionally accelerates in the final quarters of the fiscal year, which often leads to a temporary buildup of cash reserves in the first half.

Economic Implications

A strong government cash position can influence the broader economy in several ways:

First, it supports financial system liquidity. When the government holds large balances at the central bank, liquidity conditions in the banking system can tighten unless offset by monetary operations. Conversely, when spending rises later, liquidity flows back into the economy.

Second, the cash balance is linked to public investment capacity. If reserves remain high due to under-spending on infrastructure, it may indicate execution bottlenecks in development projects, which can slow economic growth and job creation.

Third, the trend reflects the government’s fiscal discipline and revenue resilience. A rising balance after a sharp dip suggests improved fiscal management, but sustainability depends on maintaining revenue growth alongside productive spending.

The jump to over Rs 253 billion signals a short-term fiscal cushion, but economists note that the key question is how effectively these funds translate into productive capital expenditure in the remaining months of the fiscal year.

Nepal’s economic growth, employment generation, and private sector confidence depend heavily on timely government spending on infrastructure, energy, and public services.

If the high cash balance reflects delayed project execution rather than genuine surplus strength, the macroeconomic impact could be neutral or even negative in growth terms.

However, if supported by stronger revenue performance and prudent borrowing, it strengthens fiscal stability and investor confidence.

Overall, Nepal’s cash balance trend shows recovery from a recent low and provides breathing space for fiscal operations, but the ultimate economic benefit will depend on how efficiently the government deploys these resources in the months ahead.