Finance ministry reports 46% budget spending in H1, Revenue falls short by Rs 129.8 billion

KATHMANDU: Nepal’s Ministry of Finance (MoF) has published its second–quarter progress report for FY 2024/25 (2081/82 BS), showing moderate budget execution but mounting pressure on revenue mobilization, weak capital expenditure, and limited arrears clearance, raising concerns over Nepal’s fiscal management, public finance stability, and economic reform momentum.

According to the ministry, 46.06 percent of the annual budget had been spent by the end of Poush (mid-January), which is 10.75 percent higher compared to the same period last fiscal year, indicating improved overall expenditure absorption but persistent structural imbalance between recurrent and capital spending — a long-standing issue in Nepal’s economy, public investment efficiency, and infrastructure development.

The government had allocated a total budget of Rs 1.964 trillion (19 kharb 64 arba 11 crore) for the fiscal year. By mid-year, Rs 904.64 billion had been spent. Of this:

Recurrent expenditure: Allocation Rs 1.180 trillion; spending 40.82% (Rs 482.10 billion)

Capital expenditure: Allocation Rs 407.88 billion; spending only 11.66% (Rs 47.54 billion)

Compared to the previous year, recurrent expenditure increased by 3.35%, while capital expenditure declined by 4.86%, highlighting continued underperformance in development spending, project implementation delays, and weak capital formation — key constraints for Nepal’s GDP growth, job creation, and private sector confidence. Meanwhile, financial management expenditure rose sharply by 53.29%, reflecting growing debt servicing and fiscal obligations.

Revenue Under Severe Stress

Revenue performance presents a bigger challenge. The government set a target to collect Rs 1.440 trillion in revenue this fiscal year. By mid-Poush, the expected collection was Rs 711.20 billion, but actual revenue stood at only Rs 581.40 billion, creating a shortfall of Rs 129.80 billion.

This gap signals slowdown in imports, subdued domestic economic activity, and structural weaknesses in tax compliance and revenue administration — critical issues for Nepal’s budget deficit, public debt sustainability, and fiscal reform agenda.

Weak Progress in Arrears Settlement

The ministry also reported slow progress in clearing outstanding irregularities. Out of total arrears of Rs 125 billion, only Rs 8 billion was settled during the review period, leaving Rs 117 billion unresolved, representing just 6.4% progress. This raises governance, audit compliance, and public financial accountability concerns.

Major Election-Related Spending

Significant fiscal resources were prioritized for House of Representatives and National Assembly elections. Source approvals provided include:

Election Commission (HoR polls): Rs 6.73 billion in approvals; Rs 6.31 billion released by mid-Poush

Home Ministry and agencies: Rs 10.39 billion

Nepal Army (election operations): Rs 1.94 billion

National Investigation Department: Rs 28 million

Army security equipment: Rs 44.25 million

National Assembly election: Rs 43.1 million

Revenue and Legal Reforms

On the reform front, MoF initiated online customs valuation systems, enforced GATT valuation compliance, and coordinated through the Central Revenue Leakage Control Committee. Nepal also resolved tax disputes under the Nepal–Mauritius Double Taxation Avoidance Agreement and moved to cancel the treaty, while clarifying capital gains tax issues linked to Dolma Impact Fund.

The Customs Act 2082 is being implemented, with draft regulations submitted. Several financial laws and regulations — including amendments related to payments, fiscal responsibility, anti-money laundering, and multi-year project financing standards — have been approved and gazetted.

Financial Sector and Governance Measures

Key macro-financial decisions include:

Restriction on cash transactions above Rs 500,000

Revision of Indian currency movement limits

Formation of NEPSE restructuring committee and capital market reform implementation

Rs 9.80 billion interest subsidy disbursement under concessional loans

Approval of Financial Sector Development Strategy 2025–2029 (2082/83–2086/87)

The ministry also reported resolving 91 public complaints, cutting 323 staff positions through organizational restructuring (saving Rs 220 million in liabilities), and updating monthly progress under national policy programs.

Despite reform activity, the report underscores Nepal’s persistent fiscal challenge: rising recurrent obligations, low capital expenditure efficiency, and revenue underperformance — factors that directly affect Nepal’s economic recovery, investment climate, and long-term development trajectory.