H1 budget review shows routine underperformance amid weak economic environment

KATHMANDU – The government has indicated that it will fail to meet the targets set in the budget for the current fiscal year 2082/83 (2025/26), with the Ministry of Finance projecting shortfalls in both expenditure and revenue in its mid-year budget review. The assessment portrays an economy still operating under structural constraints, political aftershocks, and implementation bottlenecks.

According to the review, only 85 percent of the total allocated budget — equivalent to Rs 1.688 trillion — is now expected to be spent by the end of the fiscal year. The revised estimate reflects persistent weaknesses in budget execution capacity, administrative delays, and the impact of political transition during the early months of the fiscal year.

Recurrent Spending Strong, Capital Spending Lags Again

The government expects recurrent expenditure to reach Rs 1.125 trillion, about 95 percent of the allocation, driven by obligatory expenses such as salaries, social security payments, grants, and routine administrative costs. However, capital expenditure is projected at only Rs 243 billion, once again highlighting Nepal’s chronic inability to translate budget allocations into development spending.

Officials revealed that projects worth Rs 119 billion were initially put on hold due to lack of preparation. Of this, Rs 40 billion has been unfrozen, but around Rs 80 billion worth of projects remain cut, yet even the revised capital spending estimate is being viewed as ambitious. This underscores systemic issues in project readiness, procurement efficiency, and institutional coordination.

Finance Minister: “Spending Could Reach Rs 1.9 Trillion”

Finance Minister Rameshwar Khanal said the revised figure should not be interpreted as a hard ceiling. “This is only a projection. If spending capacity improves, the government could still spend up to Rs 1.9 trillion,” he stated.

He acknowledged that during the first three months of the fiscal year, the government’s focus on ensuring a political “safe landing” during the transition period limited its ability to push public spending, particularly in development works.

Revenue Collection Also Below Target

Revenue performance mirrors the spending slowdown. The government now expects to collect Rs 1.535 trillion in total revenue this fiscal year, below the original budget target.

The Ministry of Finance noted that while upcoming elections in the remaining six months could inject some dynamism into the economy, private sector investment decisions, consumption growth, and trade expansion are not strong enough to drive the revenue surge initially anticipated.

Early-Year Protests Disrupted the Economy

The review also points to the Gen-Z movement at the start of the fiscal year as a major disruptive factor. The protests caused physical damage to infrastructure, created psychological uncertainty in the private sector, and triggered political changes at the leadership level, all of which contributed to sluggish public spending in the first half.

“Business Recovery Plan” Helped Stabilize the Economy

Finance Secretary Ghanshyam Upadhyay argued that the government’s swift introduction of a “Business Recovery Plan” prevented a deeper economic downturn. “There were fears of economic collapse after the protests, but the economy normalized faster than expected,” he said.

He credited improved management, ministerial initiative, and reforms in customs and inland revenue administration for restoring market confidence and improving the investment climate.

Public Finance Returning to Rhythm?

Suman Dahal, chief of the Budget Division at the Finance Ministry, said that around 35 percent of the total allocation has been spent so far, which is 3 percentage points higher than the same period last fiscal year. He described this as a sign that public finance management is returning to normal faster than many had predicted.

However, economists caution that the continued dominance of recurrent spending and weak capital expenditure will limit the budget’s growth impact. With revenue under pressure and development spending lagging, structural weaknesses in Nepal’s public finance system remain a long-term concern for economic expansion and fiscal sustainability.