Government signals leaner budget as revenue slows and spending capacity tightens

KATHMANDU: Nepal’s budget for the upcoming fiscal year is set to shrink compared to the current one, after the government’s resource panel fixed a lower spending ceiling aimed at curbing the long-standing practice of announcing oversized budgets that cannot be implemented.

According to sources at the Ministry of Finance Nepal, the budget for fiscal year 2083/84 (2026/27) is expected to fall within Rs 1,890 billion to Rs 1,940 billion.

The ceiling has been provided by the National Resource Estimate Committee under the National Planning Commission Nepal, which is legally mandated to determine the resource envelope and spending limit before the finance minister begins budget preparation.

The current fiscal year’s budget stands at Rs 1,964 billion, meaning next year’s spending plan could be modestly smaller.

Push to End “Inflated Budget” Practice

NPC Vice-Chairman Prakash Kumar Shrestha said the ceiling reflects an attempt to halt the recurring pattern of introducing large budgets that later fail in execution.

He noted that the committee determined the limit based on “available resources and realistic spending capacity,” adding that the correction begins at the stage of fixing the ceiling itself.

Nepal’s mid-year review has already revised expected spending for the current fiscal year down to Rs 1,688 billion, highlighting persistent under-execution of public expenditure.

Officials say actual spending often falls even below revised estimates, reinforcing concerns about fiscal credibility and planning inefficiencies.

Priority Projects Protected

Despite the tighter ceiling, the committee has ensured budget earmarks for national pride projects and major incomplete schemes.

Shrestha said unfinished projects will receive adequate funding, while strategic programs aligned with state priorities have been safeguarded through policy guidance embedded in the ceiling.

Legal Timeline and Budget Process

Nepal’s budget preparation is governed by the country’s fiscal management law, which requires the resource ceiling and the Medium-Term Expenditure Framework to be submitted to the finance minister by early Falgun (mid-February).

Following this provision, the committee submitted its report and ceiling recommendation this week to Finance Minister Rameshwar Khanal.

Revenue Outlook and GDP Projection

The committee estimates Nepal could collect around Rs 1,332 billion in revenue next fiscal year.

Revenue is projected at 18.5 percent of GDP, with total GDP expected to reach roughly Rs 7,200 billion.

Based on this macro framework, the budget ceiling has been fixed at around 27 percent of GDP, aligning expenditure targets more closely with resource realism.

Room Left for Next Government

The current fiscal year’s budget was introduced by a government led by CPN-UML, but was later implemented by an interim administration formed after political unrest in Bhadra led to the government’s fall.

The mismatch between the political government’s priorities and the interim government’s agenda contributed to weak execution and missed fiscal targets.

With parliamentary elections scheduled for late Falgun, officials expect a newly elected government to take office soon afterward. The resource panel has deliberately left “policy space” so the incoming administration can revise the ceiling if it introduces stronger revenue or financing strategies.

The current Medium-Term Expenditure Framework had earlier projected next year’s budget could reach Rs 2,128 billion, but the new ceiling is significantly lower.

Persistent Gap Between Budget Size and Implementation

Nepal’s fiscal history shows a repeated pattern of announcing politically attractive budgets while struggling to spend them.

For the current fiscal year, the government now expects to execute only 85.96 percent of the original budget.

Revised estimates show:

Rs 1,125 billion in recurrent spending

Rs 243 billion in capital spending

Rs 319 billion in financing expenditure

This compares with initial allocations of:

Rs 1,180 billion recurrent

Rs 407 billion capital

Rs 375 billion financing

Revenue Shortfall Deepens

Government income is also expected to fall well below target.

While the original estimate projected Rs 1,480 billion in revenue, the mid-year review now expects only Rs 1,298 billion, underscoring fiscal constraints that have influenced the lower budget ceiling for next year.

Under Nepal’s constitution, the government must present the next fiscal year’s budget on May 29 (15 Jestha).