Finance Minister Wagle preparing budget worth around Rs 2.2 trillion, Exceeding NPC ceiling

KATHMANDU: Finance Minister Dr. Swarnim Wagle is in the final stages of preparing a national budget of around Rs 2.2 trillion for the upcoming fiscal year 2083/84 (2026/27), exceeding the ceiling set by the National Planning Commission (NPC).

The NPC’s Resource Estimation Committee had recommended a budget ceiling of approximately Rs 1.89 trillion, based on Nepal’s estimated fiscal capacity and available resources for the next fiscal year.

However, according to Ministry of Finance sources, the upcoming budget is expected to go significantly beyond that limit due to rising mandatory expenditures, planned salary increases for public employees, and an expansion of capital spending.

Previous Year Budget Was Later Reduced

For the current fiscal year 2082/83, the government initially introduced a budget of around Rs 1.96 trillion. However, following a mid-year review, former Finance Minister Rameshwar Khanal reduced it to Rs 1.68 trillion due to resource constraints and implementation challenges.

At that time, Khanal had cautioned against the long-standing practice of presenting oversized budgets that are later revised downward, calling it harmful for fiscal discipline and economic planning.

Capital Expenditure Set for Significant Increase

The government is planning a substantial increase in capital expenditure in the upcoming budget. While around Rs 400 billion was allocated for capital spending in the current fiscal year, officials say the amount could increase by nearly Rs 200 billion next year.

Priority will be given to completing ongoing infrastructure projects, reducing delays in high-priority schemes, and expanding strategic road networks connecting all local governments.

Rising Mandatory Liabilities Driving Budget Expansion

A major factor behind the larger budget size is the steady rise in mandatory government liabilities, which include debt servicing, pensions, social security payments, salaries, and other fixed obligations.

These obligations are expected to rise from over Rs 1.3 trillion in the current fiscal year to more than Rs 1.45 trillion next year, leaving limited fiscal space for new development programs.

Planned 15% Salary Increase

The government is also preparing to implement a 15% salary increase for civil servants, teachers, and other public sector employees in the upcoming budget.

Finance Ministry estimates suggest that this alone will add approximately Rs 37 billion in additional fiscal burden. The increase will also automatically raise pension payments, social security obligations, and administrative costs.

Weak Revenue Performance Adds Pressure

Revenue collection remains below target. For the current fiscal year, the government aimed to collect Rs 1.48 trillion, but only around Rs 1.01 trillion had been collected by the second week of May.

With limited time remaining in the fiscal year, officials acknowledge that meeting the target is highly unlikely.

Foreign Grants Continue to Decline

Foreign grants have also fallen short of expectations. The government had projected Rs 53.44 billion in grants for the current fiscal year, but only Rs 18.63 billion has been received so far.

Experts say there is little indication of significant improvement in grant inflows or revenue growth in the coming fiscal year.

Dollar Appreciation Increases Debt Burden

The strengthening US dollar has further increased Nepal’s external debt servicing burden. Officials estimate that currency depreciation has added approximately Rs 125 billion in additional costs during the current fiscal year alone.

Experts Warn Against Overexpansion

Tax expert Rup Khadka said Nepal’s sustainable revenue growth rate typically remains between 12% and 14%, and may reach 18% to 20% only under strong tax reforms.

He warned that expanding the budget far beyond realistic revenue capacity could create long-term fiscal stress.

Former Vice Chairperson of the National Planning Commission Dr. Prakash Kumar Shrestha also cautioned that while a larger budget is not problematic in itself, it must be backed by strong implementation capacity and realistic resource mobilization.

He warned that excessive reliance on borrowing without productive returns could create burdens not only for the present economy but also for future generations.