Govt orders all procurement processes to begin within Shrawan to break four-year capital spending slump

KATHMANDU: The Nepal government has launched an aggressive budget implementation strategy from the beginning of the current fiscal year 2026/27, aiming to revive economic activity that has remained sluggish amid persistently low capital expenditure over the past four years.

The Office of the Prime Minister and Council of Ministers has directed all ministries and government agencies to initiate procurement processes for projects and programmes within the first month of the fiscal year and ensure that tender notices for eligible projects are issued by the end of Shrawan.

The directive is being viewed as the government’s attempt to break the long-standing cycle of delayed public spending, in which procurement procedures begin late in the fiscal year and a large share of development expenditure is rushed through during the final months.

The government has described the initiative as the beginning of a “zero-day procurement policy”, under which procurement processes for projects that have completed the necessary preparations will begin immediately after the budget is approved.

The policy is intended to reduce delays in tendering, prevent year-end spending rushes and shorten the time required to complete development projects.

In a circular sent to all ministries on Shrawan 5, the Office of the Prime Minister and Council of Ministers directed them to initiate procurement procedures, including issuing tender notices for all projects and programmes under the FY 2026/27 budget, within the month of Shrawan.

Ministries and their subordinate agencies have also been instructed to submit weekly updates to the Prime Minister’s Office, including details of projects, estimated costs, tender publication dates and the officials responsible for implementation.

The arrangement effectively puts the Prime Minister’s Office in a direct monitoring role over budget execution.

Four years of sluggish capital spending weigh on economy

Nepal’s economy has been increasingly affected by weak government capital expenditure in recent years. The recurring pattern of delayed procurement, late-year spending, payment bottlenecks and prolonged project completion has constrained economic activity.

The construction sector has been among the hardest hit.

Thousands of contractors involved in roads, bridges, drinking water, irrigation, energy and public infrastructure projects have faced financial difficulties due to delayed government payments. Many construction companies have struggled to service bank loans as cash flows have deteriorated.

The slowdown has also affected industries and businesses directly linked to construction, including cement, steel rods, aggregates, transportation, heavy equipment and consultancy services.

Industry representatives say many businesses are still operating below their full production capacity due to weak demand.

The impact has also been visible in the banking sector. While businesses and contractors face difficulties in repaying loans, weak demand for new investment has left banks and financial institutions with substantial excess liquidity.

Timely government capital spending could potentially improve cash flows across the economy, increase private-sector business activity and create stronger demand for bank credit.

Public Procurement Act amendment expected to improve project execution

The government’s recent amendment to the Public Procurement Act is also expected to influence the pace and quality of project implementation.

The previous system effectively prioritized the lowest bidder in many procurement processes, creating concerns that some companies were securing contracts at unrealistically low prices and subsequently failing to complete projects on time, abandoning projects midway or seeking cost adjustments.

The amended framework provides greater scope to consider factors including quality, technical capacity and past performance alongside price.

The government expects the revised system to improve project execution, make contracting more efficient and reduce problems associated with unrealistically low bids.

Rs 2.124 trillion budget faces implementation test

The government has allocated a total budget of Rs 2.124 trillion for FY 2026/27.

Of the total allocation, Rs 1.270 trillion (59.8%) has been allocated for recurrent expenditure, while Rs 431.10 billion (20.3%) has been earmarked for capital expenditure. Another Rs 422.64 billion (19.9%) has been allocated for financial management.

To improve budget implementation, the Ministry of Finance has already issued a 47-point budget implementation guideline to ministries, commissions, secretariats and other government agencies.

The guideline directs government agencies to update budgets and programmes in the LMBIS, prepare annual work plans and procurement plans at the beginning of the fiscal year, regularly monitor development projects, link payments with performance and maintain expenditure discipline.

The government has also instructed agencies to improve revenue collection, protect public assets, strengthen internal control systems and maintain financial discipline.

Last year’s weak capital expenditure prompts early action

The government’s decision to accelerate procurement from the beginning of the fiscal year comes largely in response to weak budget execution in FY 2025/26.

According to final data from the Financial Comptroller General’s Office, the government had allocated a total budget of Rs 1.964 trillion for FY 2025/26 but spent only Rs 1.582 trillion, equivalent to 80.55% of the total allocation.

Capital expenditure performance was particularly weak. Of the Rs 407.88 billion allocated for capital spending, only Rs 190.84 billion was spent, representing just 46.79% of the allocation.

By comparison, recurrent expenditure reached 88.40% of its allocation, while spending under financial management reached 92.56%.

Revenue collection also fell short of the government’s target. Against a revenue collection target of Rs 1.480 trillion, the government collected only Rs 1.241 trillion, or 83.87% of the target. Non-tax revenue and foreign grants also remained below expectations.

Can early procurement break Nepal’s spending cycle?

The government’s new strategy places the first month of the fiscal year at the centre of its effort to improve capital spending.

If ministries and agencies successfully complete procurement procedures and issue tender notices for most development projects within Shrawan, construction activities could gain momentum from the first quarter of the fiscal year rather than being pushed toward the final months.

Such a shift could improve contractors’ cash flows, increase industrial production, create employment, expand bank lending and inject liquidity into the wider economy through government expenditure.

However, the effectiveness of the policy will ultimately depend on whether the government can address the deeper structural problems that have historically delayed capital spending—including land acquisition, project readiness, inter-agency coordination, environmental clearances, procurement disputes, contractor capacity and timely payments.

For Nepal, the early start to procurement represents a significant policy test. Moving tenders forward is the first step; ensuring that projects are actually implemented, completed on time and paid for promptly will determine whether the government’s “zero-day procurement” approach can finally break the country’s four-year cycle of weak capital expenditure and revive economic activity.