Nepal’s budget tilts toward recurrent spending as capital outlay stays below 21 percent

KATHMANDU: Nepal’s government budget structure shows a continued dominance of recurrent expenditure, raising critical questions about fiscal sustainability, development momentum, and long-term economic productivity.

A breakdown of the national budget allocation reveals that out of a total budget of Rs 1,964.11 billion, the largest share — 60.13 percent — has been assigned to revenue (recurrent) expenditure, amounting to Rs 1,180.98 billion.

Recurrent expenditure primarily covers salaries, social security allowances, administrative operations, subsidies, and interest payments. Economists note that while such spending is essential to keep the state functioning, a consistently high share limits the government’s ability to accelerate infrastructure growth, capital formation, and productivity-enhancing investments.

Nepal has faced persistent criticism in recent years for an expanding bureaucratic and social obligation burden that leaves limited fiscal room for transformative development.

In contrast, capital expenditure — spending that directly contributes to physical infrastructure, hydropower, roads, irrigation, airports, and long-term assets — stands at Rs 407.89 billion, representing just 20.77 percent of the total budget. This ratio remains below the threshold many development planners consider necessary for a fast-growing emerging economy.

Infrastructure gaps continue to affect Nepal’s industrial competitiveness, logistics efficiency, and private-sector expansion, particularly in manufacturing, tourism infrastructure, and cross-border trade connectivity.

Another major component is financial management, which includes debt servicing and other financial obligations. This category has been allocated Rs 375.24 billion, accounting for 19.10 percent of the total budget.

The rising share signals Nepal’s increasing debt servicing pressure amid growing domestic and external borrowings. Analysts say this reflects the government’s reliance on loans to finance deficits while revenue growth struggles to keep pace with expenditure commitments.

The structure highlights a structural fiscal challenge: a large portion of government resources is locked into mandatory and non-productive spending categories. With over three-fifths of the budget going to recurrent costs and nearly one-fifth toward financial liabilities, less than a quarter is left for direct development works.

This composition may slow capital deepening, limit job creation capacity, and constrain multiplier effects in the broader economy.

For a developing economy like Nepal, capital expenditure has strong spillover benefits. Investments in transport corridors, energy transmission lines, digital infrastructure, and urban development stimulate private investment, improve productivity, and enhance export capacity.

However, under-execution of capital budgets in past years has further reduced the real impact of allocations, with many projects facing delays due to procurement bottlenecks, land acquisition disputes, and weak project management.

From a macroeconomic standpoint, the budget pattern reflects a consumption-oriented fiscal profile rather than an investment-driven one. While social protection and public sector wages support household income stability, they do not necessarily expand the productive base required for sustained GDP growth above regional averages.

Business leaders and development economists argue that improving capital spending efficiency, reforming public financial management, and rationalizing recurrent commitments will be essential for Nepal to transition toward a higher growth trajectory.

Greater prioritization of infrastructure, energy, and productive sectors could strengthen economic resilience, attract foreign direct investment, and reduce long-term dependency on remittances and borrowing.

The current allocation framework underscores the policy dilemma facing Nepal’s fiscal planners as they balance welfare obligations, debt pressures, and the urgent need for growth-oriented investment.