Finance Minister Rameshwar Khanal signs off with ‘Satisfactory Economy’ claim, leaves reform blueprint amid lingering risks

KATHMANDU: Departing Finance Minister Rameshwar Khanal has declared Nepal’s economy to be in a “satisfactory condition” after a turbulent six-month tenure marked by political unrest, weak public spending, declining revenue performance, and shaken private sector confidence.

In a comprehensive exit report released on Thursday, Khanal—who simultaneously held the portfolio of the Ministry of Finance and the Ministry of Federal Affairs and General Administration—presented what can be described as a technocratic ‘marksheet’ of his tenure. The document outlines crisis management, structural reforms, fiscal adjustments, and a roadmap for the incoming leadership.

Crisis Inheritance: A Fragile Economy and Political Shockwaves

Khanal assumed office at a time when Nepal’s macroeconomic stability appeared deceptively intact, but underlying structural weaknesses were acute. The backdrop included the disruptive Bhadra 23–24 Gen Z protests, which severely affected economic activity across major urban centers.

At the time of his appointment, the economy faced a confluence of challenges:

A stagnating private sector with declining business sentiment

Weak capital expenditure, reflecting chronic inefficiencies in public spending

Revenue underperformance, with collection significantly below targets

Physical and administrative disruptions caused by protest-related damages

Public infrastructure had been damaged, government offices were unable to deliver services effectively, and key economic hubs—including Kathmandu Valley—witnessed interruptions in commercial operations. Even private residences of business leaders were reportedly targeted, compounding investor anxiety.

Fiscal Stress Indicators: Where the Economy Stood

According to Khanal’s report, the fiscal and economic indicators at the end of Bhadra painted a concerning picture:

Revenue collection stood at just 72.65% of the target

Revenue growth rate was negative at -6.38%

Capital expenditure was a mere 1.56%

Despite these weaknesses, macroeconomic fundamentals—such as inflation, balance of payments, current account position, and foreign exchange reserves—remained relatively stable.

However, the critical concern lay in weak credit expansion and low capital formation, both essential for sustained economic growth.

Stabilization Measures: Administrative and Fiscal Interventions

Khanal’s tenure focused on stabilizing the system rather than pursuing populist expansion. His approach was rooted in administrative efficiency, digital governance, and targeted fiscal discipline.

Key interventions included:

Rapid restoration of revenue collection infrastructure through temporary structures

Ensuring staff security and continuity of operations in damaged offices

Strategic reallocation of budgetary resources without exceeding approved fiscal limits

Maintaining fiscal discipline during mid-year election financing pressures

Notably, the Ministry ensured the financing of the House of Representatives election scheduled for Falgun 21, within existing budget constraints—an operational challenge given the mid-year fiscal pressure.

Recovery Trends: Gradual but Measurable Improvement

By the end of his tenure, Khanal claimed that the economy had transitioned into a “satisfactory phase,” supported by measurable improvements:

Revenue growth turned positive at 3.77%

Revenue achievement reached 82.02% of the target

Capital expenditure rose significantly to 19.63%

Economic growth rate in the first quarter stood at 3.02%

The minister attributed this recovery to the containment of post-protest disruptions and timely fiscal interventions that prevented prolonged economic paralysis.

Private Sector Confidence: A Silent Priority

One of the less quantifiable but crucial aspects of Khanal’s tenure was restoring business confidence. With entrepreneurs facing both physical losses and psychological distress, the ministry engaged extensively with private sector representatives.

Out of 648 meetings conducted during his tenure:

27.5% involved private sector stakeholders

28.4% involved coordination with other ministries

10.5% involved development partners and diplomatic missions

This engagement reflects an attempt to rebuild trust and signal policy stability in a fragile business environment.

Digital Governance Breakthrough: Redefining Bureaucratic Workflow

Perhaps the most structurally significant reform under Khanal was the full-scale implementation of a Digital Integrated Office Management System.

Out of 828 total decisions made during his tenure:

Only 27 decisions were processed on paper

The remaining were executed digitally

This translates to an average of 6.68 decisions per day, indicating both administrative agility and a shift toward paperless governance.

Additional governance reforms included:

Online issuance of tax clearance certificates

Integration of international payment systems into revenue management

Abolition of outdated taxpayer service offices after organizational restructuring

Establishment of specialized units for tax investigation and foreign investment coordination

Budget Rationalization: Freezing and Reallocating Inefficient Spending

In a decisive move toward fiscal discipline, the ministry froze allocations worth NPR 119 billion tied to underperforming or unprepared projects.

Of this:

NPR 52.90 billion has already been unfrozen and reallocated

Additionally:

NPR 19.60 billion was secured for election-related expenditures

Only one project received approval for multi-year contracting during the period

These decisions indicate a deliberate attempt to curb inefficiencies in Nepal’s capital expenditure framework.

Structural and Policy-Level Reforms

Khanal’s report also highlights reforms across multiple domains:

Revenue and Taxation

PAN numbers linked with National ID cards

Transaction value-based customs valuation system implemented across all checkpoints

Abolition of mandatory postal stamps for government applications

Financial Governance

Progress toward improving Nepal’s sovereign credit rating

Movement toward exiting international “grey list” compliance frameworks related to anti-money laundering

Federal Fiscal Coordination

First Intergovernmental Fiscal Council meeting held during the fiscal year

Strengthened coordination mechanisms across federal, provincial, and local governments

External Risks: Middle East Conflict as a Major Threat

Despite domestic stabilization, Khanal warned of significant external vulnerabilities, particularly stemming from escalating tensions in the Middle East.

Key risks identified:

Potential disruption in petroleum supply chains

Inflationary pressures due to rising fuel prices

Reduced air connectivity affecting remittance flows and tourism

Risk to employment of approximately 2 million Nepali workers in Gulf countries

He cautioned that prolonged conflict could force Nepal into emergency repatriation operations, further straining fiscal resources.

Administrative Integrity: A Different Leadership Style

Khanal’s tenure also stood out for its administrative minimalism and ethical positioning.

He emphasized that Nepal’s civil service is capable of delivering results when aligned with institutional objectives.

Unfinished Agenda: Policy Continuity and Reform Pipeline

In his exit note, Khanal outlined pending and ongoing tasks for the incoming minister:

Reconstruction initiatives following protest-related damages

Addressing funding gaps in the national health insurance program

Advancing international economic cooperation frameworks

Strengthening financial sector regulation and coordination

Legislative reforms already in pipeline

He positioned the report as a transition document, aimed at ensuring continuity rather than disruption in economic governance.

A Technocrat’s Exit: Stability Over Spectacle

Khanal’s six-month tenure did not promise dramatic economic transformation—but it arguably prevented deterioration during a politically and economically volatile period.

By prioritizing administrative reform, fiscal discipline, and institutional continuity, he leaves behind a system that is arguably more functional, digitized, and prepared for the next phase of economic management.

His central claim—that Nepal’s economy is now in a “satisfactory condition”—will ultimately be tested not by reports, but by how the incoming leadership navigates both domestic structural weaknesses and an increasingly uncertain global environment.