Kathmandu: Nepal is preparing to unveil one of the largest budgets in its history for the upcoming fiscal year, significantly exceeding the ceiling recommended by the National Planning Commission and signalling a dramatic shift in the government’s economic approach.
While the planning commission had recommended a budget cap of around Rs 19 trillion, multiple sources say the government led by Prime Minister Balen Shah is now working toward an ambitious budget of nearly Rs 24 trillion.
Finance Minister Swarnim Wagle had initially proposed a more restrained budget of around Rs 21.5 trillion after assessing the economy’s actual capacity. However, sources say Prime Minister Balen insisted that Nepal needed a bold, large-scale budget to transform the country, ultimately pushing the target closer to Rs 24 trillion.
Officials at the Finance Ministry say Wagle remains reluctant to support a budget exceeding Rs 22 trillion but is finding it difficult to resist pressure from the prime minister’s office.
The previous fiscal year’s budget stood at Rs 19.64 trillion, meaning the new plan could increase government spending by more than Rs 5 trillion within a single year.
Sources describe the proposed budget as strongly nationalist in tone, with elements reminiscent of the state-driven economic style associated with King Mahendra’s era. It is also expected to include several populist programs commonly associated with leftist governments, further inflating the budget size.
Perhaps the most significant policy shift lies in the government’s changing attitude toward development projects. Instead of leaving major infrastructure to the private sector, Prime Minister Balen is preparing to announce that the state itself will directly initiate and lead large-scale infrastructure projects.
The government is also considering reviving several defunct state-owned industries through fresh investment, despite repeated failures by previous administrations to generate returns from such ventures.
“If the government has learned from past mistakes, it should avoid directly entering business activities,” a Finance Ministry source said. “But the Balen administration is determined to restart some closed state-owned industries.”
The upcoming budget is expected to prioritize direct government investment and construction leadership, potentially shrinking the private sector’s role in infrastructure and broader economic activity.
“Although certain sectors may still receive private-sector incentives, overall, the role of private businesses in infrastructure development and the economy could narrow,” one source said. “At a time when the business community has been lobbying for greater private-sector participation, this budget may weaken confidence because many entrepreneurs could interpret it as a sign that the government does not trust them.”
Prime Minister Balen has reportedly held consultations with lawmakers from across the political spectrum and compiled a list of hundreds of projects proposed by members of parliament. Finance Ministry officials say the pressure to accommodate these projects is another major reason behind the expanding budget size.
To accommodate lawmakers’ proposals, the government even reopened project submissions to the National Planning Commission’s project bank until Wednesday. Sources say around 6,000 projects have already been entered into the system, and even selecting a fraction of them could increase the budget by another Rs 200 billion.
Pressure is also reportedly coming from lawmakers within the ruling party itself. Some members of the Rastriya Swatantra Party have allegedly warned Finance Minister Wagle that they would stage protests at the ministry if their constituencies failed to receive sufficient allocations.
Officials say the prime minister argues that Nepal must set bigger spending targets if it wants to achieve meaningful economic transformation. That stance, however, has intensified concerns inside the Finance Ministry over how such a massive budget will actually be financed.
“One estimate from the Prime Minister’s Office suggests the budget could even reach Rs 25–26 trillion if every proposed allocation is accommodated,” a senior Finance Ministry official said. “The finance minister is under enormous pressure trying to figure out where the resources will come from. Despite the funding gap, a budget between Rs 23 and 24 trillion now appears likely.”
Even with such a large budget, nearly half of the total spending is expected to go toward mandatory obligations rather than development projects.
The government is under mounting pressure to raise salaries and allowances for civil servants despite resource constraints. Officials say a 20 percent increase in government compensation could add nearly Rs 100 billion to annual expenditure, especially because higher salaries also increase pension liabilities.
“The strategy is to motivate civil servants through higher pay while maintaining a zero-tolerance policy toward corruption,” a source said.
The government believes that current salary levels have weakened employee morale and wants to raise compensation to a level at which staff no longer feel compelled to seek additional income elsewhere.
However, due to pressure on the state treasury, the government is unlikely to increase social security allowances this year, choosing instead to maintain current levels.
With rising salary obligations, debt servicing costs, and fiscal transfers to provincial and local governments, recurrent expenditure alone is expected to exceed Rs 13 trillion.
The government is also facing heavy pressure from public debt repayments. Nearly Rs 500 billion may need to be allocated solely for principal and interest payments on domestic and foreign loans. Much of this burden will fall under financial management expenditures rather than direct operational spending.
Meanwhile, the government plans to transfer roughly Rs 550 billion to provincial and local governments through fiscal equalization, conditional grants, and special grants to strengthen federalism. In the current fiscal year, such transfers totalled Rs 418 billion.
Despite limited fiscal space, the government wants to expand capital expenditure dramatically. The current fiscal year allocated Rs 400 billion for capital spending, but the Balen administration reportedly wants to raise that figure to at least Rs 600 billion.
“The prime minister believes Nepal has failed to develop because capital expenditure has remained too small,” a source said. “His main concern is how to significantly expand development spending, and that could push capital allocations close to Rs 600 billion in the next budget.”
To finance the larger budget, Finance Minister Wagle has reportedly instructed the bureaucracy to identify areas where government spending can be cut and resources redirected.
The government is also preparing to expand the value-added tax net by reducing the list of VAT-exempt goods and services. Since VAT already contributes roughly one-third of Nepal’s tax revenue, officials believe broadening the tax base could substantially boost collections.
“Most consumer goods are likely to come under VAT coverage now, which could significantly raise government revenue,” a Finance Ministry source said.
According to estimates, the government may need to set a revenue target of Rs 1.6–1.7 trillion to sustain such a large budget. After revenue-sharing arrangements with provincial and local governments, the federal government would retain roughly Rs 1.5 trillion for its own use.
The remaining financing would need to come from foreign grants, external borrowing, and especially domestic debt. Officials estimate the government may need to raise as much as Rs 550 billion through internal borrowing, taking advantage of historically low interest rates and excess liquidity in the banking system.
Economists warn, however, that large-scale domestic borrowing could crowd out private-sector investment by limiting access to bank credit if liquidity conditions tighten in the future.
At present, Nepal’s banking system reportedly holds nearly Rs 1.1 trillion in excess liquidity, while weak business confidence has kept private borrowing demand unusually low despite historically cheap interest rates.
“Since the private sector is currently hesitant to borrow, the government could use low-cost domestic borrowing to inject money into infrastructure projects and revive an economy that has remained sluggish for four to five years,” a source said.
But officials also caution that the success of such a strategy depends entirely on the government’s ability to actually spend the money efficiently.
“The government says it is working to improve administrative efficiency and spending capacity,” one source explained. “But if it fails to improve implementation, such an enormous budget could seriously damage the economy. The government should be careful not to become overly ambitious.”
Nepal has repeatedly faced criticism in past years for unveiling oversized budgets only to scale them back during mid-year reviews due to weak spending capacity.
The current fiscal year’s Rs 19.64 trillion budget was later reduced to Rs 16.88 trillion during a mid-term review conducted by Finance Minister Rameshwor Khanal after the formation of the citizen-led government that emerged following the September Gen Z uprising.
At the time, Khanal had warned against populist budgeting practices designed to satisfy all political interests without adequate fiscal capacity.
“It is not healthy for the country to introduce large populist budgets only to shrink them later because the state lacks the resources and spending ability,” he had said.
Finance Ministry officials are now quietly urging Minister Wagle not to repeat that cycle. Whether he can withstand mounting political pressure from Prime Minister Balen, however, remains uncertain.
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