Only 87 percent of allocated budget spent over last 50 years

 

KATHMANDU, MAY 14: Over the past 50 years, the Government of Nepal has utilized only 86.97% of its allocated budget. From the fiscal year 1974/75 to 2014/15, the actual expenditures fell below 80% of the allocation on only three occasions. However, during the nine-year period from 2015/16 to 2023/24,  the spending exceeded 80% in only three fiscal years

In 1990/91 and 2006/07, actual spending surpassed the allocated budget. The most significant overspending occurred in 1990/91, when the expenditure reached 118.99% of the allocation, followed by 102.73% in 2006/07. In 1994/95, 97.86% of the budget was spent; in 1989/90, 96.17%; and in 1991/92, 99.16%. Similarly, 95.48% of the allocation was spent in 2007/08.

The lowest budget utilization was recorded in 2019/20, when only 71.11% of the allocated amount was spent, primarily due to the impact of the global COVID-19 pandemic. In 2015/16, actual spending was limited to 73.34% of the budget. Budget execution also hovered around 75% in 1981/82 and 1982/83.

Capital expenditure drops to below 14% by 2023/24

According to the current budget classification, capital expenditure accounted for more than 50% of total spending until 1997/98. However, this share has steadily declined, falling below 14% by 2023/24.

Over the past three decades, capital spending has continued to shrink. It declined from over 50% in 1997/98 to just 14% in the last fiscal year. In 1982/83, the spending for development activities accounted for more than 71% of the total spending, which dropped to 63% in 1993/94, 50% in 1994/95, 33% in 2008/09, and just 15% in 2009/10.

In contrast,  the recurrent expenditure has steadily increased. While it accounted for around 40% of the total budget until 1997/98, its share had risen to 73% by 2021/22. In 2023/24, the operating expenditure comprised 67.61% of total expenditure. Financial management spending reached 18.78%, after exceeding 19% in 2014/15.

Since the adoption of the new classification system in 2011/12, the government has spent an average of 80.58% of the allocated budget over the past 13 fiscal years.

Higher Spending in Defence, Religion, and Culture; Lower in Infrastructure

According to the study, actual expenditure exceeded allocations over the past decade in sectors such as defense, public security, entertainment, culture, and religion. In contrast, key capital formation sectors recorded spending below 80% of the allocated amounts.

Evolution of Nepal’s budget system

Nepal’s formal budgeting system began in 1951/52. Until 2003/04, total government expenditure was categorized as either "regular" or "development." Up to 2001/02, development expenditure generally exceeded regular expenditure.

In 2004/05, the budget classification system was revised to include recurrent, capital, and loan repayment categories, with loan repayment falling under recurrent expenditure.

From 2011/12 onwards, the government adopted a new classification: recurrent, capital, and financial management. Loan repayments and investments, such as share purchases and lending, were included under financial management expenditure.

Recurrent expenditure covers operational and administrative costs, including salaries, allowances, pensions, office operations, and basic service delivery. In 2023/24, the government allocated NPR 1.1 trillion, or 61.31% of the total budget, to recurrent spending.

Capital expenditure supports long-term development and structural investments such as physical infrastructure, buildings, and roads. For 2023/24, NPR 352 billion—18.9% of the total budget—was allocated for capital outlays.

Financial management expenditure includes spending on debt servicing, interest payments, and other financial obligations—both domestic and external. In 2023/24, NPR 367 billion, or 19.7% of the total budget, was allocated for this purpose.

In the first 10 months of the current fiscal year (2024/25), only 61% of the allocated budget had been spent, while capital expenditure stood at a mere 33%.

“Scattergun” budgeting weakens effective spending

Former Chief Secretary Dr. Baikuntha Aryal stated that the widespread and unstrategic allocation of funds has significantly undermined the effectiveness of budget execution. He attributed the problem to a lack of budgetary discipline, proposals made without fulfilling necessary preconditions or conducting required studies, and a trend of allocating resources to unprepared projects. These factors have made it difficult to link the budget with results.

According to him, operating expenditures continue to rise due to the increasing pension and social security burden, rising fuel costs, frequent foreign visits, growing health and aid expenditures, and the depreciation of the Nepali rupee against the US dollar.

He also noted that although the provincial and local governments should implement many programs, the federal government continues to allocate a budget for them, ultimately hampering effective implementation.

Aryal emphasized the need to assess how much of the budget is directed toward real capital formation and what outcomes are being achieved. “Not all capital expenditure leads to capital formation. Even the procurement of vehicles and computers is classified as capital spending,” he said.

He cited poor compliance with project readiness criteria, indecisiveness, and frequent amendments to public procurement regulations as major obstacles to efficient implementation.

"Many multi-year projects lacked adequate funding; previously assured budgets were curtailed; and multiple allocations were made for the same project. In addition, complex procedures, multiple approval requirements, and delays in foreign aid reimbursements further constrained spending."

Aryal also pointed to weak institutional capacity, the absence of third-party monitoring, and poor project readiness as key issues affecting capital expenditure. According to him, other technical problems are limited contractor capacity, unrealistic bidding, shortage of skilled labour and equipment, local-level obstructions, lack of construction materials, frequent staff transfers, and procedural hurdles across the Parliament, constitutional bodies, the Office of the Prime Minister, etc. 

“The most significant bottleneck is the Ministry of Finance,” he remarked. “Without facilitation from the Ministry, neither domestic nor external financing can move forward.”

Three core contradictions in the budgeting system: NPC Member Dr. Shrestha

Dr. Prakash Kumar Shrestha, a member of the National Planning Commission, identified three key contradictions in Nepal’s current budgeting system:

1. The budget begins with ambitious allocations but is significantly curtailed during implementation.

2. The federal government shows a budget deficit, while the combined fiscal position of all three levels of government (federal, provincial, and local) shows a surplus.

3. Project prioritization remains weak.

While preparing the current fiscal year’s budget, the project bank included more than 18,000 projects. This number was later reduced through restructuring, yet over 7,000 projects still remained. Dr. Shrestha emphasized that the NPC is now strictly enforcing the policy of not allocating federal funds to projects costing less than NPR 30 million.

Efforts are also being made to integrate the project bank, the medium-term expenditure framework, and the annual budget. He acknowledged that inadequate preparation by ministries had also affected budget implementation. He stressed that project proposals should be 80% technical and only 20% political.

Finance Minister Poudel Pledges Reform

Deputy Prime Minister and Minister for Finance Bishnu Prasad Poudel has announced plans for significant reforms in upcoming budget programs to ensure they are more realistic and implementation-friendly. He underscored the need to set priorities in line with resource constraints and acknowledged persistent problems within the current budget process.

“There is a large gap between budget allocation and actual implementation, and we are responsible for that. I am not here to widen that gap further—I am here to bridge it. I seek cooperation from all stakeholders,” he stated.