Weak budget implementation despite a strong coalition government

 

KATHMANDU, MAY 16: Nepal currently has a powerful coalition government comprising up to seven political parties, including the two major ones—the Nepali Congress and CPN-UML. Despite enjoying a near two-thirds majority in the Parliament, the government has demonstrated poor performance in executing the current fiscal year’s budget. While it is in the final stages of preparing the budget for the upcoming fiscal year, the government has already fallen short in implementing the current one.

Former Finance Minister Barshaman Pun had unveiled a budget of NPR 1.86 trillion for the current fiscal year 2081/82 (2024/25).  With only two months left for its completion. A mere 62% of the total budget has been spent so far, and capital expenditure accounts for just one-third of this. The poor budget execution under a strong coalition government has resulted in a fiscal deficit of NPR 211.55 billion.

According to the Financial Comptroller General Office (FCGO), in the first 10 months of the current fiscal year, the government had spent NPR 1.157 trillion of the total budget. To fully implement the budget, NPR 702 billion must be spent in the remaining two months.

Due to weak implementation and failure to meet the revenue and expenditure targets, the government had already reduced the annual budget by NPR 167 billion during the mid-term review. The initial allocation of NPR 1.86 trillion was revised down to NPR 1.692 trillion. Even to meet this revised target, the government still needs to spend NPR 502 billion by the end of the current fiscal.

Sluggish economic activity has hindered revenue collection, directly affecting government income. By the end of Baisakh (mid-May), the government had collected only NPR 946.33 billion in revenue while spending NPR 1.157 trillion, resulting in a fiscal deficit exceeding NPR 211 billion. Low market demand, limited expansion of investments, and minimal capital expenditure have all contributed to this shortfall. In comparison, the deficit for the same period last year stood at around NPR 192 billion.

The Office of the Auditor General reports that only 34.16% of the allocated capital budget has been spent so far. Of the NPR 352.35 billion earmarked for capital expenditure, just NPR 120.37 billion has been utilized in the past ten months. Despite repeated promises of prioritizing economic growth and boosting capital expenditure under the stable coalition of the Nepali Congress and CPN-UML, the results remain underwhelming.

In contrast to the tepid development spending, current expenditure is relatively higher. In the first ten months, the government spent 67.79% of the NPR 1.14 trillion allocated for current expenditure—amounting to NPR 773.22 billion. Financial management reflects an overall budget execution of approximately 72%, indicating broader weaknesses beyond development spending alone.

The government is also falling behind on revenue collection targets. Against the annual target of NPR 1.419 trillion, only NPR 922 billion, or 64.99%, had been collected by mid-May. The Ministry of Finance is under pressure, as revenue is insufficient to meet even the current expenditure. The fiscal gap between income and expenditure now exceeds NPR 200 billion.

Revised budget target unlikely to be met

In the mid-year review, Deputy Prime Minister and Finance Minister Bishnu Poudel had slashed the budget by nearly NPR 200 billion. Of the original budget presented by former minister Pun, NPR 167.56 billion was cut. The revision was justified on the grounds that many programs lacked assured funding, were selected arbitrarily, or involved too many centrally listed projects.

After the revision, the total budget was set at NPR 1.692 trillion—90.99% of the original NPR 1.86 trillion. The revised current expenditure stands at NPR 1.029 trillion (90.24% of the initial allocation), and capital expenditure at NPR 299.5 billion (85% of the original NPR 352.36 billion).

The government estimates that total spending by the end of the fiscal year will reach NPR 1.475 trillion, including NPR 36.63 billion in foreign grants and NPR 180.83 billion in foreign loans. The government expects to raise NPR 1.590 trillion from revenue and domestic borrowing, with an additional NPR 52.33 billion from foreign grants and NPR 217.67 billion from foreign loans.

High-Level Commission recommends budget and spending reforms

With budget execution at a historic low, the High-Level Economic Reform Commission, formed by the government, has recommended urgent reforms to the budget and expenditure system. The commission advised improving project readiness and ensuring sufficient budget allocation for effective implementation. It also suggested avoiding the transfer of project staff during the implementation period and introducing a performance-based incentive system that rewards employees with a fixed percentage of their annual salary if a project is completed on time.

Furthermore, the commission recommended prioritizing the completion of ongoing national pride and multi-year projects rather than initiating new ones, unless financing is guaranteed for the next few years. It also suggested de-listing ceremonial or slow-moving projects like the Lumbini and Pashupati Development Trusts from the national pride project roster.

The commission advised prioritizing medium-term projects that yield results within 1 to 3 years, and fast-tracking projects already over 80% complete. Monthly monitoring of infrastructure-related projects and issuing mandatory bills for payment within 15 days based on performance were also among the recommendations.

Upcoming budget ceiling set at NPR 1.965 trillion

The government is preparing to announce a budget of NPR 1.965 trillion for the upcoming fiscal year 2082/83 (2025/26), which is nearly NPR 300 billion higher than the revised current budget. The National Resource Estimate Committee has set this ceiling, marking a 5.64% increase (NPR 105 billion) over the current year’s budget and a NPR 273 billion increase over the revised estimate.