KATHMANDU: Nepal’s national budget for the fiscal year 2082/83 (2025–26), unveiled by Finance Minister Bishnu Prasad Paudel, presents a Rs. 1.964 trillion fiscal plans anchored in five core objectives and seven broad priorities. The budget aims to stimulate economic growth, foster infrastructure development, promote industrial activity, and ensure social equity.
While the fiscal outline incorporates bold economic reforms and a clear pro-market orientation, its practical relevance to ordinary citizens appears limited. The tension between reformist vision and institutional inertia underpins much of the budget’s structure, making it as much a political statement as it is an economic blueprint.
Private sector in the spotlight
One of the standout features of this year’s budget is its explicit embrace of the private sector. The government has clearly identified private enterprise as the engine of growth in the post-LDC (Least Developed Country) transition era. It reflects the policy recommendations of the High-Level Commission on Economic Reforms and presents a significant ideological shift in favor of market-driven development.
Landmark provisions such as permitting Nepali individuals and businesses to invest abroad, capped at 25% of export earnings, are seen as transformational.
For the first time, professionals will also be allowed to earn “sweat equity” in foreign firms—potentially reversing some of the talent drain and positioning Nepal as a more outward-looking economy.
Additional measures such as concessional loans for startups, tax breaks for IT services, and special benefits for Special Economic Zones (SEZs) suggest a government attempting to stimulate entrepreneurship and industrial revival. However, critics point out that the majority of these incentives are geared toward investors and business owners rather than the labor force.
The broader question remains: will this private-sector-friendly orientation translate into quality job creation, or merely amplify inequality in the absence of strong labor and social protections?
Citizens still waiting for tangible relief
While the private sector may celebrate, the average citizen finds little to cheer in this budget. Despite promises of job creation and better public services, the document lacks concrete interventions that offer immediate relief from inflation, unemployment, and stagnant wages. Although social security remains a stated priority, the budget’s incremental increases fall short of addressing the needs of a population still reeling from the post-pandemic economic shock and rising living costs.
The government’s projected revenue target of Rs. 1.315 trillion appears ambitious given historical patterns of under-collection and spending inefficiencies. Even more telling is the allocation of Rs. 407.89 billion for capital expenditure—amounting to just over 20% of the total budget—a proportion consistent with previous years but disappointing given the country’s vast infrastructure and development needs. Weak institutional capacity and systemic delays in budget execution continue to undermine both project implementation and public trust.
Federalism and local governments: A work in progress
In keeping with Nepal’s federal structure, the budget allocates Rs. 417.83 billion to provincial and local governments. This is in line with past commitments to decentralization and inclusive development. Yet the track record of sub-national governments in utilizing these funds effectively remains mixed at best.
Many local governments still lack the administrative capability, technical expertise, and planning frameworks needed to translate budgets into services and infrastructure.
As a result, federal transfers risk being either under-utilized or diverted into inefficient or opaque projects.
The promise of federalism thus remains unfulfilled in practice, with institutional weaknesses holding back the transformative potential of local governance.
Debt dynamics and fiscal prudence
The fiscal deficit, estimated at Rs. 595.66 billion, will be financed through Rs. 362 billion in domestic borrowing and Rs. 233.66 billion in external loans. While public debt stands at over 43% of GDP—still within internationally acceptable thresholds—it is the quality of spending, not just the quantity, that raises concern.
Much of the borrowed funds in past years have gone into recurrent expenditure or underperforming capital projects rather than productivity-enhancing investments. This raises critical questions about debt sustainability, especially in the absence of significant export growth or foreign direct investment. Without structural reforms in public financial management and institutional accountability, Nepal risks increasing its debt burden without the necessary developmental returns.
Ministry-wise allocation: Development or distribution politics?
A deeper look into ministry-wise allocations reveals a complex blend of priorities and political compromises. The Ministry of Education, Science and Technology receives the highest share at Rs. 211.17 billion—a commendable move that reflects a long-overdue focus on human capital. Close behind, however, is the Ministry of Home Affairs with Rs. 208 billion. The nearly equal allocation to internal security and education has sparked debate about whether the state is leaning more toward control than welfare.
The Ministry of Physical Infrastructure and Transport receives Rs. 152 billion, continuing the tradition of capital-intensive development.
The Ministry of Urban Development’s Rs. 118.34 billion budget also signals a continuation of large-scale construction.
Yet, these allocations often repeat a familiar pattern: big announcements without clear implementation roadmaps. Similarly, while the health sector receives Rs. 95.81 billion, only Rs. 10 billion is allocated for health insurance reform—a sum that may fall short in fixing persistent issues such as claim delays and administrative inefficiencies.
The Rs. 2.06 billion set aside for essential drug distribution also appears inadequate if deeper procurement and logistical issues are not addressed.
Energy diplomacy and export ambitions
The allocation of Rs. 86.10 billion to the Ministry of Energy, Water Resources and Irrigation reflects Nepal’s renewed emphasis on becoming a regional energy player. With plans to boost power generation by 942 MW and build 732 kilometers of double-circuit transmission lines, the government is signaling ambition.
Projects like the Dudhkoshi and Budhigandaki reservoirs are inching forward, and Nepal’s diplomatic efforts with India and Bangladesh to export electricity appear increasingly strategic. Yet, delays in infrastructure completion and concerns about cost overruns still cast a shadow over these otherwise forward-looking initiatives.
Incentives for startups and digital economy: Policy meets reality
The budget contains several tax incentives for startups and IT services. Startups with turnover under Rs. 100 million will enjoy complete income tax exemption for five years—a potentially game-changing move for small entrepreneurs. Similarly, IT service exports will enjoy a 75% tax exemption, and individual exporters will face a mere 5% income tax rate.
These measures indicate a strategic pivot toward positioning Nepal as a digital hub. However, with the Ministry of Communication and IT receiving only Rs. 7.72 billion, questions remain about how the government plans to create the necessary digital infrastructure and skill development pipelines. Without a robust ecosystem to support digital expansion, these tax breaks may benefit only a limited urban elite.
EV policies and climate commitments: Still symbolic?
Nepal’s decision to retain low customs and taxes on electric vehicles (EVs) reassured the market, particularly amid earlier rumors of a tax hike.
However, this measure—while well-received—remains largely symbolic without corresponding investments in EV charging infrastructure and grid readiness. Nepal still imports more than 95% of its transport energy needs, and the Rs. 233 million allocations to alternative energy appears tokenistic when viewed against the backdrop of grand sustainability rhetoric. The green transition cannot succeed on incentives alone; it requires strategic, long-term infrastructure investment.
Budget rhetoric vs. delivery reality
Despite its reformist language, the 2082/83 budget mirrors past fiscal blueprints in many respects.
Capital allocations remain high on paper but suffer from poor absorption and corruption-prone procurement systems.
The skewed emphasis on security and construction suggests a state still mired in top-down development thinking—one that prizes infrastructure headlines over participatory, bottom-up development.
While there are notable improvements in tax administration and energy diplomacy, their effectiveness will hinge on bureaucratic capability, a known weak spot in Nepal’s governance landscape.
Between populism and pragmatism
Nepal’s federal budget for FY 2025-26 attempts a complex balancing act. It aims to woo the private sector with liberal policies, please development partners with reformist undertones, and address citizen grievances through familiar welfare promises. But it avoids deep structural reforms that would challenge entrenched interests or dramatically improve service delivery.
For the private sector, the budget is progressive and optimistic. For the average Nepali, it is a remix of familiar tunes—promises of jobs, health, and education, with limited clarity on how those will be delivered. The budget’s success, therefore, hinges not on its numbers but on execution—on whether institutions can rise to the challenge of translating policy into progress.
As the old adage goes, a budget tells us what we can’t afford but doesn’t stop us from trying. Nepal’s budget fits that mold well: ambitious in rhetoric, cautious in delivery, and deeply constrained by systemic inertia.
