With a gross domestic product of about Rs 6.6 trillion, Nepal's finance minister has presented a budget of Rs 2.12 trillion for fiscal year 2083/84, roughly the same size relative to the economy as in recent years. At about 32 percent of GDP, the budget is not small for a lower-middle-income country. The issue, therefore, is not primarily the size of the state but how public resources are allocated.Of the total budget, only Rs 431 billion—about 20 percent of the budget and 6 percent of GDP—is allocated to capital expenditure. The remaining four-fifths goes toward recurrent spending and financial obligations, including salaries, pensions, grants, subsidies, debt service, administration, and the operation of essential public services.
A less noticed feature of the budget is what it reveals about Nepal's fiscal structure. Government revenue is projected at Rs 1.4 trillion, while current expenditure and financial management together amount to nearly Rs 1.7 trillion. In other words, government revenue is insufficient even to cover existing operating and financing obligations. As a result, virtually all capital expenditure—and part of the government's ongoing commitments—must be financed through borrowing, with foreign grants covering only a small portion. This is not primarily a reflection of choices made by the current government. It is the fiscal legacy of decades of accumulated commitments and rising obligations. Any assessment of the budget should begin with that reality.
The budget arrives at a moment of unusual political opportunity. Unlike most governments of recent decades, the current administration enjoys a strong parliamentary mandate and faces a public increasingly impatient for economic change. Expectations are understandably high. Budgets matter because they reveal priorities. Judged from that perspective, this budget deserves a more balanced assessment than either its strongest supporters or harshest critics have offered. There is much to welcome. The budget contains a number of reform-oriented measures that distinguish it from many of its predecessors. Yet it leaves unanswered a larger question: does it offer a clear strategy for accelerating investment, creating jobs, and expanding exports?
Encouraging Signals of Reform
The budget contains several measures that deserve to be acknowledged.The government has proposed significant tax reforms, including simplification of customs structures, removal of various nuisance taxes, and measures aimed at reducing compliance burdens. It has announced reforms intended to ease foreign investment, simplify business procedures, facilitate profit repatriation, and reduce bureaucratic obstacles that have long frustrated investors. It has also signaled willingness to restructure public enterprises rather than simply continue subsidizing inefficiency. These are positive developments.Together, these measures signal a greater willingness to view private investment as part of the solution rather than as a problem to be managed.
Equally encouraging is the emphasis on technology and innovation. Nepal rarely thinks boldly about its future economic opportunities. The focus on artificial intelligence, digital infrastructure, fintech, remote work, and technology-based entrepreneurship reflects an effort to position Nepal for emerging sectors.
The budget also addresses longstanding weaknesses in project implementation. The emphasis on procurement reform, capital expenditure execution, institutional restructuring, and administrative efficiency reflects an understanding that Nepal's problem is often not a shortage of plans but a failure to execute them. For decades, governments have announced projects that were never completed on time or within budget. Recognizing implementation as a policy problem is itself an important step forward.
The reforms proposed in the energy sector are similarly noteworthy. Nepal's hydropower potential remains one of its greatest untapped assets. Measures aimed at facilitating private-sector participation and accelerating project development are welcome. Yet Nepal's major bottleneck is not only the production of electricity; it is the economy's limited capacity to use energy productively. Nepal remains one of the world's lowest energy-consuming economies. The larger opportunity, therefore, lies in expanding reliable and affordable domestic electricity use across industry, agriculture, transport, services, and households. For Nepal, prosperity will come not simply from producing more power, but from building an economy capable of absorbing and using that power to raise productivity.
What is missing in budget for agriculture?
Taken together, these measures suggest a government that is more reform-minded, more market-oriented, and more attentive to growth than many of its predecessors.
Missing Focus
Yet good reforms do not automatically add up to a coherent growth strategy.That is where the budget appears less convincing.The central challenge facing Nepal today is not difficult to identify. The country needs more investment, more jobs, and more export earnings. Almost every major economic problem ultimately connects to these three issues.Private investment remains weak. Public investment remains modest and inefficient. Productive employment opportunities are rare. Export performance remains disappointing. Millions of young Nepalis continue to seek opportunities abroad because they do not find enough of them at home.These realities are not new. What is new is the opportunity available to this government.
A government with a strong mandate has the political space to focus on a few transformative objectives. It can communicate clearly that every major policy will be judged by whether it increases investment, creates jobs, raises productivity, or expands exports. Such prioritization is not yet evident. The budget contains dozens of initiatives across numerous sectors. Many are sensible. Some are innovative. Yet the document often feels more like a collection of programs than a focused growth strategy.
Employment provides the clearest example.Job creation should arguably be Nepal's foremost economic objective. Every year, hundreds of thousands of young people enter the labour force. For too many, migration remains the most attractive option. Yet employment appears more as a hoped-for consequence of various policies than as the organizing principle of economic policy itself.A stronger strategy would ask a simple question of every major initiative: how many productive jobs will it create in Nepal?
The same concern applies to exports. Nepal's economic future cannot rest indefinitely on remittances, imports, and domestic consumption. Sustainable prosperity ultimately requires producing goods and services that the rest of the world wishes to buy. Nepal possesses opportunities in tourism, information technology services, hydropower, business services, specialized agricultural products, education services, and health services. The budget contains elements relevant to many of these sectors, but it does not yet explain how exports will become a stronger engine of growth and job creation, or how they will help transform Nepal's deeply unbalanced external economic position.
Investment poses a similar challenge. A government whose capital budget is only about one-fifth of total spending cannot expect to build an investment-rich economy unless it confronts the structure of its own expenditure. With Nepal’s tax burden already significant, the key is to restrain the growth of recurrent commitments and improve the quality of spending. This does not mean weakening essential public services. It means focusing on how more public money can be converted into infrastructure, energy systems, irrigation, logistics, and other assets that raise future productivity, rather than financing consumption. Without creating more fiscal space for productive investment, even the best reform language will struggle to translate into faster growth.
Building Capability and Productivity
Beyond these broader strategic shortcomings, several areas illustrate where the budget missed an opportunity to reorient policy toward building capability and productivity.
Education presents another area where the budget is both encouraging and incomplete.The government deserves credit for acknowledging at least some of the serious weaknesses in the education system. School mapping, infrastructure audits, teacher assessments, technology adoption, and institutional reforms all point toward greater attention to quality.However, Nepal's educational challenge is fundamentally a challenge of public-school performance.For years, families have voted with their feet. The expansion of private schooling has not occurred because Nepalis suddenly developed a preference for paying school fees. It has occurred because many parents lost confidence in public schools.This year's proposal to impose a 3 percent levy on private-school students is difficult to justify. The objective should not be to make private schools less attractive. It should be to make public schools more attractive.Parents should choose public schools because they trust their quality, not because private schools become more expensive.
Health care raises similar questions.The budget includes important initiatives, including health insurance reform, investments in medical institutions, and efforts to strengthen service delivery. These measures are welcome.Yet Nepal still lacks a clear strategy for ensuring that ordinary citizens can reliably access health care without suffering catastrophic financial hardship. Health care should not be viewed simply as a social expenditure. It is one of the most important investments a country makes in human capital.A healthy workforce is a productive workforce. Countries that neglect health ultimately pay the price through lower productivity, weaker labour force participation, and reduced economic dynamism.
Agriculture presents another mixed picture.The budget contains numerous agricultural initiatives, ranging from irrigation and insurance to commercialization and productivity support. Yet Nepal's agricultural challenge is not primarily a shortage of programs. It is low productivity, which requires sustained focus on irrigation, technology adoption, storage, logistics, processing, and market access.
The same principle applies to industry.For decades Nepal has discussed industrialization while industrial development has lagged. The budget contains several promising measures to support industry and investment. However, sustainable industrial development ultimately depends on the broader business environment: reliable infrastructure, predictable regulation, access to capital, skilled labour, and integration into external markets.Industries flourish when governments create the conditions for success, not when they attempt to direct outcomes from above.
Ultimately, the strongest criticism of this budget is not that it moves in the wrong direction.In many respects, it moves in the right direction.The concern is that it may not move far enough.
Nepal's economic challenges are increasingly urgent. The country needs a growth strategy capable of generating investment, creating jobs, expanding exports, and strengthening the public institutions that develop human capability. It needs public schools that parents trust and health systems that citizens can rely upon. It needs an economy that offers young people a future at home rather than forcing them to search for one abroad.
First Budget Matters
To be fair, the government has not had much time to rethink all aspects of economic and social policy comprehensively. The encouraging news is that many building blocks are present in this budget. The government appears more willing than many of its predecessors to embrace reform, encourage investment, and work with markets rather than against them. The question is whether these reforms can be turned into a coherent national project.
In Nepal, targets and rhetoric are not new. Government policies and annual budgets have long been full of promises, many of them sensible on paper but weak in implementation. That history has made budget evaluation almost ritualistic: one reads the programs knowing that many will not be carried out. This time, the hope is that the government is serious about acting on what it has announced. If it does, that alone would help restore some credibility to public policy, a major gain for Nepal.
It would be unfair to expect a government only months into office to reverse decades of economic drift through a single budget. Yet first budgets matter because they reveal priorities, and future budgets are often shaped by commitments made today. The question, therefore, is not whether this budget solves Nepal's problems. It does not. The question is whether it clearly identifies the handful of issues that will determine Nepal's future prosperity. On that test, the budget offers encouraging reforms but stops short of the decisive strategic reorientation that such a strong mandate made possible.
(Acharya holds a PhD in Economics and writes on economic issues in Nepal and Canada. He can be reached at acharya.ramc@gmail.com)
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