IMAGE: KHABARHUB
EVERY NEW government eventually has to present a budget. For Nepal’s Rastriya Swatantra Party, that moment arrives on May 29th, when finance minister Swarnim Wagle will stand before a joint sitting of parliament and read out a document that will be scrutinised as no Nepali budget has been scrutinised in years. The reason is that the RSP won its election on a promise of transformation, and not tinkering. Voters who handed it 182 of 275 parliamentary seats want to see what transformation actually costs.
They will not find out precisely—not yet. What Wagle has already told parliament is that the budget will be built around five themes: better governance, restructuring the economy, upgrading infrastructure, expanding the middle class and building what the government calls Nepal’s “soft power”—meaning tourism, culture and the Nepali diaspora.
What he has not yet said is the total spending figure. The National Planning Commission fixed the ceiling at roughly Rs1.9trn. Finance Ministry sources suggest the final figure may come in closer to Rs2trn, a rise of roughly 12-19% over the current year’s revised spending envelope of Rs1.69trn, which was cut significantly from its original Rs1.96trn allocation after the chaos of last year’s protests and the subsequent caretaker period forced the interim government to tighten its belt.
That constraint matters because the current year’s numbers are not flattering. By mid-May the government had collected Rs1.012trn in revenue, roughly 66% of what it had targeted for the full year. Capital spending, which is the part of the budget that actually builds things—roads, dams, irrigation—reached only 27.91% of the year’s allocation by the same point in time.
Nepal has a long and painful tradition of announcing ambitious capital budgets and then failing to spend them, as projects get delayed by land disputes, contractor failures, political interference and slow procurement. Wagle knows this. One of the most significant things the budget is expected to do is concentrate money on projects that are already 70-80% complete, rather than starting new ones that will face the same delays from scratch. That is a modest but useful discipline.
On tax, the government has signalled something more unusual: it plans to lower rates. Nepal’s tax structure has long been criticised by businesses for being high enough to discourage investment while generating enough leakage through evasion and smuggling that the state collects less than it should. Wagle told parliament’s finance committee plainly: “Some of our tax rates are oppressive and were set under the influence of major trading firms.” His answer is to broaden the tax base (reach more people and more transactions) rather than squeeze harder from those already in the net. He has also promised rate predictability for at least a decade, which, if delivered, would be one of the most valuable things a Nepali finance minister has ever offered an investor.
The economic strategy underneath all of this rests on two big bets. The first is that Nepal can convert its hydropower boom into industrial activity. The country has added generating capacity rapidly in recent years, but most of the new power either gets exported to India or sits partly unused because domestic factories, cold chains and data centres do not yet exist to absorb it. The budget is expected to create incentives to attract exactly those industries (particularly energy-intensive ones like data centres, steel processing and medicinal herb manufacturing) on the logic that cheap and abundant electricity is Nepal’s most underused competitive advantage.
The second bet is on digital services. The RSP’s election manifesto set a target of growing Nepal’s technology exports to $30b within a decade. The government has cited $1.5bn as its claimed current baseline for that figure, though independent industry estimates from the Nepal Association for Software and IT Services, which tracks the sector most closely, put actual current exports at closer to $1bn—itself a striking recent milestone, roughly doubling in three years.
The official balance-of-payments data published by the central bank captures far less, since most software revenue flows through informal channels outside the banking system. What matters for the budget is whether the regulatory environment, the tax treatment and the infrastructure for digital businesses will be materially improved. Wagle has promised policies for remote workers, digital nomads as well as international software contracts.
Social protection will also feature. The RSP’s manifesto promised 1.2m new formal jobs, universal health insurance and an integrated social security system: all of which cost money the government does not obviously have. What the budget can do is lay the legal and financial foundations for these systems, even if full implementation stretches across multiple fiscal years.
Similarly, the government is expected to make good on its pledge to reform the cooperative sector, the vast shadow banking system of savings- and-credit cooperatives that serves millions of Nepalis outside the formal banking network but that has also been the source of some of the country’s most prominent financial scandals.
The manifesto’s headline targets—7% average annual growth, per capita income above $3,000 within five to seven years and an economy worth $100bn—frame the context without constraining the budget. Fitch Ratings, which assessed the RSP’s programme in March, called these targets “ambitious” against its own forecast of 4.5% growth for the current fiscal year, noting that execution would determine everything. The budget cannot, by itself, produce 7% growth. What it can do is demonstrate that the government’s intentions are serious enough to attract the private investment that would actually generate it.
The private sector is watching carefully and has not yet decided how seriously to take the new government. The Nepal Chamber of Commerce and Industry submitted suggestions urging that the budget “mark a turning point in Nepal’s economic history” rather than function as another routine document. That is exactly what business leaders say before every budget in every country. What distinguishes this one is that, for the first time in a generation, the government presenting it has no coalition partners whose interests must be accommodated and no opposition large enough to block its plans. Wagle can write the budget he thinks is right. Whether what he thinks is right is also what works is what the next twelve months or so will determine.
One number will tell the reality more than any other: capital expenditure. If the budget ends the year with capital spending materially above the current year’s dismal 27.91% of allocation, it will mean the government has begun solving Nepal’s oldest and most stubborn fiscal failure—announcing investment and then not making it. If capital spending ends the year at the same level, the transformation rhetoric will need to be revised. Budgets, in Nepal as elsewhere, are judged not by what they promise on the day they are read but by what has actually been built twelve months later. ■
