IMAGE: SETO PATI
IN JANUARY Chandra Prasad Dhakal, then president of the Federation of Nepalese Chambers of Commerce and Industry, addressed an all-party national dialogue in Kathmandu and said something that would not normally be said at an event meant for polite consensus: business morale, he told the assembled politicians, had sunk to an all-time low. The private sector, he said, was unable to invest with confidence because of an unfavourable investment climate and weak guarantees of property security. The central bank had cut its policy rate to 4.25%, the cheapest credit Nepal had offered in years. Nobody was borrowing to build.
Four months later, on May 29th, finance minister Swarnim Wagle presented a budget targeting 7% economic growth for fiscal year 2027. The Annapurna Express reported that economists had “described [the target] as ambitious.” That was diplomatic.
The National Statistics Office estimates the economy grew at 3.85% in the fiscal year just ending. The World Bank recently projected growth would slow to 2.3% this year, with a recovery to 4.4% the year after. The Asian Development Bank projected 2.7%. The government has set its target for the coming year at 7%—not one percentage point above the most optimistic external forecast, but more than two. Corporate Kathmandu has noticed the gap and is pricing it accordingly.
The distance between the forecast and the target is not delusional. In Nepal, budget growth targets are not economic projections. Meaning they are political statements: a number that tells investors what the government wishes the economy to do, rather than what those setting the budget believe it will do. Finance ministers have been announcing 6-8% growth targets for as long as anyone in Kathmandu’s business community can remember, and Nepal has missed every one of them in recent years. The target for fiscal year 2025 was 6%; the actual outcome was some 4.6%. The target for 2026 was also 6%; the outcome, on current NSO estimates, will be 3.85%. The pattern of announced ambition followed by delivered disappointment is the single most consistent feature of Nepal’s macroeconomic planning.
What the current target fails to explain is the mechanism. Wagle’s budget allocates Rs431bn in capital expenditure (real money for roads, power plants, and irrigation) but that figure is not new investment materialising from thin air. Nepal’s capital expenditure execution rate has historically run at 55-60% of budgeted amounts in a typical year. The World Bank noted in November 2025 that Nepal’s combined government capital spending across federal, provincial, and local levels stood at 7.9% of GDP, “well below the 10 to 15 percent of GDP annual investment required to meet Nepal’s infrastructure needs”. Budget capital allocations and actual infrastructure built are different documents.
On the private side, the situation is worse. Private investment, which once accounted for around 25% or so of Nepal’s GDP, fell to 19% last year, according to the Kathmandu Post. “Investment has not fallen because people lack money,” economist Nar Bahadur Thapa told the same paper last month. “It has fallen because of declining confidence and practical obstacles.” Those obstacles include unpredictable tax changes, delays in payments to contractors (the construction sector, Nepal’s former fastest-growing industry, has been contracting) and an administrative environment that the private sector has repeatedly described as hostile to new enterprises. Company registration is cumbersome. Tax enforcement is erratic. The April money laundering arrests of leading business figures have amplified a nervousness that was present in the numbers already.
The budget’s most transformational proposals are digital: a Sovereign AI Computing Centre in Kathmandu; fellowships for Nepali AI researchers abroad to return home; and a strategy to convert hydropower surplus into computing infrastructure revenue. These are not absurd ideas. Nepal does have renewable energy and a diaspora of technically trained professionals. But they are aspirations requiring years of implementation, as well as foreign interest and institutional follow-through in a country that could not attract $57m in foreign direct investment in 2024. Between the aspiration of an AI computing hub and the reality of a business community with morale at an all-time low sits the budget’s most unbridged gap.
The federal treasury was in deficit by Rs199bn as of May 26th—two days before the budget was presented. The government’s stated revenue target for the coming year is Rs1.6trn, compared to an estimated actual collection of Rs1.28trn in the current year. That requires a 25% bump in revenue in a single year, in an economy growing at 3.85%. Every number that feeds the 7% target depends on a number before it that is already being missed.
Wagle is Nepal’s most credentialed finance minister in a generation. His own white paper, released before the budget, acknowledged that “weak allocation, low spending and poor quality of capital expenditure had affected economic growth”. That diagnosis is correct. The treatment—a larger budget, a higher target, digital ambitions as well as a 21% salary increase for civil servants—does not obviously follow from it. Corporate Kathmandu is not ignoring the 7% figure out of cynicism. It is ignoring it because the conditions needed to produce that growth are not present in any of the data it can read. ■
