IMAGE: KHABARHUB
SWARNIM WAGLE spent years arguing that Nepal’s central budget problem was not size but execution. The country announced ever-larger spending plans and delivered ever-smaller fractions of them. Recurrent costs (civil service salaries, interest payments, transfers to local governments) absorbed everything. Capital projects gathered dust. He published research saying so. He said it in public. It was, by any measure, the correct diagnosis. On May 29th, as Nepal’s finance minister and deputy prime minister in the government of prime minister Balendra Shah, Wagle presented a budget of Rs2.12trn ($13.86bn) and Nepal’s largest in its history—that is 25.2% larger than the revised spending estimates of the outgoing fiscal year and exceeds the fiscal ceiling set by the National Planning Commission by a margin his own office had to request the commission to accommodate. Nepal’s most credentialed finance minister in years had his first opportunity to apply the cure and chose, instead, to increase the dose.
That is not entirely a criticism. Nepal is genuinely growth-constrained and the pressure for ambition is real. The National Statistics Office estimates that the economy grew by 3.85% in the fiscal year now ending—well below the 6% that the previous government had targeted and consistent with a trend of persistent underperformance that runs back several years.
The Asian Development Bank projected earlier this year that growth would slow to 2.7% in fiscal year 2026, weighed down by political disruption after September’s unrest and the ripple effects of conflict in the Middle East, where around 2.5m Nepali workers are employed and whose remittances underpin the country’s external stability. Against this backdrop, Wagle’s growth target of 7% for fiscal year 2027 is ambitious, and Nepal’s political culture demands them at budget time regardless of what the numbers support.
The problem Wagle diagnosed is evident in his own budget. Of the Rs2.12trn total, recurrent expenditure accounts for nearly 60%. Capital expenditure, the category that builds roads, plants and ports, receives roughly 20%. This ratio is not new: it is the permanent reality of Nepali public finance, and it reflects a government whose fixed obligations crowd out investment year after year. Wagle announced a 21% average salary increase for civil servants in the same budget. That decision, popular within the bureaucracy that must implement his reforms, adds durably to the recurrent side of an equation he has diagnosed as already too recurrent-heavy.
Revenue is the more immediate risk. The budget sets a collection target of Rs1.4trn. The trajectory of actual collection runs considerably below: Rs1.17trn billion in fiscal year 2025, approximately Rs1.28trn estimated for the year now ending. Wagle’s white paper—released before the budget and unusually candid for a document produced by a government that had just taken power—acknowledged that “weak allocation, low spending and poor quality of capital expenditure had affected economic growth”. It also noted that revenue sources were narrowing. For the new budget to work, revenue must grow by roughly 9% over an estimated outturn that has itself required downward revision. Nepal has never, in recent years, presented a budget and then spent more than the revised downward figure during implementation. The current year’s budget was announced at Rs1.96trn and revised to Rs1.68trn by midterm. If the same compression applies this year, the budget Wagle presented last month will look substantially different by January.
His tax policy choices have added to the controversy. The budget doubles the personal income tax exemption threshold to Rs1m a year and cuts the top marginal rate by ten percentage points. Both measures benefit higher earners. Economists noted that the income structure of Nepal’s formal economy means these cuts primarily affect the salaried urban class, not the farming households and returned migrant workers who form the bulk of the electorate that put the Rastriya Swatantra Party in power. A separate measure—a 3% levy on private health and education services—drew sharper criticism. Nepal’s public hospitals and government schools are, for most rural families, insufficient in both quality and access. A tax on private alternatives hits the households that have no option but to use them.
Wagle is a Harvard-trained economist who joined the Rastriya Swatantra Party in 2023, leaving the Nepali Congress to help build the anti-establishment platform that swept the March elections. He brings to the finance ministry a level of technical rigour that is rare in Nepali public life. The challenge he faces is that technical rigour and political economy are different problems. The fiscal machinery he now operates—chronically underperforming revenue, a civil service with durable salary expectations, 753 local governments whose transfer claims arrive regardless of economic conditions, and a FATF grey list that constrains Nepal’s access to development financing—does not respond primarily to good analysis. It responds to political decisions that are tougher than doubling tax thresholds and announcing growth targets.
His budget’s true test will come in the third quarter of the fiscal year, when capital expenditure execution figures expose the reality the headline number cannot. If Nepal spends its Rs431bn in capital allocation at the historical rate, around 55-60% of it will actually reach the ground. The rest will be re-estimated downward, the deficit will be recalculated and the 7% growth target will be silently set aside. Wagle knows this. Whether his government can break the pattern is the question his next four budgets will answer. ■
