KATHMANDU, May 30: The government has unveiled a large budget for the upcoming fiscal year aimed at pleasing civil servants and the middle class through salary hikes, tax cuts, and incentives for businesses and investors.
While the budget offers relief to middle-income earners, critics argue it does little for low-income workers and vulnerable groups. However, it does introduce policy reforms in areas such as public administration and taxation.
Finance Minister Dr Swarnim Wagle has proposed a budget of Rs 2.124 trillion for fiscal year 2026/27, backed by ambitious revenue targets and substantial borrowing. The minister says the budget marks a policy departure aimed at reforming the economy, though analysts warn that full implementation could significantly increase Nepal’s debt burden. The private sector, however, has largely welcomed the proposals.
Of the total budget, Rs 1.27 trillion, or nearly 60 percent, has been allocated for recurrent expenditure, mainly administrative costs. Capital expenditure, which funds development projects, stands at Rs 431.1 billion, accounting for about 20 percent of total spending. Another Rs 422.6 billion has been earmarked for financial management. The overall budget is larger than the current fiscal year’s allocation by more than Rs 160 billion.
To finance the budget, the government expects to raise Rs 1.405 trillion through revenue and Rs 61.7 billion through foreign grants. The remaining Rs 657.3 billion will come from borrowing, including Rs 247.3 billion in foreign loans and Rs 410 billion in domestic debt. The government had targeted Rs 1.48 trillion in revenue this fiscal year but had collected only Rs 1.026 trillion by mid-May, raising concerns about the realism of next year's revenue goals.
The government has set an ambitious target of 7 percent economic growth while aiming to keep inflation below 6 percent. This comes after growth for the current fiscal year was projected at only 3.85 percent, well below the 6 percent target. Wagle argues that reform and transformation programs will drive stronger growth.
The budget allocates financial equalization grants to provincial and local governments and includes additional complementary, special, and conditional grants for infrastructure and development projects.
One of the most notable measures is a broad revision of tax rates. The government says the reforms are intended to support businesses, expand the middle class, and stimulate economic activity. Civil servants will receive an average salary increase of around 21 percent, with monthly pay ranging from Rs 40,000 to over Rs 100,000. The tax-free income threshold has been doubled to Rs 1 million, and the top personal income tax rate has been reduced, providing significant relief to middle-income taxpayers.
The budget also seeks to simplify customs procedures and make the tax system more business-friendly. It addresses sectors including health, education, infrastructure, agriculture, and entrepreneurship. Non-resident Nepalis are being courted through the slogan “Once a Nepali, Always a Nepali,” alongside measures aimed at strengthening diaspora engagement.
Social initiatives include expanding support for those in need, declaring Nepal free of street children, doubling night allowances for nursing staff, and requiring workers and employers to be registered in a labor registry. The finance minister has also proposed a wider debate on state funding for political parties.
Other commitments include producing 25 types of free medicines domestically, expanding health coverage, increasing higher education quotas, doubling nutrition allowances for Dalit children, and accelerating infrastructure development. The government plans to pave 1,000 kilometers of roads and construct 200 bridges next year.
India drops Shubman Gill from T20 World Cup squad
To support domestic industries, customs duties have been reduced on 273 categories of raw materials, while excise duties on 360 products have been abolished. The customs structure has been simplified, and the VAT and tax refund systems will be further digitized. A lottery scheme will encourage consumers to request invoices, helping improve tax compliance.
The government also plans to streamline bureaucracy by reducing the number of federal ministries from 22 to 18, cutting staff positions, and improving administrative efficiency. It has promised legal and policy reforms to encourage investment and speed up development spending.
In technology, the government aims to position Nepal for the age of artificial intelligence by establishing the country’s first sovereign AI computing center in Swayambhu-Chuchchepati/Syuchatar area. It also plans to allow private companies to trade electricity internationally and place startups, innovation, and entrepreneurship at the center of economic transformation.
The budget further promises reforms in health insurance, social security, and capital markets, with the goal of making investment easier and improving investor protection. Despite its reform agenda, questions remain about whether the government can realistically fund and implement such an expansive budget.
Budget at a Glance:
Total Budget: Rs 2.124 trillion
Expenditure Breakdown
Recurrent expenditure: Rs 1.270 trillion
Capital expenditure: Rs 431.1 billion
Sources of Funding
Revenue: Rs 1.405 trillion
Foreign grants: Rs 61.74 billion
Total borrowing: Rs 657.29 billion
Foreign loans: Rs 247.28 billion
Domestic borrowing: Rs 410 billion
Sector-wise Allocations
Roads and Urban Infrastructure: Rs 286.48 billion
Home Affairs: Rs 108.32 billion
Defense: Rs 64.96 billion
Drinking Water and Sanitation: Rs 37.17 billion
Energy: Rs 85.54 billion
Finance: Rs 84.73 billion
Information Technology: Rs 5.93 billion
Sports: Rs 4.03 billion
Education: Rs 218.30 billion
Health: Rs 101.95 billion
Women and Children: Rs 2.27 billion
Agriculture and Livestock: Rs 46.92 billion
Forests and Environment: Rs 12.31 billion
Tourism: Rs 7.34 billion
Industry and Commerce: Rs 8.31 billion
