KATHMANDU, June 18: Despite commanding nearly two-thirds of parliamentary support, the government has unveiled a budget for fiscal year 2026/27 that reduces capital expenditure and fails to address Nepal’s chronic weakness in spending capacity. Analysts say the move undermines expectations that a strong government would accelerate infrastructure development and economic growth.
The Rastriya Swatantra Party (RSP)-led administration, under Prime Minister Balendra Shah, has allocated only 20.3 percent of the upcoming year’s budget for capital expenditure, down from 20.8 percent in the current fiscal year. Finance Minister Dr. Swarnim Wagle presented a total budget of Rs 2124 billion, of which Rs 431.10 billion is earmarked for capital spending. In contrast, the current year’s Rs 1964 billion budget had allocated Rs 407.89 billion for capital projects. Observers note that instead of cutting recurrent and non-essential expenses to boost development spending, the government has reduced the share of capital investment further.
Former Vice-Chair of the National Planning Commission, Dr. Prakash Kumar Shrestha, criticized the budget as lacking vision. “The allocation has failed to take a new turn. Large-scale infrastructure projects should have been prioritized, but the government remains entangled in small-scale programs,” he said. He added that both the size of the capital budget and the government’s ability to spend it effectively remain weak.
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Capital expenditure is considered the true development budget, as it funds long-term infrastructure such as roads, bridges, energy, irrigation, schools, and hospitals. Economists argue that increasing capital spending is essential for boosting production capacity, attracting private investment, and creating jobs. Yet Nepal has consistently struggled to spend its allocated capital funds due to structural bottlenecks, including weak project selection and preparation, delays in procurement, land acquisition hurdles, environmental clearances, frequent staff transfers, and administrative inefficiencies. In many cases, capital budgets are spent only at the end of the fiscal year, undermining effectiveness.
As of mid-June, with just one month left in the current fiscal year, only 32.91 percent of the capital budget has been spent. Out of Rs 407.88 billion allocated, just Rs 134 billion has been utilized in 11 months. This is lower than last year, when 41.35 percent had been spent by the same period. Overall expenditure this year stands at 69.6 percent of the total budget, compared to 74 percent in the previous fiscal year. The government has already reduced the size of the budget through a mid-term review, cutting both capital and recurrent allocations.
Experts warn that with capital spending stuck at around 20 percent of the total budget, most government resources are absorbed by recurrent obligations such as salaries, allowances, social security, and administrative costs. This leaves limited room for development projects, slowing infrastructure expansion, reducing opportunities to lower private sector production costs, and putting long-term economic growth at risk. The government’s target of achieving 7 percent growth in the coming fiscal year is seen as unrealistic under these conditions.
Former NPC Vice-Chair Dr. Govind Raj Pokharel said the reduced development budget will directly affect growth. “With this allocation, achieving 7 percent growth is impossible. The spending structure itself is very weak,” he remarked. Government officials argue that revenue pressures, rising public debt obligations, and mandatory recurrent expenditures have constrained capital allocations. They maintain that reforms are underway to improve spending capacity in development ministries, but experts insist that without structural improvements in project implementation, procurement, and administrative efficiency, capital expenditure will remain ineffective.
Dr. Gunakar Bhatt, Vice-Chair of the NPC, acknowledged the challenge but claimed the government is working to strengthen ministries’ capacity to spend on infrastructure. “We are planning to achieve the 7 percent growth target by expanding infrastructure development,” he said. Officials insist that the government has changed its working style and is focusing on improving capital expenditure in development-related ministries. However, economists caution that unless capital spending is gradually increased and implementation capacity strengthened, Nepal’s growth ambitions will remain out of reach.
