Deputy Prime Minister and Finance Minister Bishnu Paudel unveiled a budget of Rs 1.946trn for the fiscal year 2025/26 at the joint meeting of federal parliament on Thursday.
Under the new budget, recurrent expenditures, which includes salaries, administrative costs, and government operations, have been allocated Rs 1.18trn (60.01percent of the total budget). Capital expenditures, which funds infrastructure and development projects, have been set at Rs 407.6bn, while Rs 375.2bn has been earmarked for financial management, which entails debt servicing and fiscal stablization measures.
Revenue collection will serve as the primary source of the budget, with the government estimate to raise Rs 1.315trn. Similarly, the government plans to mobilize Rs 362bn through domestic borrowing, while another Rs 233bn will be acquired through foreign loans. Rs 53bn will be arranged through grant contributions.
Finance Minister Paudel outlined five core objectives and seven key priorities for the upcoming fiscal policy, which is set to come into effect from July 17. According to him, the five primary objectives of the new budget are: achieving high, sustainable, and broad-based economic growth with the goal of poverty alleviation; promoting entrepreneurship and expanding both public and private investment to create jobs; enhancing economic capacity through use of modern technology; ensuring social justice through social protection and development programs; and promoting quality public services and good governance.
He elaborated that the budget will focus on seven priorities, including the promotion of entrepreneurship, employment, production, and productivity; expansion of investment in quality and result-oriented physical infrastructure; qualitative improvements in the social sector; balanced regional development; strengthening of social security; the provision of citizen-friendly services; and effective measures for corruption control and governance reform.
Minister Paudel announced that the private sector will be established as a key driver of economic prosperity in Nepal. He said the government will gradually implement the recommendations of the High-Level Commission on Economic Reform. He further emphasized that the government will focus on diversifying financial resources to meet the minimum investment requirements following Nepal’s upgradation to a developing country by 2026, and to achieve the Sustainable Development Goals (SDGs) by 2030.
A total of Rs 1.48bn in fiscal equalization grants has been transferred for the upcoming fiscal year. Finance Minister Paudel announced that Rs 60.66bn has been allocated in fiscal equalization grants for provinces and Rs 88.97bn for local governments. Conditional grants include Rs 30.35bn for provinces and Rs 211.46bn for local levels, totaling Rs 241.81bn in grants.
For the implementation of infrastructure projects, Rs 3.28bn has been allocated as complementary grants to the provinces and Rs 10.06bn to the local governments. Additionally, Rs 3.27bn has been allocated as special grants to provinces and Rs 9.78bn to local levels. The government estimates Rs 165bn will be transferred to provinces and local levels through revenue sharing. Altogether, including both revenue sharing and grants, a total of Rs 582.83bn is estimated to be transferred to the province and local governments in the upcoming fiscal year.
Rs 57.48bn has been earmarked for the Ministry of Agriculture and Livestock Development. The government has announced plans to supply 600,000 metric tons of chemical fertilizer, for which Rs 28bn has been allocated. The budget also includes a provision to initiate preparations for establishing a chemical fertilizer factory in the country. The government also announced plans to produce 55m doses of vaccines to control diseases affecting livestock and poultry.
Among the more forward looking programs is a plan to provide concessional loans to startups, particularly those based on innovation and led by young entrepreneurs. Such loans will be provided at an interest rate of three percent, with Rs 730m allocated for this purpose.
Finance Minister Paudel also announced reforms in land management. For example, the government plans to operate land banks in 100 local levels. Landowners who wish to lease their land can collaborate with local governments, and the land banks will be able to acquire land through agreements with local units. The government will also conduct land use zoning through local governments. The government plans to amend the land-related laws to distribute land ownership certificates to 500,000 families.
The government has also decided to open avenues for Nepali investors to invest abroad. Businesspeople and investors will be allowed to invest up to 25 percent of their total exports overseas. Permission for such foreign investments will be granted by the Nepal Investment Board. The finance minister said the government will enter Rs 700bn project development agreements with the private sector through the Investment Board, with Rs 400bn worth of construction projects to begin within the same fiscal year. Rs 740m has also been allocated to support the Investment Board.
To curb black marketing, monopolies, syndicates, and other unethical market practices, the government plans to expand consumer tribunals in all provinces in the upcoming fiscal year. Finance Minister Paudel also announced the Deposit and Credit Protection Program to protect the money of depositors in cooperatives. The program aims to save up to Rs 500,000 per saver in cooperatives.
In a bid to transform the aviation sector, the government announced plans to separate the Civil Aviation Authority of Nepal, one as service provider and the other as regulator entities. The finance minister said necessary steps will be taken within the fiscal year to remove Nepali sky from the European Union’s blacklist.
The government also plans to construct airports in Nijgadh and Surkhet, as well as upgrade the existing ones in Bhadrapur, Dang, and Kathmandu. Finance Minister Paudel also announced plans to operate Gautam Buddha International Airport in a worker-friendly and affordable manner and to develop Pokhara International Airport as a tourist-focused airport.
The government has not increased civil servants’ salaries this time either. However, the dearness allowance has been raised by Rs 3,000, bringing it to a total of Rs 5,000 per month. Despite persistent demands from civil servant associations to raise salaries even marginally, Finance Minister Paudel said the government was unable to do so due to financial constraints.
On the institutional front, the government plans to retain land ownership of public enterprises. Finance Minister Paudel said studies will be conducted into Janakpur Cigarette Factory, Gorakhkali Rubber Industry, and Hetauda Cement Factory, with a view to increasing government investment in these state-owned enterprises.
In the energy sector, the government plans to generate an additional 942 megawatts of electricity from hydropower projects set to be completed within the year. With this addition, the country’s total installed power generation capacity will reach 4,800 megawatts. The government has also set the target of constructing 731 kilometers of national transmission lines to enhance electricity distribution and reliability across the country.
Likewise, the government plans to move forward with the construction of the Amlekhgunj–Lothar petroleum pipeline. Additionally, work on the cross-border Siliguri–Charali petroleum pipeline and storage facilities is also set to begin in the upcoming fiscal year.
The government has decided to keep existing customs duties and other taxes on electric vehicles (EVs) unchanged. Amid speculation that the government might increase customs duties, importers had rushed to bring in EVs, resulting in congestion at the dry port in Chobhar. Similarly, electric vehicle assembling industries will only be subject to one percent customs duty. The same one percent rate will apply for tunnel boring machine imports by the private sector. The government will exempt customs duty on the import of machinery used for green hydrogen production and charge just one percent customs on batteries for solar energy.
The finance minister also announced a five percent income tax rate on income earned by those working in the information technology (IT) sector from within Nepal—this will be a final withholding tax. He also announced plans to amend laws related to VAT, excise duties, and income tax. In addition, a study will be conducted to introduce a multi-rate VAT system. Tax exemptions will be granted to IT-based industries and hotels.
The VAT on digital payment processing has been scrapped, and advance income tax on the import of various fruits and vegetables has also been eliminated. Meanwhile, the finance minister declared increased taxes on tobacco and alcoholic products.
To address the unemployment problem, the government is set to launch an employment portal to make it easier to find jobs and workers. Finance Minister Paudel also said bilateral labor agreements will also be signed with various countries to create foreign employment opportunities and guarantee workers’ safety, particularly of women.
For the social security program, the government has allocated Rs 109bn. It also announced plans to integrate scattered welfare programs. It announced that the Social Health Security Program will be integrated into the health insurance scheme. An institutional administrative system will be established to control insurance leakage. Insurance benefits for senior citizens, persons with disabilities, Dalits, the ultra-poor, and minority groups will continue. A budget of Rs 10bn has been allocated for the Health Insurance Program, compared to Rs 7.5bn in the previous year. Currently, the Health Insurance Board still owes over Rs 16bn to service providers. Minister Paudel stated that arrangements have been made for this outstanding amount to be covered through a third party within the current fiscal year.
The government has also increased the age limit for receiving the senior citizen allowance. Previously, all senior citizens who had completed 68 years of age were eligible to receive the allowance. However, the government has now raised this limit by two years, setting it at 70 years. Nonetheless, senior citizens from remote, marginalized, and Dalit communities will continue to receive the allowance at the earlier age of 60.
Finance Minister Paudelr said national identity cards will gradually be made mandatory for everyone enrolled in welfare schemes. Senior citizens will be provided national identity cards through mobile service teams.
To improve the education sector, the government has allocated Rs 211.17bn to the Ministry of Education, Science, and Technology. A special incentive program will be launched to support one school in each district, with a grant of Rs 2.5m per school. The government has announced plans to establish a Teacher Bank in collaboration with universities. It has also announced that the Secondary Education Examination (SEE) will be conducted at the provincial level.
Starting next fiscal year, students will be allowed to work up to 20 hours per week. Students will also be provided internship opportunities in public institutions based on the nature of services. The government has also allocated Rs 10.19bn for the midday meal program for students up to Grade 5. According to Minister Paudel, 2.8m students will benefit from this initiative. Additionally, the government will provide free sanitary pads for female students. A Rs 1.29bn budget has been allocated for this program.
The Ministry of Health and Population has been allocated a budget of Rs 95.81bn. The government plans to establish burn treatment departments in each province. It also aims to restructure the Health Insurance Program. Finance Minister Paudel announced that legal provisions will be effectively implemented and the program’s coverage will be expanded as part of the restructuring process. He also said the benefits package for insured individuals will gradually be increased—from the current Rs 100,000 for a family of five.
A record-high budget has been allocated for the youth and sports sector. The government has allocated Rs 6.08bn for the fiscal year 2025/26. This is Rs 2.58bn more than the previous fiscal year, which had a budget of Rs 3.5bn. Investment in sports infrastructure and the professional development of athletes will be increased, and the private sector will be encouraged to invest in sports infrastructure.
Finance Minister Paudel also announced the construction of an international-level modern stadium capable of hosting all sports events in Damak, Jhapa. High-altitude sports stadiums will also be constructed in the Himalayan regions including Solukhumbu and Mustang. Similarly, Rs 400m has been allocated to upgrade TU International Cricket Ground in Kirtipur. Additionally, a total of Rs 420m has been allocated for upgrading the Mulpani, Fapla, Siddhartha, and Girija Prasad Koirala cricket grounds.
Conditional grants have been arranged to acquire the assets of the Gautam Buddha Cricket Stadium in Chitwan. Rs 540m has been allocated to host the 10th National Sports Tournament in Birendranagar, Surkhet. Funds have also been earmarked for the National Anti-Doping Agency. Medal-winning athletes in international competitions will be incentivized, and scholarships will be provided for their children.
The incentive allowances currently provided to athletes and coaches will continue. Women’s participation in sports will be increased, and awards will be introduced for outstanding female athletes.
The government has set an economic growth target of six percent for the upcoming fiscal year. However, the National Statistics Office (NSO) has projected that economic growth will reach 4.61 percent. Likewise, the government has set an inflation target of 5.5 percent for the new fiscal year—up from 5.3 percent in the current fiscal year. The size of the economy is estimated to reach Rs 6,107bn in the current fiscal year. If the six percent growth target set for the next fiscal year is achieved, the size of the economy will reach Rs 6,473.42bn in 2025/26.
The government has projected the economic growth rate to reach 4.61 percent in the ongoing fiscal year 2024/25, signaling a modest recovery after recent years of slow growth. The finance minister announced that the country’s total economic output is expected to expand to Rs 6.17trn by the end of the fiscal year. The agriculture sector will contribute approximately 25.16 percent to Gross Domestic Product (GDP), underscoring its central role in the economy.
Nepal’s per capita income has reached $1,517, reflecting steady economic improvement and a moderate pace of growth following earlier stagnation, Minister Paudel informed lawmakers.
The government estimates show only 89.4 percent of the total allocation will be spent in the current fiscal year. The government had planned to implement a budget worth Rs 1.86trn in the current fiscal year. However, it is now estimated that the expenditure will shrink to Rs 1.662trn (89.4 percent of the total allocation).
According to government estimates, 88.5 percent of the recurrent expenditure and 83 percent of the capital expenditure will be utilized this fiscal year. In the financial management category, 97.6 percent of the allocated budget is expected to be spent. The finance minister also projected that revenue mobilization will increase 17.1 percent this fiscal year.
