‘Leaders & experts delve into effective implementation of budget to enhance credibility’
Former Finance Ministers and economists have highlighted that poor budget implementation leads to a lack of effectiveness, which then hurts the budget’s credibility. The government’s fiscal policy is seen as the most important tool for carrying out long-term plans and achieving the country’s social and economic development.
A post-budget discussion held on June 2 in Kathmandu brought together former finance ministers and economists to talk about this issue.
During the discussion, organised by the Management Association of Nepal (MAN), the country’s main association for management professionals, under the theme ‘Enhancing Credibility of Budget through Effective Implementation’, former finance ministers and economists concluded that the budget lacked credibility due to poor allocation, weak implementation and absorption capacity, and a lack of accountability. The budget failed to address challenges and boost the economy by increasing growth, creating jobs and improving productivity.
Welcoming guests, Mohan Raj Ojha, President of MAN, spoke about MAN’s 44-year history and its 5,000 members across the nation. He stressed the urgent need to identify the problems in implementation that are causing many challenges for the economy. Ojha stated that MAN, with its skilled professionals and over 450 members holding PhDs, is eager to work with and support the government in improving governance, management systems, and results-based delivery in the public sector. The post-budget discussion is one of MAN’s signature events, similar to its pre-budget, pre-monetary policy discussions, and national management conventions.
Manoj Paudel, Chairperson of the Investment and International Affairs Forum of the Federation of Nepalese Chambers of Commerce and Industry, presented a paper. He stated that a budget is more than just allocating revenue and spending; it’s an agreement between the government and the public. However, he pointed out that a history of poor performance, centralised control, and a lack of transparency and accountability are factors hurting the budget’s credibility. According to Paudel, major barriers to achieving budget credibility include a lack of project evaluation, shifting priorities, and institutions working in isolation.
Paudel further mentioned that the government has recently started recognising its limitations and is seeking collaborations and partnerships. He believes that to achieve results-based delivery, Nepal needs deep structural reforms in governance, planning, execution capacity and accountability, rather than just small, gradual changes. He added, “The problems and challenges we’re talking about are just the tip of the iceberg; the unseen barriers could be much bigger.”
He concluded that to close the credibility gap and deliver results, the government must develop an entrepreneurial drive similar to the private sector. Paudel’s presentation served as an icebreaker for the discussion, after which former finance ministers and economists shared their views.
Dr. Roop Jyoti, Former Finance Minister
Along with spending money wisely, we must also focus on collecting revenue carefully. Honesty in revenue collection has gone downhill, leading to significant leakage because tax policies aren’t effective. The government and tax administration haven’t recognized the importance of VAT (Value Added Tax), which is a scientific tax that keeps our tax system strong. VAT can be enforced well, but a lack of billing enforcement threatens its success. I was surprised to hear the private sector ask for multiple VAT rates; we can’t enforce that if we change the current single rate, as it would create more complications. In the fiscal budget 2025/26, the government has imposed a tax on gold ornaments, which will be hard to implement, and such unenforceable taxes cause problems. Tax rules must be simplified and collection made hassle-free.
Surendra Pandey, Former Finance Minister & Vice Chairperson of CPN UML
There are fundamental issues with revenue and spending that require unconventional solutions. The fiscal budget 2025/26 has announced some unusual programmes, like building one lakh (100,000) houses across seven provinces, which will mobilise over Rs. 1,000 billion. This is a well-thought-out plan. We need to think outside the box to gather resources from the private sector and households. This will help the economy grow rapidly.
Almost 5 million people (civil servants, elected representatives, and social security beneficiaries) receive salaries and allowances from the government, consuming a large portion of our revenue. The resource estimates in the fiscal budget 2025/26 are quite ambitious, especially when resources are shrinking, and the budget relies too much on internal debt. We need policies and programmes that encourage investment because capital is mobile. Historically, Venice in Italy was a trade centre for 1,000 years, then it moved to Amsterdam, then London, then the USA, and now to China. With global companies concentrating in India, it seems India could be the next destination. We must understand this fact and create strategic policies and programmes. Another crucial aspect for effective land management is offering tax incentives for agricultural and industrial land. We should start heavily taxing land leasing and fragmentation done specifically for price speculation.
Gyanendra Bahadur Karki, Former Finance Minister and Central Committee Member of Nepali Congress
The budget’s credibility depends on scientific allocation, implementation capacity and promoting accountability among government bodies and partners. Scientific allocation involves a wide range of issues, from credible planning to studying projects and programmes. We need the ability to assess projects and programmes before allocating resources, and to eliminate unfeasible, piecemeal and politically motivated projects. Furthermore, improving implementation capacity requires strengthening institutional capacity, reforming governance, building transparency, and enhancing contractors’ abilities. Additionally, accountability mechanisms should be improved through parliamentary oversight. For example, the practice of conducting mid-term budget reviews and reducing it without parliamentary consent must stop. The government should focus on implementing the budget. Moreover, collective efforts are essential to deliver results.
Barsha Man Pun, Former Finance Minister and Deputy General Secretary of CPN (Maoist Centre)
The fiscal budget 2025/26 is a weak budget from a strong government. Even though CPN UML is known for presenting budgets with attractive slogans, this budget lacks appeal. It seems crafted by the private sector, as it deviates from the basic principles of liberalisation such as fairness, equal competition and transparency. Instead, it appears to have fostered ‘match-fixing’, cartels and market capture by specific corporations. Despite being a coalition of two large parties, it hasn’t generated hope amidst the current despair.
The Nepali economy was beginning to recover after being severely impacted by the COVID-19 pandemic and global uncertainties. However, investors and the business community have lost confidence since the current government took office, due to widespread corruption, a lack of transparency, and weak enforcement of the rule of law.
The budget neither embodies the principles of liberalisation (Nepali Congress’ ideal policy) nor collectivism (CPN UML’s ideal policy). The limitations of liberalisation and the failures of collectivism – especially regarding cooperatives and social security – should be reviewed politically and academically. The government formed an advisory commission and received a report for reforms, but no reform initiatives have been taken. Budget formulation has become a transactional process where contractors select projects and corporations propose tax rates. I don’t blame the private sector for their lobbying efforts; it’s a flaw in the public sector and its operational style.
There’s no logical basis for many policies, projects and programmes. The government, facing pressure on revenue, increased the eligibility age for social security from 68 to 70 years. The fiscal budget hasn’t taken any steps to formalise the economy, which accounts for over 42% of the GDP. The ICT sector, which has boomed recently and has the potential to export Rs. 3,000 billion in the next 10 years, has not been prioritised. The government moved in the opposite direction by incentivising alcohol producers; instead of revising health taxes on such harmful products, the government kept the tax rate the same as last year, ignoring the usual practice of raising taxes on these injurious products annually. On the other hand, electric vehicles are heavily incentivised. Since taxes on liquor and electric vehicles haven’t been revised, achieving the revenue collection target is questionable. A major push for reform was expected but even a two-thirds majority government couldn’t lead structural reforms. A key reason for the lack of budget credibility is the absence of technical experts in the planning, budgeting and review processes.
Dr. Prakash Sharan Mahat, Former Finance Minister and Spokesperson of Nepali Congress
Cutting unfeasible and piecemeal projects and announcing a tax holiday are notable moves in the budget 2025/26. To improve allocation efficiency, the budget has set a threshold of Rs. 30 million for federal government projects. It’s a common challenge for all finance ministers to operate with limited fiscal space while being pressured to present a large budget. We are facing a resource crunch; lower overall demand hinders our ability to mobilise revenue. The world has become transactional, severely impacting grants, and we are overly reliant on debt. Developed countries, which committed 1% of their GDP to Official Development Assistance (ODA), are no longer strictly adhering to their commitments. MCC and other grants are facing uncertainties. I personally oppose bilateral loans due to their tough conditions, as most developed countries have opened up multilateral banks, and their priority is to lend through multilateral channels instead of bilateral loans.
Dealing with a lack of implementation capacity or ‘soft state syndrome’ is challenging. Furthermore, our spending capacity depends on how much preparation we’ve done to kickstart projects. In short, there isn’t enough money for capital expenditure, partly due to a lack of available resources. We also need to cut unproductive and unnecessary expenses; for example, we can implement a need-based social security scheme instead of engaging in competitive populism.
Min Bahadur Shrestha, Former Vice Chair, National Planning Commission
The budget’s credibility is also tied to our long-term plans, since the budget is the main way to put those plans into action. Even though we’ve had planned development for almost seven decades, our plans and budgets are rarely in sync. Recently, we’ve seen good growth by aligning budget priorities with our plan’s goals. We aimed for an average 9% growth in the 15th plan, but various circumstances prevented us from reaching it. In the early years of implementation, even the majority government couldn’t make effective changes.
Currently, we’re facing multiple challenges: revenue is shrinking, and there’s no policy to boost overall demand. It’s clear that a 4% growth can be achieved even without doing anything but the fiscal budget aims for 6% growth. The country must speed up its development and break free from slow growth, especially as we officially graduate from Least Developed Country (LDC) status in 2026. We need to achieve the Sustainable Development Goals and other development aspirations.
Dr. Dilli Raj Khanal, Economist, Former Member of Parliament & Former Chairperson, Public Expenditure Review Commission
There’s a flaw in our budget system, leading to serious execution challenges. We first need to complete the preparation work for effective implementation. The budget has ignored the basic principles of performance-based budget execution. Instead of getting stuck on processes, actual delivery depends on how much input we use with the necessary processes and how much output we generate through specific activities. Then, in the medium and long term, we need to evaluate the overall outcomes and impacts those inputs have created.
To improve budget implementation, a project monitoring dashboard could be a very effective tool. Nepal hasn’t seen any positive results in budget formulation and execution for improving budget credibility, except for implementing the medium-term expenditure framework (MTEF).
The wrong trend we’ve set is the mid-term review and excessive budget cuts, which interfere with parliamentary processes. More than 60-65 provisions are announced in the budget every year but there’s no monitoring of whether these policies are actually implemented.
The fiscal budget 2025/26 is private-sector oriented and unbalanced, with clear inter-provincial imbalances and inequalities visible. The budget also reflects policy distortion and capture by influential groups. In our system, 4,600 projects need to be removed, and we should instead promote mega-projects and those that have a synergistic impact on socio-economic development. In this regard, the effective role of oversight agencies – Parliament, the Office of the Auditor General (OAG), and other oversight bodies – is crucial to enhance accountability. The OAG has consistently made the same recommendations in its reports for years, but they haven’t been implemented. If all stakeholders aren’t equally responsible for making changes, it will ultimately be a zero-sum game.
Keshav Acharya, Economist and Former Advisor to the Ministry of Finance
The fiscal budget 2025/26 is quite progressive, with a streamlined size and, for the first time in a long while, no catchy slogans. It aims to prevent duplication and streamline the project bank between federal and local levels. While not a major shift, it hints at capital account convertibility in the long term by allowing some outward foreign direct investment (FDI); for instance, ICT companies can now open representative offices abroad. The old Act Restricting Investment Abroad, 1964, needs to be reviewed. Following the budget announcement, 25% of export income can be taken out of the country to set up representative offices for product and service promotion, marketing, and branding, which should boost exports. We tried to repeal the 1964 Act back in 2009/10, but the government at the time couldn’t due to a balance of payments (BoP) crisis. This new provision is now explicit. To improve implementation, we must make processes less rigid and empower the bureaucracy. Gross fixed capital is shrinking from 23-24%, and public debt is 46% of GDP, which is significant for Nepal. Overall, the budget 2025/26 shows incremental reform initiatives, so we can say it comes with only half the spirit.
Nara Bahadur Thapa, Economist and Former Executive Director of Nepal Rastra Bank
The fiscal budget 2025/26 has disheartened hydropower developers by introducing a ‘take and pay’ policy instead of ‘take or pay’. Policymakers have strongly encouraged and opened up outward foreign investment, removed land restrictions for real estate companies, and offered compensation up to Rs. 5 lakhs to cooperative victims. Analysing budget trends, we need to stop the mid-term review of the budget to improve its credibility. Downward revisions, demobilisation, and unworkable budgets won’t solve anything. The government shouldn’t review the budget by itself; it should be an independent mid-term review.
Furthermore, the fiscal budget has started discussing monetary policy provisions. We must separate or avoid interfering with monetary policy. This intrusion into the central bank’s domain suggests that some players are eyeing the resources of banks and financial institutions. Allocating more money than demanded distorts the budget’s credibility; for example, the Ministry of Urban Development received Rs. 118 billion, even though it only requested Rs. 52 billion. The government’s target to collect Rs. 1,480 billion in revenue (including shared federal funds) is overly ambitious. The budget hasn’t initiated transformative projects, reform efforts, or measures to increase overall demand, which may not solve the economy’s current challenges.
Kalpana Khanal, PhD, Senior Research Fellow at Policy Research Institute (PRI)
The fiscal budget 2025/26 has a few strengths to build on. It has improved how efficiently money is allocated by setting a minimum threshold of Rs. 30 million for federal government projects. Value Added Tax (VAT) has been removed from digital transactions. The industrial sector, including stainless steel wire production, has received incentives, and the tax on electric vehicles remains stable. Most importantly, the budget has included recommendations from the High-level Economic Reform Advisory Commission.
However, there are challenges. The revenue target is extremely ambitious and the target for mobilising foreign aid is also very high. Given our limited resources, the fiscal transfer is unrealistic. They should have tested the waters before making such unrealistic announcements. Last year, conditional grants were cut by 28%, which explains the large gap between promises and reality. Furthermore, improving our absorptive capacity (only accepting aid/loans for projects we can actually implement) is crucial to overcome the ongoing challenge of slow capital expenditure.
Citizen involvement in the budget process is key to making it more credible. To achieve this, a scorecard system should be implemented for budget execution, making responsible authorities accountable. The effectiveness of budget implementation depends on improving the capacity of planning units and ensuring balance both vertically (between federal and subnational levels) and horizontally (among provinces and local levels) to harmonise projects and programmes. This is also vital for making the best use of resources. Strengthening the National Planning Commission’s capacity is essential for improving the medium-term expenditure framework.
The discussions concluded positively with recommendations from political leaders and experts on budget implementation. Finally, Chunky Chhetry, Executive Member of MAN, thanked the guests for attending the Post-Budget Discussions and sharing valuable insights, and the participants for their active involvement. While speaking, Chhetry quoted Benjamin Franklin, saying, ‘there is nothing can be said to be certain, except death and taxes in this world’, and urged the government to recognise the contributions of businesspeople who are working hard during uncertain times.
