By P.R. Pradhan
Finance Minister Dr. Swornim Wagle presented the budget for fiscal year 2026/27 on May 29. Many people had high expectations from the government, which came to power promising change and reform. However, the budget has drawn criticism for largely following the same approach adopted by previous governments.
The budget is ambitious, populist, and distributive in nature. Yet the country’s financial reality remains challenging. Government revenue is estimated at around Rs. 1 trillion, while recurrent expenditure alone exceeds that amount. As a result, the government continues to rely on domestic and foreign borrowing to meet its obligations.
The government has announced a total budget of Rs. 2,124.34 billion for the coming fiscal year. Of this amount, Rs. 1,270.58 billion, or 59.8 percent, has been allocated for recurrent expenditure. Capital expenditure stands at Rs. 431.10 billion, representing 20.3 percent of the budget, while Rs. 422.64 billion, or 19.9 percent, has been allocated for debt repayment and government lending.
To finance the deficit, the government expects to receive Rs. 61.74 billion in foreign grants, Rs. 274.28 billion in foreign loans, and Rs. 410 billion through domestic borrowing. Given growing geopolitical tensions and global economic uncertainty, there is no guarantee that foreign grants will materialize as projected.
The most serious concern is the steadily rising national debt. By the end of fiscal year 2026/27, Nepal’s total public debt is expected to reach approximately Rs. 3.5 trillion. A significant portion of government resources is consumed by administrative and political expenses. Provincial assemblies, local governments, and various political institutions require substantial annual funding, much of which comes from federal grants.
It has now been proved that the present federalism, secularism and republicanism model has failed and we must adopt a sustainable political system to avoid present anomalies. Provinces and local governments remain heavily dependent on federal support and have failed to generate sufficient internal revenue. If the number of political institutions and elected bodies, including removal of provincial structures and reducing the number of local bodies, were reduced, a substantial amount of public money could be redirected toward infrastructure, education, healthcare, and productive sectors.
Taxpayers ultimately bear these expenses at a time when the government is borrowing heavily to meet routine obligations. Financing salaries, allowances, and administrative costs through debt while imposing higher taxes on citizens cannot be considered prudent fiscal management.
The leaders of the Rastriya Swatantra Party, which rose to prominence by promising change, must recognize the practical challenges posed by Nepal’s current governance model. If structural reforms are avoided, the nation risks falling deeper into a debt trap where new loans are required simply to repay old ones. Such a cycle would undermine long-term economic stability and limit future development opportunities.
The government has repeatedly pledged zero tolerance toward corruption and a commitment to good governance. These are important goals, but they alone cannot transform the economy. Over the past three decades, Nepal has witnessed the decline of many domestic industries that once generated employment and reduced dependence on imports.
The country must now focus on reviving productive sectors. As Nepal has a relatively small domestic market, policies should be designed to protect local farmers and industries while encouraging domestic consumption of locally produced goods. A balanced economic approach is needed.
Three decades ago, many schools and colleges required uniforms manufactured within Nepal. State-owned enterprises such as Hetauda Textiles and Bansbari Shoe Factory benefited from domestic demand. Following the adoption of liberal economic policies after 1990, many public enterprises were privatized or shut down on the grounds that they were operating at a loss. However, if government agencies, including the Nepal Army, Armed Police Force, and Nepal Police, had prioritized domestic products, these industries might have survived.
At a time when major economies are actively protecting their industries and strategic sectors, Nepal should seriously consider a mixed economic model. Well-managed public enterprises can remain viable if granted operational autonomy and shielded from political interference. The outdated argument that governments should not engage in business must be reassessed. Instead, the focus should be on preventing political intervention in public enterprises and improving management efficiency.
Where direct government involvement is not practical, public-private partnerships can provide a viable path toward industrialization and economic growth.
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