Despite a growing resource crunch, the government is preparing to raise civil servants’ salaries in the upcoming fiscal year (FY 2025/26). Officials from the Ministry of Finance confirmed that internal discussions and preparations are underway to revise employee pay in line with legal obligations set by the Civil Service Act.

The Act requires the government to review salaries every three years based on inflation, revenue growth, and the number of posts. Salaries were last increased in fiscal year 2022/23, when the government implemented a 15 percent raise. Since then, however, no adjustments have been made.

“We are facing immense pressure on the resource side. It’s difficult to even meet current expenditure with existing revenue. Yet, we are still working on a salary hike, even if it means trimming the development budget,” said a senior official involved in budget planning.

In the current fiscal year, the government has allocated Rs 106 billion for salaries and Rs 80 billion for pensions. As pensions are tied to salary levels, any hike further escalates the government’s financial obligations. Officials say the increased burden comes at a time when capital expenditure has been declining, while current spending—primarily on salaries and allowances—has surged.

Officials said the Ministry is trying to balance legal obligations with recommendations made by the Public Expenditure Review Commission. These include cutting redundant institutions and promoting fiscal discipline.

Although a salary hike was announced in 2022/23, it triggered backlash from lower-level employees, who claimed that senior officials had received more than 20 percent raises. In response, the government formed a High-Level Salary and Benefits Commission on August 22, 2022, to study salary disparities and recommend a fair scale.

The Commission recommended raising the minimum monthly salary to Rs 34,000 and proposed salary scales based on merit and performance. However, citing lack of resources, the government did not implement the suggestions. The Commission also advised aligning pay with South Asian standards and ensuring that government staff are both necessary and productive.

A senior Finance Ministry official said the Ministry is currently exploring a 10 to 15 percent salary hike, based on recent inflation data.

The newly formed High-Level Economic Reform Commission, led by Rameshwor Khanal, echoed concerns about low pay in the civil service. It concluded that inadequate compensation had demotivated employees, further justifying a salary increase.

Pressure is also mounting from employee unions. Prakash Bhattarai, Secretary of the Nepal Civil Servants Union, said the government should set a new minimum salary of Rs 45,000 based on current market conditions. He also demanded hikes in grade pay, uniform allowances, and other benefits such as educational scholarships, medical, housing, and transportation support.

“Salary increases should be automatic, not conditional on the budget cycle,” Bhattarai said. “As inflation rises, the government must manage its impact while ensuring decent living standards for employees. Compared to other SAARC countries, Nepali civil servants are underpaid.”

Although finance ministry officials acknowledge the fiscal stress, they say increasing employees’ morale through salary hikes remains a priority.