The Government of Nepal is set to unveil the federal budget for fiscal year 2025/26 later today, Thursday, May 29, with a focus on economic reform despite mounting fiscal pressures and political unrest.

Officials say the upcoming budget will be larger than the current one, despite a shortfall in revenue collection and a significant drop in foreign aid. A key factor driving the increase is the legal requirement to raise salaries and benefits for government employees.

To address the resource gap, the government is expected to raise tax rates across multiple sectors. With major donors, including the United States, unplugging the aid flow, Nepal is likely to rely more heavily on domestic and external borrowing to fund its spending plans.

Deputy Prime Minister and Finance Minister Bishnu Paudel is scheduled to present the new budget during a joint session of the National Assembly and House of Representatives at 3 PM, according to the Federal Parliament Secretariat.

Reform-Oriented Budget

Government insiders indicate that the budget draws heavily from the recommendations of the High-Level Economic Reform Commission, led by former Finance Secretary Rameshore Khanal. The government has already made public a comprehensive 408-point action plan outlining structural reforms in economic governance and public administration.

“The budget will incorporate many of the commission’s recommendations aimed at reviving private sector confidence,” said a senior official involved in the budget drafting process, speaking on condition of anonymity due to protocol restrictions.

The budget is expected to propose changes to customs duties for electric vehicles, a restructuring of social security schemes, and reforms to the national health insurance program.

Additionally, based on the Public Expenditure Review Commission’s findings, the Finance Minister may announce the merger or dissolution of certain underperforming or redundant government bodies.

Despite some planned cost-cutting measures, officials confirm the total budget size will rise, primarily due to increased payroll obligations. “Trying to satisfy all stakeholders has inflated the budget,” another senior official admitted. “It’s expected to exceed the current year’s budget by at least Rs 150 billion.”

For the current fiscal year (2024/25), the government last year announced a Rs 1.86 trillion budget, only to downsize it to 1.69 trillion through the mid-year review. The National Planning Commission’s resource committee has set a ceiling of Rs 1.9 trillion for the upcoming year.

Emphasis on Implementable Projects

Officials say the new budget will prioritize projects that are both feasible and capable of being completed within a defined timeframe. However, state-owned RSS news agency reported that the government has added 117 new projects to the National Project Bank (NPB) just ahead of the budget announcement.

As of May 27, a total of 1,327 projects had been entered into the NPB’s management information system, with an estimated total cost of Rs 920 billion. Projects costing less than Rs 30 million will no longer be eligible for federal budget allocation, officials said.

Of the recorded projects, 1,141 have budgets of Rs 30 million, 70 fall within the Rs 30–50 million range, 44 between Rs 50–100 million, 23 range from Rs 100 million to Rs 1 billion, and 40 exceed Rs 1 billion.

Budget Execution Lag

Despite consistently increasing the size of its annual budget, the government has struggled to execute it effectively. According to the Financial Comptroller General Office (FCGO), only Rs 1.21 trillion of the Rs 1.86 trillion allocated for the current fiscal year had been spent as of Wednesday, May 28.

This trend of underperformance has persisted for years. For example:

In FY 2015/16, only Rs 601 billion of the Rs 819 billion budget was spent. In FY 2018/19, Rs 1.11 trillion was spent from a Rs 1.315 trillion allocation. In FY 2021/22, the government utilized just Rs 1.31 trillion of a Rs 1.632 trillion budget. In FY 2023/24, only Rs 1.408 trillion of the Rs 1.751 trillion allocation was spent.

“Budgets are not merely fiscal blueprints—they are political documents too,” said another senior official. “This one is especially ambitious, but it’s designed to inject energy into the broader economy.”

Heightened Security Amid Republic Day and Monarchist Protests

Security has been tightened across Kathmandu Valley ahead of Republic Day celebrations and a planned protest by pro-monarchy groups demanding the restoration of Nepal as a Hindu Kingdom.

Police have permitted the ruling CPN-UML to hold a Republic Day rally at Bhrikutimandap from 10 AM to 2:15 PM. Monarchist groups are expected to gather at Shanti Batika shortly thereafter.

Tensions remain high following violent clashes on March 28, when a pro-monarchy protest in Tinkune turned deadly—two people were killed, over 20 injured by gunfire, and public and private property was torched and vandalized.