The Government of Nepal opted to continue several previously unsuccessful programs in fiscal year 2025/26 budget, prompting concerns among experts and stakeholders about the rationale for recycling failed policies.

Presented on May 29 by Finance Minister Bishnu Paudel, the budget outlines the continuation of initiatives such as the establishment of an Asset Management Company, the licensing of Neo Banks, and the reintroduction of a concessional loan scheme that had earlier faced widespread criticism and implementation issues.

A major highlight of the budget is the renewed commitment to establishing an Asset Management Company aimed at managing non-performing loans and other distressed assets of banks and financial institutions. This plan, initially proposed by the High-Level Economic Reform Advisory Commission, envisions a public-private partnership model. Nepal Rastra Bank had also committed to submitting a draft Asset Management Act in the current fiscal year’s monetary policy. But, with the fiscal year drawing to a close, the draft law remains pending.

One of the most controversial aspects of the budget is the re-launch of the collateral-free concessional loan scheme. The finance minister announced that educated youths would be eligible to access loans ranging from Rs 200,000 to Rs 2 million at a concessional 3% interest rate. Eligibility criteria include educational qualifications, business registration, skills certification, and a viable project proposal. The scheme is intended to promote youth entrepreneurship and self-employment, but critics argue it has already failed to meet its objectives in previous iterations.

Former president of the Nepal Bankers’ Association, Bhuvan Kumar Dahal, strongly opposed the revival of the scheme. He pointed out that the government has not been able to reimburse banks for the interest subsidy, which raises serious questions about the programmeme’s sustainability. “There is no justification in reintroducing a programme whose effectiveness and relevance have already been questioned,” he said.

The government currently provides concessional loans under ten categories–Commercial agriculture and livestock, educated youth self- employment, project loan for youth returnee migrant workers, women entrepreneur, Dalit community business development, higher, technical and professional Education, housing loan for earthquake victim, loan to textile industries, loan to training by CTEVT approved institutions and youth self employment.

Last year’s budget had pledged to restructure the concessional loan interest subsidy programme based on its performance. This year’s budget repeats the same promise, but as of now, no meaningful changes have been introduced.

Reports of widespread misuse have further undermined the credibility of the concessional loan programme. Nepal Rastra Bank recently penalized the CEOs of 15 banks and financial institutions in the second quarter of the current fiscal year alone for allowing loans meant to support productive economic activities to be used instead for personal expenses such as land and housing purchases. The Office of the Auditor General has also raised concerns, recommending a complete restructuring of the program.

In addition to these programmes, the budget has reaffirmed the government’s plan to establish Neo Banks—digital-only banking institutions. Though this initiative was already mentioned in the current fiscal year’s monetary policy, legal hurdles have stalled its progress. The necessary provisions are currently under consideration in an amendment to the Bank and Financial Institutions Act (BAFIA), which is being discussed in Parliament.

The budget also outlines broader reforms in the financial sector. Finance Minister Paudel announced that Nepal Rastra Bank will issue a new monetary policy aligned with the budget’s objectives. These include expanding access to financial services in remote areas, promoting rural economic development, and enhancing digital, mobile, and branchless banking infrastructure. Other commitments include institutional reforms in microfinance institutions, support for distressed borrowers, expansion of private sector credit, and revised risk management frameworks to improve the flow of working capital.

In response to public backlash, the government has also rolled back the controversial Value Added Tax (VAT) on digital payments introduced in the current fiscal year. The tax had drawn criticism for disincentivizing electronic transactions and undermining the digital economy.

The budget also includes plans to strengthen the insurance sector. It proposes expanding property insurance coverage to protect against natural disasters and accidents, directing insurance companies to improve rural outreach. It also introduces new instruments such as cybersecurity insurance and reinsurance mechanisms to manage potential risks associated with the Deposit and Credit Guarantee Fund.

Click here to see out budget 2025/26 coverage.