Fiscal Discipline Takes Center Stage

With just six months to deliver, the interim government faces a narrow window to act. Its primary responsibility is to ensure timely parliamentary elections on March 5, 2026, while also restoring law and order, providing immediate relief, and boosting private sector confidence. In the two weeks since taking office, it has begun executing this mandate—enforcing fiscal discipline, rationalizing state resources, and implementing cost-cutting measures. Finance Minister Rameshore Khanal has taken the lead, introducing reforms aimed at reinining spending, eliminating unproductive programs, and restoring credibility to public finances.

Austerity Drive in Motion

On September 21, following Cabinet approval, the Ministry of Finance issued a circular directing federal ministries, provincial governments, and local bodies to implement immediate austerity measures. The measures aim to eliminate wasteful expenditure, streamline public projects, and redirect funds to essential services such as education, health, and drinking water.

Perks such as additional offices, luxury vehicles, and politically motivated distribution programs have been abolished. The appointment of advisors is now limited to the top five constitutional offices—the President, Vice President, Prime Minister, Speaker, and Chairperson of the National Assembly. Ministerial and provincial secretariats will be capped at three staff members, while Members of Parliament and other political officials will lose access to publicly funded personal secretaries.

Foreign travel is also curtailed. Only mandatory delegations are approved, with size limits of 10 members for heads of state or government and three for other government-funded trips. Meeting allowances for routine work have been scrapped, housing allowances withdrawn for officials living in their own homes, and purchases of luxury items and new vehicles prohibited.

“This is not just trimming fat—it’s a fundamental reset in how the state spends public money,” a senior finance official told NewBiz.

Rationalizing Development Spending

New projects are frozen, and small-scale or vaguely categorized programs recently entered into the Line Ministry Budget Information System (LMBIS) have been suspended. Resources from scrapped projects will be redirected to priority sectors and national-level initiatives.

Multi-year resource agreements for new proposals are banned for the fiscal year, and projects costing over Rs 1 million must now be implemented directly by government authorities rather than user committees. Contingency allocations are capped at 3 percent for projects worth Rs 1 billion and 2 percent for larger projects to reduce inflated costs.

Consultancy outsourcing has been restricted, with ministries instructed to rely on internal staff for drafting laws, guidelines, and regulations. Old furniture, vehicles, and office equipment must be reused where possible, while damaged or outdated assets will be auctioned.

Finance Minister Khanal revealed that more than 1,300 projects not entered into the Project Bank, worth around Rs 110 billion, exist in the current budget. “About Rs 12 billion allocated under headings such as seminars and meetings could be diverted. By identifying projects that have not yet started, their budget can be withdrawn and used for elections,” he said.

Customs Reform: Database Abolished

In a landmark step, Khanal announced the abolition of the controversial customs reference-value database at Biratnagar Customs, replacing it with an online valuation system to be rolled out nationwide within a month. The platform enhances transparency by publishing how goods were valued at different customs points over the past 90 days. While traders’ invoices remain the basis for clearance, discrepancies will now trigger Post-Clearance Audit (PCA) reviews.

“This online valuation system is a landmark step that will strengthen all aspects of revenue collection,” said a revenue administration expert.

Structural Reforms and Job Cuts

The Finance Ministry has implemented a freeze on new permanent positions, allowing only critical technical expertise via temporary contracts. On September 16, a meeting of secretaries chaired by Chief Secretary Shanker Das Bairagi Aryal recommended a 20 percent cut in sanctioned posts across ministries, commissions, and offices. If approved by October 6, nearly 11,000 positions could be eliminated from the federal government’s current pool of 54,000.

The ministry has also regained oversight of sensitive regulatory institutions, bringing the Department of Money Laundering Investigation and the Revenue Investigation Department under its wing—reversing a 2017 decision by former Prime Minister KP Sharma Oli.

Former Nepal Rastra Bank executive Keshav Acharya praised the measures. “The government could save Rs 110 billion by scrapping small projects and nearly Rs 200 billion by cutting unnecessary expenses. This is an excellent step.” On September 26, Finance Minister Khanal met with development partners to request backing for the economic reform efforts, highlighting the physical damage caused during the Gen Z protests and emphasizing the acceleration of reform initiatives.

Tightening the Belt Without Hurting Services

The austerity campaign spans federal, provincial, and local governments. Temporary employees have been laid off, secretariats slimmed down, and allowances withdrawn. Even Nepal’s diplomatic missions abroad will operate under tighter financial controls.

Government offices, banks, and tax agencies will remain open during much of the holiday season—except Dashain—to facilitate trade, revenue collection, and post-crisis recovery. Ministries must seek approval from the Finance Ministry before cutting budgets affecting health, education, or water supply.

Balancing Relief and Austerity

The interim government’s measures follow the Gen Z protests that shook public institutions and battered investor confidence. By combining austerity with selective support for business recovery, the government aims to stabilize the economy, curb unproductive expenditure, and rebuild trust with citizens and international partners.

“As one policy analyst put it: ‘This is not just about saving money—it’s about showing that the government can act responsibly, even in a crisis.’ The challenge lies in whether the political class will let these reforms stick,” Acharya noted.

Provinces such as Bagmati and Koshi have raised concerns about central interference. Acharya stressed the importance of forming a strong monitoring committee and securing cooperation from provincial governments, especially since the interim government was formed under special arrangements.

This report was originally published in October 2025 issue of New Business Age magazine.