Plans on Paper, Delays on the Ground: Nepal’s Broken Public Investment System

Nepal’s economy is standing n fragile ground. For years, he country has spoken mbitiously about highways, and transformative public works. Yet its actual performance in executing development projects remains  alarmingly poor. The latest World Bank Nepal Development Update warns  that chronic under-execution of public investment has become a “critical bottleneck,” eroding public capital, undermining growth, and weakening the state’s ability to deliver the infrastructure the country urgently needs.

Public capital stock in Nepal has deteriorated from about 75 percent of GDP in the mid-1990s to approximately 54 percent in 2019. While there was a spike in public investment between FY 2016 and FY2021, driven by earthquake reconstruction efforts, capital spending has been steadily declining since FY21. In FY 2024, consolidated capital spending was 7.9 percent of GDP, which is well below Nepal’s infrastructure needs estimated at 10 percent to 15 percent of GDP annually from 2020 to 2029. For a country still dependent on state-led investment to drive connectivity and productivity, this shrinking asset base  signals a deeper structural decline.

Weak execution of the development budget sits at the heart of the problem.  At the federal level, capital budget execution has dropped from an average of 74 percent in FY 2012–19 to around 60 percent in FY 2020–24. Provinces, which initially outperformed federal agencies after federalization, saw execution rates fall from 80 percent in FY 2021 to 70 percent in FY 2024. Local governments have been similarly sluggish, averaging  just 65 percent.

The result of these systemic weaknesses has been costly. Between FY 2021 and FY 2024 alone, execution shortfalls  reduced public investment by an average of 5 percent of GDP—a loss Nepal cannot afford. “The consequence,” the World Bank warns, “is a slower accumulation of productive assets, lower private-sector confidence, and weaker long-term growth.”

Finance Minister Rameshore Khanal argues that misallocation has begun  to be addressed. He says the newly formed government acted within days to make budgeting more evidence-based. “Over 1,200 projects with no value for money—those lacking contribution to GDP, employment, or public need—have been put on hold. Work is ongoing to redesign and estimate only essential and  productive projects,” he said.

But large implementation challenges persist: delays in tree-cutting approvals, prolonged land acquisition, and flawed  bid evaluation. “Although the law clearly states that contracts must be awarded based on the substantially responsive, lowest evaluated bid, evaluations must consider both technical and financial competence, not just price,” Khanal noted. Many agencies still choose the easiest route: awarding contracts to the lowest bidder without proper verification—often a recipe for failure. Procurement laws must be followed strictly, he added, and unrealistic bids should be questioned rather than accepted at face value.

The Roots of Inefficiency Multiple assessments, including the 2021 Public Investment Management Assessment (PIMA), the 2024 PEFA Review, and successive Country Economic Memoranda, converge on the same diagnosis: Nepal’s public investment management looks sound  on paper but falters badly in practice.

Projects are routinely approved without proper preparation—missing feasibility studies, detailed cost estimates, procurement plans, or realistic timelines. Politically driven projects enter budgets late, bypassing technical scrutiny and overburdening an already overstretched pipeline.

According to Rabi Singh, president of the Federation of Contractors’ Association of Nepal, institutional and regulatory inefficiencies are at the center of these failures. Tree-cutting permissions, he says, remain a chronic bottleneck across  high-value public works. “Multiple projects are delayed for months because environmental clearances take far too long. We have talked about this for years, but proactive steps from the government are still lacking,” he said.

Even mechanisms designed to improve  project selection have struggled. The National Project Bank (NPB), established to vet proposals before they reach the budget, is frequently bypassed. Ministries continue inserting unapproved projects into the annual budget and Medium-Term Expenditure Framework (MTEF). The NPB’s monitoring system (NPBMIS) contains incomplete and often inaccurate data, making it difficult to track progress.

Even among National Pride Projects—Nepal’s supposed flagship initiatives—project cost estimates were revised fewer than three times in ten years, and some revisions were  inexplicably lower than inflation-adjusted values. Singh argues that selection remains deeply politicised. “Projects are often chosen for their political appeal, not for feasibility, economic return, or public need,” he said.

Digital fragmentation further weakens oversight. The NPBMIS is not linked with LMBIS or the MTEF system, and the lack of a unique project ID forces manual data entry. Hundreds of small projects are lumped together under broad headings,  obscuring delays, cost overruns, and misallocation.

These gaps fuel unrealistic budgeting. With no reliable data on ongoing  obligations, ministries miscalculate fiscal space and approve new projects despite limited resources. The result is an over-committed investment portfolio in which even a few major projects would take decades to finish at current funding levels.

Institutional Reforms: Promise and Gaps The National Planning Commission revised NPB guidelines in March 2025 to tighten project entry requirements. Under  the new rules, projects must undergo pre-feasibility and feasibility studies, prepare engineering designs, and meet a minimum cost threshold of NPR 30 million. Larger projects require appraisal by a multi-stakeholder committee. Provinces and local governments are expected to integrate their project banks with the NPB, and inactive projects older than five years must be removed.

However, the reforms remain incomplete. The guidelines lack standardized templates for feasibility studies, sector-specific evaluation methods, and clear criteria for identifying problematic or high-priority projects. Nor do they define  what constitutes a “transformational” or priority initiative.

According to former Physical Infrastructure Secretary Devendra Karki, the weaknesses run deeper than checklists. “Politically influenced choices, unclear priorities, and the absence of rigorous screening mean unfit projects enter the pipeline. And even after selection, preparation receives little
attention. Agencies rush to tendering without completing detailed designs, environmental assessments, social studies, and risk evaluations,” he said.

Singh echoes this: coordination failures across ministries and among federal, provincial, and local governments routinely stall execution. “Institutional silos slow down decisions. Development becomes fragmented, and accountability becomes blurred,” he noted.

Karki agrees. “Forest clearance is a recurring bottleneck. Even with Cabinet approval, forestry offices may take months to process requests. Local administrations may not provide security on time. Agencies rarely see the project as a shared responsibility. Meetings alone cannot solve these coordination failures because no one takes ownership,” he said.

The Planning Trap Nepal’s budgeting system reinforces inefficiency. The National Resource Estimation Committee (NREC) sets spending ceilings annually, but capital budgets—after recurrent obligations such as salaries and subsidies are accounted for—become the “residual” category. Line ministries then receive fragmented ceilings that bear little relation to their real commitments. Without accurate records of ongoing obligations, they add new projects, deepening the mismatch.

The Medium-Term Expenditure Framework is regularly undermined by the annual budget. For FY 2025 and FY 2026, capital allocations were 15 percent lower than projected in the preceding MTEF, reducing its credibility as a planning tool.

Even after funding is secured, implementation stumbles over predictable hurdles. Tree-cutting approvals take on average 22–24 months, passing through nine stages and three tiers of government. A manual tree census—required after EIAs have already counted the trees—adds up to ten months. Discrepancies force  supplementary EIAs, restarting the cycle. Poor-quality EIAs prepared by underqualified consultants worsen delays. Seasonal restrictions that prohibit marking and cutting trees between mid-March and mid-September eliminate half the fiscal year for clearing work.

Karki argues that while procurement rules often bear the blame, they are not the root problem. “The Public Procurement  Act has shortcomings—outdated models, lack of modern provisions—but capable  contractors can perform under the law. Failures arise from weak preparation, poor coordination, inadequate enforcement, and avoidance of responsibility,” he said.

Internal project management adds another layer of delay. Project offices fail to enforce schedules, monitor milestones, or ensure timely mobilization. Contractors, faced with delayed payments or bureaucratic bottlenecks, halt work and demobilize equipment, making remobilization lengthy and costly.

Reform Measures Proposed To address structural bottlenecks, experts recommend merging tree census and EIA processes into a single integrated approval stage. Delegating final clearance authority from the Cabinet to the Ministry of Forests and Environment would shorten decision chains, while extending the permitted tree-cutting season to late May would allow better use of dry months.

Digital verification—using LiDAR, satellite imagery, and GIS mapping—could reduce disputes and improve accuracy.  Establishing a roster of qualified EIA consultants is seen as essential for improving technical standards.

Land acquisition remains one of the most time-consuming hurdles, particularly  for linear projects such as roads and transmission lines. While the Land Record Information Management System (LRMIS) has national coverage, its complementary system, NeLIS, operates in only about 65 percent of survey offices. The lack of a unified parcel ID means records frequently conflict, triggering disputes.

Outdated valuation practices further delay compensation. Different agencies maintain separate minimum rates that significantly undervalue land. Compensation committees—usually headed by Chief District Officers—lack professional valuers and rely on obsolete benchmarks. Landowners routinely reject these offers, pushing cases into the courts.

The World Bank recommends a new land valuation law aligned with international standards, revision of the 1977 Land Acquisition Act, inclusion of certified valuers in compensation committees, and formal recognition of long-term informal occupants.

Experts also call for a comprehensive overhaul of Nepal’s legal architecture governing public investment. The Public Procurement Act is widely seen as outdated and too focused on selecting the lowest bid, undermining quality and accountability. Singh advocates integrating modern contract models, digital monitoring, and transparency standards to ensure competent contractors can perform without procedural ambiguity.

Environmental regulation requires similar strengthening. The current EIA process is often treated as a box-ticking  exercise rather than a tool to mitigate environmental and social risks. Experts argue for a more rigorous, enforceable, and scientifically grounded framework insulated from political pressure.

Clear legal mandates are equally important for institutional coordination. “Laws must define roles and responsibilities clearly to ensure smooth implementation of multi-agency projects,” Karki said. “Without clarity, project managers struggle to align resources, enforce schedules, or respond to local concerns.”

(This report was originally publihsed in December 2025 issue of New Business Age Magazine.)