21st April 2025, Kathmandu
The National Planning Commission (NPC) has submitted a report to the Ministry of Finance, highlighting the need for substantial cuts in the budgets of struggling and underperforming projects for the upcoming fiscal year 2025/26.
Nepal Government Budget Cuts
The commission’s recommendations stem from expected revenue shortages, with a clear focus on reallocating limited resources to essential programs.
Revenue Outlook and Fiscal Challenges
The NPC report suggests that the revenue outlook for the next fiscal year remains weak. It indicates that significant improvements in revenue collection are unlikely. The commission also pointed out that foreign grants have been decreasing over the years, and foreign loans are not being utilized as expected. These combined challenges have led to a tightening of available resources.
For fiscal year 2025/26, the National Source Estimate Committee has forecasted a total revenue of NPR 1.96 trillion. This limited revenue will need to cover increasing operational costs, such as public debt repayments, employee salaries, and social security expenditures.
Increased Mandatory Expenditures
The NPC report emphasizes that mandatory expenditures, including public debt payments, employee benefits, and social security costs, are on the rise. These increasing obligations further reduce the budget available for development projects. In particular, the government will need to allocate over NPR 400 billion for public debt repayment in the coming year.
The NPC also highlighted the pressing need for additional funding to address ongoing recovery efforts from the Jajarkot earthquake and the floods that occurred in the previous months. This increased financial demand further constrains the available resources for development projects.
Focus on Prioritizing Development Projects
Given the tight fiscal constraints, the NPC strongly recommended cuts in funding for poorly performing or incomplete projects. The report proposes that only projects with significant implementation potential should be funded, while underperforming projects should face substantial budget reductions or be entirely suspended.
In addition to slashing budgets for weak projects, the NPC has called for a review of intergovernmental financial transfers. It has suggested that financial allocations to provincial and local governments should be assessed to ensure effective utilization of resources.
Foreign Aid and Counterpart Funding
The report also addresses foreign-aid-funded projects, recommending that the government make mandatory provisions for counterpart funding. Without this, it is difficult to move forward with foreign-funded initiatives. The NPC emphasized that only once this requirement is met should the budget be allocated to other expenses.
Policy Reforms and Long-Term Goals
The NPC has urged the government to focus on necessary policy reforms in the upcoming budget. It recommends revising current policies to address emerging needs and proposing innovative programs for the future. The NPC also suggests ensuring that the budget proposals from ministries align with the country’s long-term development goals and national strategies.
Recommendations for Efficient Budget Management
Finally, the NPC recommended better coordination among government ministries and agencies to prevent overlapping projects. It stressed that joint ventures between sectors with related objectives could help maximize benefits and minimize conflicts. The commission also pointed out the recurring problem of unspent budgets in many government departments. It is recommended that more careful planning be done to ensure funds are used effectively.
In conclusion, the NPC’s report highlights the urgency of managing resources efficiently in a time of fiscal constraints. The government will need to make tough decisions about project funding to ensure that priorities are met within the available budget.
For more: Nepal Government Budget Cuts