Nepal's Budget 2025/26: Where the Government Plans to Spend NPR 1.96 Trillion

A Bigger Budget, A Bolder Vision

The 2025/26 budget represents a 12% increaseover the previous fiscal year's revised estimates. The government has set a GDP growth target of 6% for the year, alongside a commitment to keeping inflation below 6.5%.

Revenue projections stand at NPR 1.28 trillion, with the remaining NPR 680 billion to be financed through domestic borrowing (NPR 250 billion) and foreign loans and grants (NPR 430 billion). Critics note that Nepal's revenue mobilisation has historically fallen short of projections — a pattern the government is under pressure to break.

Infrastructure First: Roads, Railways, and Connectivity

Infrastructure continues to receive the largest share of capital investment. Key allocations include:

• Fast Track Expressway — continued funding for the Kathmandu–Nijgadh fast-track road, aiming to cut travel time to the Terai to under two hours.
• Pokhara International Airport operations — support for full operationalisation and route expansion.
• Cross-border railway — feasibility and early works for the Raxaul–Kathmandu rail corridor, a transformative project for trade connectivity with India and China.
• Rural road expansion — blacktopping of strategic rural roads and maintenance of existing networks, a perennial budget priority.

Hydropower development also features prominently, with allocations for the Upper Arun (900 MW) and Lower Arun projects, as well as continued push for electricity export to India and Bangladesh under cross-border energy trade agreements.

Agriculture Gets a Boost

Agriculture — which still accounts for roughly 25% of GDP and employs 60% of the workforce — has received focused attention this year:

• Subsidies on chemical fertilisers increased, though distribution bottlenecks remain a concern.
• Paddy, wheat, and maize insurance schemes expanded to additional districts.
• Investment in cold storage infrastructure in the Terai to reduce post-harvest losses.
• Cardamom and high-value herb exports prioritised under trade facilitation programmes.

The government has also pledged to promote contract farmingand agricultural cooperatives, with a target of reducing food import dependency — Nepal's food trade deficit has widened considerably over the past decade.

Health, Education, and Social Protection

Social sector spending remains a cornerstone of the budget:

• Health — NPR 75 billion allocated, with emphasis on hospital upgrades at provincial level and community health workers programme.
• Education — Scholarships for technical and vocational training (TVET) expanded; secondary school digitalisation programme launched.
• Social security — Senior citizen allowance (Bridhha Bhatta) increased to NPR 4,000/month; widow and disability allowances also raised.

Nepal's maternal mortality has dropped dramatically over the past three decades — from over 500 per 100,000 live births in the 1990s to around 151 today — and the budget continues incremental investment in maternal and child health services.

Creating Jobs and Supporting Youth

Youth unemployment and outward migration are among the defining challenges of Nepal's economy. Approximately 500,000 Nepalis leave for foreign employment each year, many in low-skill, low-wage roles in the Gulf and Malaysia. This year's budget attempts to address the root cause:

A dedicated Prime Minister Employment Programme has been allocated NPR 10 billion, targeting short-term wage employment in local government works. Technical and vocational training seats are expanded, with a goal of certifying 200,000 workers annually. The budget also includes incentives for returnee migrants to invest in productive enterprises through a soft-loan scheme via the Agriculture Development Bank.

Digital Economy and Innovation

Nepal's digital penetration has grown rapidly — internet access now reaches 62% of the population, and mobile subscriptions exceed the total population count. The 2025/26 budget extends this momentum:

A Digital Nepal Framework 2.0 is introduced, covering e-government services, digital identity rollout (linked to the national ID programme), and rural broadband expansion. BPO and IT export targets are set at USD 500 million by 2030, with tax holidays for qualifying IT companies in special economic zones.

The Nepal Telecommunication Authority is mandated to accelerate 5G spectrum allocation, and cybersecurity infrastructure at national institutions receives dedicated capital funding for the first time.

Fiscal Transfers to Provinces and Local Bodies

Under Nepal's federal structure (established in the 2015 constitution), a substantial portion of the national budget flows to 7 provinces and 753 local governments. In 2025/26:

• Fiscal equalisation grants to provinces total NPR 115 billion.
• Conditional grants for capital projects at local level: NPR 89 billion.
• Revenue sharing (royalties from natural resources): NPR 22 billion.

While inter-governmental transfers have grown consistently, absorption capacity — the ability of local governments to actually spend and implement projects — remains a limiting factor, particularly in remote hill and mountain districts.

Key Challenges Ahead

Despite the ambitious targets, several structural challenges cast a long shadow over implementation:

• Revenue shortfall risk — Nepal has missed revenue targets in 5 of the past 6 fiscal years; the NPR 1.28 trillion target will require exceptional compliance and customs performance.
• Capital expenditure bottleneck — Government capital spending has historically averaged just 60–70% of budget allocation; back-loaded spending in Q4 reduces economic multiplier impact.
• Debt sustainability — Nepal's public debt-to-GDP ratio has risen to approximately 42%, and debt service costs are consuming a growing share of recurrent expenditure.
• Political stability — Nepal has seen frequent government changes; continuity of implementation beyond the current coalition will be essential to delivering on multi-year commitments.

Conclusion

The 2025/26 budget reflects a government attempting to balance multiple imperatives simultaneously: infrastructure catch-up, social protection expansion, youth employment, and digital transformation — all while managing a growing fiscal deficit and external debt. Whether the targets translate into on-the-ground outcomes will depend on the administrative capacity of an often overstretched state, and on the political will to see multi-year projects through despite coalition pressures.

For Nepal watchers, the next set of numbers to watch will be the Q3 capital expenditure update and the mid-term revenue review — both traditionally canaries in the coal mine for whether the full-year budget will hold.