The government’s budget cap for the next fiscal year is Rs 1.9 trillion

For the forthcoming Fiscal Year (FY) 2025–2026, the National Planning Commission (NPC) has set a budget ceiling of Rs 1.9 trillion.

Based on preliminary resource projections, the NPC advised the Ministry of Finance (MoF) to establish a spending cap of around Rs 1.9 trillion. The NPC delivered the budget estimate report to the ministry on Tuesday, according to MoF officials. According to the Constitution, on Jestha 15 (May 29) of the Nepali year, the government must make public its comprehensive annual budget plan for the upcoming fiscal year.

Every year, the government receives a budget ceiling from the National Resource Estimates Committee (NREC), which is part of the NPC. The budget ceiling is intended to maintain financial stability and promote economic growth while guaranteeing that the annual budget and the periodic plan are compatible.

The law requires the NREC to set the budget ceiling for the upcoming fiscal year by the middle of February each year. The government cannot go beyond the bounds set by the NPC’s power. It isn’t being used in practice, though.

First, the government declares its intention to stay within the NPC-provided cap. But in the end, it presents an exaggerated budget along with other wildly popular and unrealistic programs. Political figures also put pressure on the government to include unrealistic initiatives in order to further their own interests, even if government bodies, including various ministries, are also found to have not done enough research before presenting their recommendations at the MoF.

While then-Finance Minister Barsha Man Pun announced a budget of Rs 1.860 trillion for the current fiscal year, the NPC had set a cap of Rs 1.800 trillion. Despite the NPC setting a cap of Rs 1.688 trillion, Finance Minister Prakash Sharan Mahat announced a budget of Rs 1.751 trillion for 2023–2024.

After the government fails to spend the budget, it has been customary to announce a large budget and then reduce it. The government cut the budget size this year as well, through the mid-term review, to Rs 1.692 trillion, which is Rs 168 billion less than the original budget.

According to economists, the excessive tax collection goal and the irrational growth projections put undue strain on the private sector and the economy as a whole, which could slow down rather than boost economic activity. Such actions can encourage economic instability, according to economist Professor Ram Prasad Gyanwali, a former chairman of the Central Department of Economics at TU.