Government Plans to Reduce Budget Size and Ministry Ceilings for Upcoming Fiscal Year

Kathmandu. The government is preparing to reduce the size of the budget and the ceiling for ministries for the upcoming fiscal year. In particular, the budget for ministries responsible for production and development construction such as physical infrastructure, energy, drinking water, and agriculture will come down.

According to the information provided by the ministries to the parliamentary committees, the budget for many ministries has been proposed with a reduction. It is reported that there has been a significant cut in the budget for ministries related to production and development construction such as physical infrastructure, energy, and agriculture.

However, the government is preparing to present a budget with an increase for ministries related to administration and security agencies.

Compared to the current fiscal year, the ceiling for most development ministries has been set lower for the upcoming fiscal year, but the ministry secretaries have stated that the ministries have proposed additional budget, citing that the budget is insufficient within the ceiling set by the Ministry of Finance.

• How much has the budget of which ministry decreased?

In particular, the budget for ministries responsible for road, bridge, and hydropower construction has been slashed. The physical infrastructure ministry had a budget of 1 kharba 51 arba 74 crore 83 lakh in the current year. The ceiling for this ministry for the upcoming year has been reduced by approximately 28 arba to 1 kharba 23 arba.

The energy ministry appears to have the largest budget cut. This ministry, which received a budget of 83 arba 8 crore in the current year, was given a ceiling of only 43 arba 30 crore for the upcoming fiscal year, a reduction of almost half.

It is stated that the energy ministry has proposed an increase in the ceiling after discussions with the Ministry of Finance, as it includes transformative projects.

According to the Ministry of Energy, the budget ceiling has been increased after discussions with the Ministry of Finance, keeping in mind the current government's objectives and plans for electricity production and consumption for the upcoming fiscal year, said Sarita Dwadi, secretary of the ministry.

According to Secretary Dwadi, a budget of 48 arba 19 crore 80 lakh rupees, excluding financial aspects, has been proposed for the energy ministry for the upcoming fiscal year. Of this, approximately 12 arba 81 crore rupees have been proposed for national pride projects.

Similarly, the agriculture and livestock ministry's budget, which was 57 arba 40 crore in the current year, has been reduced to 51 arba 14 crore for the upcoming year.

The drinking water ministry has now been merged into the infrastructure development ministry, but the budget for drinking water has been cut by 25 percent. The ministry has informed that the budget, which was 33 arba 89 crore in the current year, has been limited to 25 arba 37 crore for the upcoming year.

The budget for the urban development ministry, which the government has integrated into the infrastructure development ministry, will also decrease. Its budget in the current fiscal year was 51 arba 34 crore. It has been reported that this has been reduced to 46 arba 99 crore for the upcoming fiscal year.

The budget for the ministries of Forests and Environment, Industry and Commerce, Tourism, Education, Women, Children, and Labor Employment will also be lower compared to the current year. In the case of the tourism ministry, not only has the budget decreased, but an old liability of 1 arba 90 crore has also been added.

It is commented that the budget for women and children will be insufficient within the allocated ceiling of 1 arba 61 crore.

• Which ministries will see an increase in budget?

The government has proposed a budget that shrinks the budget for development ministries, but it has increased the budget ceiling for ministries that handle administrative work and security mechanisms.

For the upcoming fiscal year, the budget ceilings for the Ministry of Finance, Ministry of Defense, Ministry of Home Affairs, Ministry of Communications, and Ministry of Foreign Affairs have increased compared to the current year.

Overall, this budget ceiling indicates that the upcoming fiscal year's budget prioritizes recurrent expenditure over capital (development) expenditure. With the reduction in budget for infrastructure and production sectors, development construction work is likely to slow down further in the coming year, posing a risk to job creation.

However, Finance Secretary Dr. Ghanashyam Upadhyay stated that the reduction in the budget ceiling is due to the inability of the respective ministries to spend, not just a lack of resources. He stated that the Ministry of Finance's budget has not actually increased.

“The Ministry of Finance does not have a significant budget; it is only for employee salaries and allowances,” said Secretary Upadhyay. “The amount that appears to have increased is for the repayment of principal and interest on domestic and external loans, investment in corporations, and funds allocated for local elections in the upcoming year.”

He informed that the budget for the upcoming year has been set at 18 kharba 90 arba, compared to 19 kharba 64 arba in the current fiscal year. He clarified that the main reason for the budget reduction in development ministries is their weak performance.

“The capital expenditure for the Ministry of Drinking Water as of Baishakh end is only 23 percent,” said Secretary Upadhyay. “When the budget is frozen but work is not done, the ceiling has been reduced based on resource availability and performance.”

According to Secretary Upadhyay, since only 27 percent of the total capital budget has been spent, the remaining amount is with the respective ministries, and the responsibility for liability payment also lies with the respective ministries.

Finance Minister Dr. Swarnim Wagle says that the budget will no longer be distributed like sprinkling seeds. He stated that instead of allocating small amounts of budget to new projects, priority will be given to projects nearing completion.

“Our main priority is to allocate sufficient funds to projects that are 70 to 80 percent complete and finish them this year,” said Finance Minister Dr. Wagle. “We have adopted this policy for drinking water, roads, and irrigation as well. This year, we aim to complete 13 transmission lines.”

• Channeling loans into productive sectors

Nepal's public debt has increased significantly. In 2015 (before the earthquake), the debt was 25 percent of the Gross Domestic Product (GDP), and it has now increased to 43 percent.

However, Finance Minister Dr. Wagle stated that there is no need to panic just because the debt is increasing. “The average debt of least developed countries is 60 percent of GDP. Developed countries have over 100 percent. We are at 43 percent,” said Finance Minister Wagle. “The problem is not in taking loans, but in spending those loans in unproductive sectors. Now we will channel loans into productive sectors, job creation, and capital formation.”

Minister Wagle stated that the health insurance program's structure needs to be completely changed and large projects like the Nijgadh airport should be taken up under the Public-Private Partnership (PPP) model. He emphasized the need to create a private sector-friendly environment to increase the size of the economy.