Introduction

1.1 Background:

The budget is an instrument through which the government controls the entire
economy where as budgeting is the process of preparing, negotiating and agreeing a
quantifier and specific plan for an organization, normally for a year. The budget has
been defined by different writers in various ways. Some of writers are in the view that
budget is a statement forecasting revenue and expenditure during a certain period of
time.

The origin of the budget is said to have from the French word „Bougget‟which refers
a small leather bag or pouch. It was first used in England to describe the white leather
bag, which held the seal of Medieval Court of Exchequer. Later known budget
contained proposal of financial plan of government expenditure. But word budget has
now been used in all countries and in many languages. The term budget is now
commonly understood as a government document. In fact, it is a proposal of proposed
expenditure for a given period of time and means of financing them for the approval
of legislature.1.

Budget is also a financial resource that plays a pivotal role in the functioning of the
state. Whether a budget is balanced, in surplus or in deficient, directly influences the
state's operation. A budget dose not only establishes a linkage with the existing
policies but also addresses the demands of citizens. The local level organization, local
representatives and parliamentarians have a vital role in advocating for certain
programs or projects that meet the needs of their constituencies. Therefore, a budget
represents an allocation of resources based on the demands and needs of the citizens2.

Types of Budget:

1. Capital Budget: Generating capital goods e.g. construction of dams, roads &
equipments

2. Recurrent Budget: Generally, the administrative costs and costs on soft programs
e.g. health service extension, educational and others

3. Financing: share and loan provided to PEs, Principal and interest paid by the
government (Nepal)

Budgeting is important because Market mechanism only cannot perform the functions
of the economy. Public policy is needed to guide and supplement to the economic
function as a whole. The budget plays vital role to solve the problems like, to secure
the condition government interfere is essential, to solve problems of externalities.
Support to government policies through market operation, problems of discounting in
future, price stability, high unemployment, distribution of income and wealth etc3.

1
Lekhi, R.K.(2008).Publice Finance.Fifteenth Ed., Kalayani Publisher, New Delhi, India.
2
Sigdel, R. (2014, November). A description and analysis of the budget formulation and
implementation process in Nepal. Policy Discussion Paper.Alliance for Social Dialogue.
3
Khanal, S.K. (2013).Budgetary pattern in Nepal after Republic(Unpublished master's thesis).
Tribhuvan University, Central Department of Economics(CEDECON),Kirtipur, Kathmandu.

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Nepal is least developed and centralized governing systems. Thus, the presentation of
budget to the legislature-parliament appears to be unified one. The presentation of the
budget to the parliament is mandatory by law. According to the Constitution of
Nepal,2072:(Article119,Clause 1&3 ) for each financial year, the Finance Minister
must present the estimation of budget to the legislature-parliament for its approval
(CoN, 2072).Thus the formulation, presentation and implementation of the budget is
constrained by the constitution and Financial Act in Nepal.4

1.2 Statement of the Problem:

The budget in developing countries is of recent origin. Nepal also has short
experience of budgeting. The budget was oriented towards spending under different
heads such as salaries, furniture, goods, building. Vehicle and equipment travels etc.
which are need for control and accountability over the expenses mode. Gradually
budget has been prepared with the objective of meeting national plan and programs.
Nepal is a country facing a major macroeconomic crisis, indeed; in many respectsits
macro economy is reasonably sound, with an improving balance of payment, adequate
foreign exchange reserve, relatively modest inflation, fiscal deficits financed largely
by external aid relatively low levels of domestic borrowing. However, it is stuck in a
low level equilibrium, with decaling investment, modest economic growth, high
population growth and widespread poverty. Fiscal management has been participatory
weak and fiscal stability is being maintained largely at the expenses of development
activity, although public spending averages at around 18 percent of GDP a rate which
should be sufficient to provide a reasonable level of basic public services in most
countries - in Nepal there is little to show for it, particularly in rural areas, leading to
wide spread perceptions of misuse and waste of scarce public resources. The policies
aid down in the budget can play a vital role in the national economy. As an annual
policy and program document of the government, budget is a primary means to
accelerate the pace of overall economic situation of country.

Basically, a single budget which is generally formed for only one fiscal year cannot
solve the entire existing economic, social and other problems at once. But the budget
should be the necessary momentum and appropriate guidance to the economy towards
its basics vision, objective and goals in sequential manner. In our budgetary practice,
it is frequently observed that there is very poor consistency between the objectives of
long range plan and the priority of short range budget of the same periods. The
congruence between the budgets of the chronological periods also seems to be
missing. Dependency on foreign resources has still been seen. In Nepal the finance
ministers introduced the first budget in the year 1951 for economic development.
However in Nepal budgets seems to have been characterized by uncertainties.
Allocation of resources usually made with optional expectations. Due to such
phenomenon several programs have to be left out. It may be noted have that greater
proportion of the total development budget is finalized by foreign aid and lone
keeping this situation in mind, this study tries to explore budgetary situation in Nepal.

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1.3 Objectives of the Study:
The general objective of the study is an analysis the budgetary system in Nepal after
the royal rule finished up to formulation of new federal constitution begins.
(FY2022/23). But the specific objectives of the study are as follows:
(1) To identify the expenditure and revenue pattern of government of Nepal.
(2) To identify problems and prospects in Nepalese budget.
(3) To identify the majors problems and prospective of the Nepalese budgetary
system.
(4) To find out the expenditure and revenue pattern of government of Nepal.

1.4 Significance of the Study:

The government is responsible for welfare of the people. In the developing countries
there is a problem of resource gap,high rate of inflation, high rate of unemployment,
lack of capital, under utilization of resources,corruption and high public debt etc. In
the context government's fiscal instrument have a direct and immediate influence on
the national economy. As the governments make decision in the national interest,
attention has to be paid to the process by which public revenue is collected and public
expenditure is determined, allocated and controlled. Customary that these processes
are expressed in terms of budget. Since the government has no right to collect revenue
and to spent this without the permission of national legislature.

The official estimate for Nepal's GDP was $128 billion at the end of 2023
in puchasing power partity terms. World Economics has developed a database
presenting GDP in Purchasing Power Parity terms with added estimates for the size of
the informal economy and adjustments for out-of-date GDP base year data5. World
Economics estimates Nepal's GDP to be $214 billion - 68% larger than official
estimates. Many other developed countries of the world including our neighbors have
taken a quantum leap in the economic development by achieving double digit
economic growth, our nations could not achieves the rate a desired owning mainly
due to political instability has been the main cause of budgetary uncertainty since
along.

2. Historical Background:
Nepal‟s has not very old story to tell about the intuition of systematic budgetary
system in the country. It has been only six decades after the Rana regime was
overthrown in 1951 the first budget was formulated. For convenience, the historical
background of budget of Nepal has been divided in three different phases:

Since 1956 Budget formulation started with first five-year plan (1956-61) and
presented to parliament annually:

Before 1990 (absolute monarchy under the executive control of the King):

 King- Chairman of National Development Council (NDC).

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 People’s participation during budget formulation and implementation almost
none.

 Parliament accountable for the King.

 Up to the seven periodic plans- budgets were centrally planned and unclear
development objectives.

 Features: unsustainable one sided development, centrally guided, lack peoples

need.

 Results: poverty almost 50%, high regional disparity, development concentrated

in district headquarters.

After 1991,

 Multiparty democratic system.

 People’s participation encouraged in development plan formulation and

implementation.

 Parliament – accountable for people

 NDC- chaired by the Prime Minister (council consists of various development

stakeholders from all the regions, class and communities)

 Features: people’s participation on development activities, government plan and

budget are more consistent with people’s aspiration and local need, objectives are
rural infrastructure development and poverty reduction.

 Result: sustainable overall development, lessened regional disparity, rural

development, poverty declined to 31% from 50% in 15 years.

(Democratic government tried to make consistency on periodic plan and annual

budget formulation, so many reforms have been carried out to improve linkage
between them).

2.1 Budget reform after democracy:

1.In 2002, Medium Term Expenditure Framework (MTEF):

 Three year rolling budget, link the periodic plan objectives to annual budget’s
programs and activities

 Clearly defines priority of proposed programs and projects of the five-year plan
that contribute the poverty reduction most.

 Help to formulate development budget, predict government future expenditure

 Updated annually by NPC and MOF

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2. 2003/04- the new budget classification system:

 Classifying recurrent and capital expenditure instead of regular and development

expenditure.

 Help development budget formulation more realistic.

3. 2003/04- Immediate Action Plan:

 Improve budget effectiveness at a given resource constraint.

3. Budget Formulation Process:

Normally, during the past years, the process of budget formulation in Nepal would
begin in January and end in July, when the fiscal year starts. However, in line with the
provision of the Constitution of Nepal 2015, the new budget cycle has been moved
forward and it will now be presented on constitutionally mandated date of 15th Jestha
(May 28). This is expected to provide enough time to disburse funds to the
implementing agencies, which has for long been a major cause of delay in conducting
planned activities.

The first step in formulation of the budget is forecasting, wherein the sources of
revenues and tentative areas of expenditures are identified. The process of forecasting
is led by a Resource Committee, which is chaired by the Vice Chairperson of National
Planning Commission (NPC), and includes other members from NPC, members from
the Ministry of Finance (MoF), Central Bank of Nepal, and the Financial Comptroller
General’s Office (FCGO). Once the forecast has been prepared, it is presented to the
budget committee comprising of the members of the NPC and the MoF. The
committee, after thorough discussion sets the budget ceiling, which limits the budget
expenditure based on sectors and availability of resources. For instance, initially the
budget ceiling set for fiscal year 2074/75 (2017/18) was NRs 909.96 billion rupees
(USD 8.52 billion). However, it was after thorough discussion shared that the new
ceiling would be around NRs 1 trillion and was so approved. The Government of
Nepal (GoN) announced the budget of NPR 1.793 trillion (USD 14.7 billion) for the
upcoming fiscal year 2022-23. As the state of the economy seems to be grim due to
high inflation, increasing balance of payment deficit, and draining foreign exchange
reserve, the International Monetary Fund (IMF) forecasts the economy to grow by
4.1% in the current fiscal year6.

The committee also prepares the working guidelines for budget formulation.
Thereafter, each of the line ministries is asked to submit their programs and budget
estimates (both capital and recurrent) in accordance to the guidelines and sectoral
budget ceilings. The line ministries then forward the guideline along with the budget
ceiling and priorities to respective departments and agencies functioning under it,
either at the district level or at the central level. Based on the guidelines, these
agencies prepare the forthcoming year’s programs and budget and send it back to the
concerned departments. The departments compile the programs and budget of all
agencies under them and submit it to the respective line Ministries. Some negotiations

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can take place between the Ministries and the departments before it is vetted and
consolidated by the Ministries and forwarded to the MoF and NPC for finalization.

It is also important to look at the process of budget formulation for devolved

programs, which are financed by the center but falls under the administrative purview
of the District Coordination Committees (DCC). The NPC sends guidelines to DCCs
for district level plans and programs. The guideline is passed down to the Village and
Town Municipalities, who hold village/town council meetings to discuss and prepare
sector-wise development programs and projects. Interest groups such as the consumer
committees, NGOs, political leaders, and citizens are included in these discussions.
Their plans are then forwarded to the village municipality/municipality where it gets
accumulated. Once the village municipality/municipality scrutinizes and gives a green
signal to the plan, it moves up to the District Council which re-examines the budget
and forwards it to the DCC. The DCCs then hold meetings with district offices and
finalizes district budget and priorities, which is then sent to the NPC and the
Ministries. While this is the process that should be theoretically followed, it is not
necessarily fully operated because of absence of popularly elected officials. As
departments are not given a sectoral budget ceiling, they generally do not take
expenditure limitations into account; instead they look at project-specific targets as a
guide for the budget.

Once the MoF receives the budget from all line ministries, inter-ministerial meetings
are held to vet and finalize the national budget. Similarly, the NPC discusses all the
programs submitted by the Ministries, and finalizes those programs in consideration
of the relevancy, budget allocation, and budget handling capacity of the Ministry.
Before the budget is presented in the parliament, the parliamentarians are presented
with a draft budget document for them to discuss the sector-wise specifics. The
comments and queries that arise during the ministry-specific discussions are discussed
in detail until the relevant ministry and parliamentarians are satisfied with the
clarifications provided to their queries. The budget is presented by the government
only after the ministry level budget discussion ends. If the majority agrees with the
budget then it is approved and is presented to the national Parliament in the form of
a Budget Speech by the Minister of Finance.

As you can see, the formulation of the national budget is a combination of the top-
down and bottom-up approach, which brings about a synergy between the national
level plans and local level needs; and ensures that the budget fulfills the demands of
both the state and the locals.

The Constitution of Nepal guides the budgetary process (Part 10) that-

Finance Minister shall present the estimate of the revenue and expenditure for every
fiscal year before the joint meeting of the houses(parliament) (Article 119):

 Estimates of Revenue

 Expenditure (Non –votable amounts): above consolidated fund

 Expenditures from consolidated fund

 Progress of the past year

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 Date fixed for budget presentation (Jestha 15)

The budget formulation consists of the four steps or phases, which are also known as
budget cycle: -

1) Preparation, phase

2) Enactment/Legislation, phase

3) Execution, Phase

4) Auditing

4. Current Budget Plan:

The Government of Nepal (GoN) announced the budget of NPR 1.793 trillion (USD
14.7 billion) for the upcoming fiscal year 2022-23. As the state of the economy
seems to be grim due to high inflation, increasing balance of payment deficit, and
draining foreign exchange reserve, the International Monetary Fund (IMF) forecasts
the economy to grow by 4.1% in the current fiscal year. The budget sets the target to
achieve economic growth of 8% in the fiscal year 2022-23 by doubling exports and
reducing imports by 20% the fiscal year 2022-23. The budget aims to
control inflation by 7% and generate meaningful employment by enhancing domestic
production. The objective of the budget is to achieve a self-reliant economy by
prioritizing agriculture, industrial development, expansion of hydroelectricity and
transmission lines, and promoting foreign investment and tourism.

 Agriculture:

The Government of Nepal (GoN) has allocated a budget of NPR 55.97 billion (USD
458 million)to the Ministry of Agriculture and Livestock Development, which is an
NPR 10 billion (USD 82 million) as compared to the last fiscal year. The major focus
is to transform the agriculture sector through modernization and commercialization by
effective implementation of the ‘Prime Minister Agriculture Modernization Project’
(PMAMP). GoN has announced a national campaign to achieve self-reliance in
agricultural production. GoN aims to reduce the import of basic agricultural products
by 30% in the fiscal year 2022-23. For this, various policy measures have been
announced which include: developing cold storage facility, NPR 500 billion (USD
4.09 billion) refinance funds at a subsidized rate, loan waiver to farmers, and
minimum support price on milk.

 Industry and Production:

‘Prime Minister’s Nepali Production and Promotion Program’ will be launched to

increase domestic production by promoting export-oriented industry. A budget of
NPR 3.45 billion (USD 28.2 million) has been allocated for the program to promote
‘Own Production, Own Consumption’ and for other private sector initiatives which
include, Make in Nepal and Made in Nepal. GoN has increased export subsidy from
5% to 8% in a bid to double exports in the next fiscal year. The program aims to
restore the foreign trade balance in five years. Further, a budget of NPR 3.79 billion
(USD 31 million) has been allocated for industrial infrastructure development. The

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GoN’s strategy for export promotion and import substitution will support Five-Year
Plan (2019-2024) to increase the contribution of manufacturing to 18% of GDP,
which currently stands at 14.3%.

 Infrastructure:

A total of NPR 161.56 billion (USD 1.3 billion) has been allocated for infrastructure
development, which is NPR 2 billion (USD 16.4 million) less compared to the
previous fiscal year. Combined with a total capital expenditure of NPR 380 billion
(USD 3.11 billion), GoN push for economic revival through capital formation will
expand the productive capacity of the economy. GoN will mobilize resources by
issuing Green Bonds to invest in large and transformative infrastructure. It will
encourage domestic production and encourage Foreign Direct Investment resulting in
sustainable economic growth.

 Tourism and Aviation:

The GoN aims to attract one million tourists in the upcoming fiscal year. The budget
allocated a total of NPR 9.38 billion (USD 76.9 million) for the tourism sector with an
additional NPR 900 million (USD 7.3 million) for the ‘Tourism Infrastructure
Development Program’. It includes financial help by providing concessional loans to
businesses affected by COVID-19. An additional NPR 12.2 billion (USD 100 million)
has been allocated for the aviation sector which will aid tourism. A new terminal at
Tribhuvan International Airport will be built to reduce congestion while the GoN will
bring two newly inaugurated Gautam Buddha International Airport and Pokhara
Regional Airport into operation.

 Foreign Direct Investment:

To promote Foreign Direct Investment (FDI), the GoN has reduced the lower limit of
FDI allowed in Nepal. The limit has been reduced to NPR 20 million (USD 163,934)
which was NPR 100 million (USD 819,672). Further, investment up to NPR 100
million (USD 819,672) will be channeled through an automatic route. The policy is
expected to enhance the Investment Environment of Nepal and fill up the
enlarging Investment-Savings gap which currently stands at 28.1%. Additionally, the
policy will facilitate Non-Resident-Nepali and other foreign investors to invest in
Nepal. Currently, 16.3% of the FDI is directed to the manufacturing sector, a policy
measure to direct FDI towards manufacturing activities will assist the agenda to
reduce reliance on imports.

 Hydropower and Electricity:

A budget of NPR 1 billion (USD 8.2 million) has been allocated for the completion of
the Upper Arun Hydropower Project. A total of NPR 43.95 billion (USD 360 million)
has been added for the construction of transmission and substations. The GoN aims to
add 415-megawatt hydropower capacity in the current fiscal year. Such projects will
facilitate the participation of private players in the electricity trade. Moreover, to
promote the use of electric vehicles, charging stations will be installed at 50 locations
throughout the country. Further, industries consuming electricity worth more than 100
million (USD 819,672) will get a rebate of up to 15% on their electricity bill.

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 Health:

Health and Education have been prioritized to increase Human Development

Index (HDI) to 0.65, which currently stands at 0.602. As cases of COVID-19 have
dropped, the budget allocation to the Ministry of Health and Population has decreased
by 16% to NPR 103.09 billion (USD 845 million). A budget of NPR 10 billion (USD
82 million) has been allocated to construct hospitals at 655 local levels. A sum of
NPR 5,000 will be given to the 25 most backward regions of the country to improve
nutritional status. Further, GoN will provide financial support for the treatment of
cancer and kidney transplant.

 Education:

The budget has allocated NPR 196.4 billion (USD 1.6 billion) to the Ministry of
Education, Science and Technology, which is an increase of 9% as compared to the
previous fiscal year. The GoN will promote the “Education with Skill Program” to
promote education with skill, skill with labor, labor with employment, employment
with production, and production with the market. Further, a budget of NPR 8.88
billion (USD 72.7 million) has been allocated to upgrade 1.2 thousand schools under
the “Presidential Education Improvement Program”.

5. Budget 2023-2024:

Nepal's economy has run into money problems for the first time in nearly six decades,
and the coalition government is struggling to fix them.The country was officially in a
recession until the second quarter of the current fiscal year, with the annual economic
growth rate projected to slow down to 1.86 percent as a result.This adds to the
existing pressure on the government that needs to make tough decisions to boost
private sector confidence and consumer spending.

Amid the ongoing slowdown, the government on Monday presented its annual
financial plan worth Rs1.75 trillion for the next fiscal year 2023-24 beginning mid-
July.The budget size for the next fiscal year is 2.37 percent smaller than the unrevised
budget of the current fiscal year.

The government has allocated Rs1.14 trillion or 65.2 percent of the total budget for
recurrent spending, which consists of regular expenses of salaries and allowances.It

9
has set aside Rs302 billion or 17.25 percent of the budget for capital spending, to
build projects and critical infrastructures.

Similarly, the government has earmarked Rs307 billion, or 17.55 percent of the total
budget, for financing. According to Finance Minister Dr Prakash Sharan Mahat, the
government will raise Rs1.24 trillion in revenues, Rs49.94 billion in foreign grants,
Rs212 billion in external loans and Rs240 billion in internal loans78.The government
has targeted a growth rate of 6 percent for the next fiscal year. It also aims to keep
inflation within 6.5 percent in the next fiscal year.

6. Budget Implementation Process:

Once the Parliament approves the budget, Ministry of Finance Provides
"Authorization " for spending to the "Secretaries" of the Ministries.Secretaries
provide authorization letters to the "Department Heads".Department Heads provide
authorizations to "Spending Unit Chiefs".Spending Units spend money based on the
approved programs.Revenue is collected by tax offices and other authorities

7. Budget Release Process:

Spending Units spend the money and submit Payment Requests to the District
Treasury Offices (DTCOs).DTCOs verifies and entered the transactions into the TSA
(Treasury Single Accounts) System (which is online/web-based central
system) .DTCOs issue the Cheques against the payment requests and handover to the
SUs.Spending Units pays cheques to the concerned parties/vendors.

8. Strengths of Nepalese Budgetary Process:

 Multi-year forecasts (MTEF, 3 Years forecast practices)

 Budget Formulation Guidelines (2015) and implementation Guidelines

 Budget Calendar

 Spending based on the approved program

 Online submission of budget by ministries to the MOF

 Web- based Budget release system: the TSA system

 Annual Statutory audit

9. Weakness of Nepalese Budgetary Process:

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Direct Foreign Investment (FDI): What It Is, Types, and Examples (investopedia.com)
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https://kathmandupost.com/money/2023/05/30/nepal-unveils-rs1-75-trillion-financial-plan-for-fiscal-
2023-24

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Central Government:

District level:

 Information collection method for budget formulation in district level offices is

traditional.

 Tendency of estimating budgetary requirement on the incremental basis instead

of actual need assessment of programs to be executed.

 Negligence towards using program budget formats by the district offices.

 Excessive dependence on untrained junior level staffs.

 Lack of trained and experienced accountants

NPC and Ministerial level:

 NPC and MOF often pretend as super agencies and often bypass the line
ministries during plan and program formulation decision of their respective sector.

 Inadequate coordination among ministries and NPC.

 MOF is still using traditional method of budget allocation, giving less, often cut
back the budget than requested, Line ministries often over estimate required
resources.

 High political interferences, many programs and projects included in the budget
directly and existing projects' priorities often changed when political leadership
change, ignored rule of linking budget with the periodic plan and MTEF .

 Budget presented to parliament only few days before the beginning of the fiscal
year that encourage government to misuse fund because parliament has to
authorize the government to spend immediately one sixth of the total expenditure
budget presented in budget bill that has not yet scrutinized.

Local government

 Local government has relatively less experience, inadequate human capacity to

formulate and execute plan, program and projects.

 Local government has very limited scope to prepare budget due to limited income
source, so decentralization and power devolution is only in words not in practice.

 Central government use to hold power, on the other hand local government
cannot enhance its capacity and income resources by itself and often ready to
follow central government.

 Weak coordination between central government and local government causing

duplication in programs and projects.

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10. Challenges In Budget Formulation and Implementation:

1.Unrealistic Budgeting Process

Nepal‟s budgeting process has been highly unrealistic in recent years. In almost all
the years in the review period, the budget targets have been set at unduly high levels,
particularly for development revenue and foreign aid. This cover estimation of
resources in turn has led the government to set similar unrealistic targets for the
development budget and to accommodate too many new projects. However, the actual
budget outcome had fallen significantly short of these optimistic expectations every
year. And, since there is little scope for cutting back regular expenditures, the brunt of
fiscal adjustment has been made through cutbacks in development spending.

2. Development budget is heavily over-programmed:

The budget, particularly its development component is heavily over-programmed.

Because of political pressures to accommodate new projects, there are unmanageable
projects for development budget. There is a concrete lack of cost-benefit analysis and
prioritization of development projects.

3. Declining but Still High Deficit:

Despite a series of fiscal reform, both in revenue and expenditure fronts, the budget
deficits still remained above the six percent of GDP. This may be partly due to
ascendant impact of development expenditure which was dominated by a few but
popular and even costly entitlements like social services, rural infrastructure, and
power generation, generally tied with demographic and economic factors. In order to
finance these entitlements revenue policy has been skewed, making it more difficult
to meet resource gap through increased taxes.

4. Increasing Burden of Debt Servicing Charges:

There has been a increasing trend towards loans rather than grants in the composition
of the foreign aid in Nepal. This has imposed the growing burden of debt servicing
charges and interest payment. Debt servicing burden in Nepal, though not acute and
alarming as yet is increasing fast. Unless the government takes certain measures to
alleviate the situation, it will not only bring instability in the economy but will also
slow down the pace of development and will thus produce consequences
economically.

5. Lack of Co-ordination between Regular and Development Budget

Formulation:

The budget document presented to the parliament appears to be a unified one. But in
reality the regular budget and the development budget are normally prepared different
procedures. The MoF prepares regular budget on the basis of past experience and
historical accounting whereas NPC prepares the development budget targeting to
fulfill the development need of the nation. In such cases, difficulties are frequently
encountered in meeting macro objectives where the two budgets are prepared without
full co-ordination, or on different economic assumptions.

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6. Over Reliance on Foreign Aid and lack of Proper Foreign aid Policy:

There is no concrete foreign aid policy. However, the government has made draft for
this in2002.Lack of proper foreign aid policy has resulted in haphazard flow and uses
of foreign aid. Such a situation has been creating aid dependency syndromes in the
Nepalese economy. Overreliance on foreign aid has been creating the situation of lose
in self-dignity.

7. Lack of Monitoring Mechanism:

There is a lack of monitoring mechanism during the budget execution. That‟s why
there is a wide spread leakage of resources and tardy pace of project implementation.
There is also lack of co-ordination between government organizations.

8. Lack of Multi Year Planning:

There is severe lack of multi year planning in Nepal. As such, there is a lack of
coordination between necessary budget required and budget allocation for the many
development projects. Because of lacking such a planning, many development
programs are in under-finished conditions and their implementation condition is
gloomy.

9. Lack of Commitment:

There is also a lack of commitment from the government as well as civil staff. There
is no any effective reward and punishment System. Therefore, there is an excessive
leakage of the government resources and weak performance. No one takes the
responsibility of the project failure. In this way, there is lack of public responsibility
and accountability. In other words, there is an absence of good governance that is
resulting in the weak fiscal management of the government.

10. Inconsistencies between Tax Policies and Programmers:

To fill the resources gap from domestic front, government has introduced various tax
policies with multiple objectives. In substance, the revenue related objectives of
government stated in annual budget speech are hardily achieved to increase the share
of direct tax for reducing economic inequality in the society, to reform the tax
administration in order to increase the domestic resources mobilization, to reduce the
tax rate which contributes for liberalization and provides relief to the people at large,
to provide long term direction to revenue policy by making tax composition
appropriate to consolidate tax revenue with economic activities and to make it elastic.

11. Conclusion:
Budget is guideline of annual programmed and policy of a government. Moreover, it
isthe main instrument of economic policy, incorporates policies, programs and
activities related to government expenditure, revenue and financing of deficit. Tax
and non-tax revenue plays avital role in collection of revenue for meeting the
requirement of government expenditure. Foreign grants are also included in the
sourced financing. Any difference between government expenditure and government

13
receipts is financed through external (foreign loan) and internal sources (banking,
non-banking and cash surplus/deficit). As government activities and obligations are
increasing, deficit financing is the common phenomenon of every Fiscal Year's
Budget. In Nepal, it has been found that the government expenditure is increasing fast
compared to revenue. Among the expenditure, regular expenditure probably has been
increasing readily due to growing burden of debt service payments, maintaining law
and order and providing salary to civil servants. Growing regular expenditure has
become major concern to policy makers because it has been reducing the revenue
surplus necessary to finance development expenditure. There is, on the other hand,
decreasing the developing expenditure. It is because of numerous in project
implementation resulted from frequent change in government. During the recent years,
because of political instability, the development expenditure stood even below the
regular expenditure. Obviously, such decaling situation of development expenditure
would erode the productive capacities of economy through lack of basic socio
economic infrastructure.

12. References:

 Constitution of Nepal – Nepal Law Commission

 Ministry Of Finance (mof.gov.np)
 Medium Term Expenditure Framework || National Planning Commission
(npc.gov.np)
 Lekhi, R.K.(2008).Publice Finance.Fifteenth Ed., Kalayani Publisher, New Delhi,
India.
 Sigdel, R. (2014, November). A description and analysis of the budget
formulation and implementation process in Nepal. Policy Discussion
Paper.Alliance for Social Dialogue.
 Khanal, S.K. (2013).Budgetary pattern in Nepal after Republic(Unpublished
master's thesis)
 Tribhuvan University, Central Department of Economics(CEDECON),Kirtipur,
Kathmandu.
 https://lawcommission.gov.np/Constitution-of-Nepal,2072
 https://nepaleconomicforum.org/key-highlights-of-budget-2022-23/
 (11) GOVERNMENT BUDGETING IN NEPAL (CENTRAL GOVERNMENT):
CONCEPTUAL ANALYSIS WITH IT’S STRENGTH AND WEAKNESS | LinkedIn
 Highlights_of_Federal_Budget_2080_81.pdf (ican.org.np)
 Nefsearch_Budget_Issue-8_December-11.pdf (nepaleconomicforum.org)
 https://kathmandupost.com/money/2023/05/30/nepal-unveils-rs1-75-trillion-
financial-plan-for-fiscal-2023-24
 District Treasury Controller Office (dtcoktm.gov.np)
 National Planning Commission(npc.gov.np)
 Direct Foreign Investment (FDI): What It Is, Types, and Examples
(investopedia.com)
 FCGO | Home

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