Nepal Development Watch calls for transformative execution to match the budget’s unprecedented scale and pro-growth vision
London/Kathmandu, 14 June 2026 — Nepal Development Watch (NeDeW) has released its commentary on the Government of Nepal’s budget for fiscal year 2026/27, welcoming the budget’s historic scale and reformist direction while urging the government to close the wide gap between policy ambition and delivery capacity. At Rs 2.12 trillion, the budget is the largest in Nepal’s history. With projected revenues of Rs 1.4 trillion, the government faces a financing gap of approximately Rs 0.8 trillion, which must be met through borrowings, loans and grants — a challenging proposition in the current international aid environment, where grant ina cing has grown increasingly scarce.
A Pro-Growth, Middle-Class Budget
NeDeW notes that the budget’s structural priorities are clearly oriented toward the salaried middle class, corporate investors and tech-savvy youth. The doubling of the personal income tax exemption threshold to Rs 1 million, the reduction of the highest
marginal income tax rate from 39 per cent to 29 per cent, and a 21 per cent across- the-board salary increase for public sector staff are among the most striking fiscal signals. These are complemented by targeted reforms for Nepal’s digital economy,
including tax exemptions for the IT sector, establishment of a sovereign AI computing centre, and instant VAT refunds for digital payments.
Perhaps the budget’s most promising structural feature is its commitment to institutional rationalisation — reducing federal ministries from 22 to 18, and dissolving or merging 31 redundant state boards and agencies. NeDeW regards this as a necessary precondition for improved governance.
Inclusion Remains a Secondary Priority
While the budget contains positive social protection measures — including the doubling of the Dalit child nutrition allowance from Rs 500 to Rs 1,000 per month, and the extension of nutrition programmes to 25 high-poverty districts in Madhesh, Karnali and Sudurpashchim — NeDeW cautions that social justice remains a secondary rather than central organising principle of the budget. Most interventions focus on welfare delivery rather than addressing the deeper structural inequalities facing Dalit communities, Indigenous Nationalities, women, Madhesi populations and other historically marginalised groups.
The organisation also flags that regional investments do not automatically translate into social inclusion. Within the same district, upper-caste households, men and politically connected groups may be better placed to capture the benefits of new public investments. NeDeW urges the government to complement economic growth targets with deliberate, targeted interventions for excluded groups.
Health and Education: Promising Direction, Constrained Financing
The health sector receives Rs 102.95 billion — approximately 4.7 per cent of total government expenditure, still significantly below the World Health Organisation’s recommended levels. NeDeW welcomes the inclusion of free cancer treatment for children in state hospitals and the budget allocation to complete 336 health posts in remote Karnali and Far Western districts, while stressing that investment in health workers and fulfilment of citizens rights to healthcare must be central to the government’s strategy.
The education sector receives NPR 218.30 billion, with a forward-looking emphasis on artificial intelligence, research, innovation and skills development. However, NeDeW observes that education’s share of the national budget has actually declined relative to the previous year, falling to 10.28 per cent of the total budget and approximately 3.31 per cent of GDP. More concerning still, roughly 90.7 per cent ofeducation spending covers recurrent costs, leaving only 9.3 per cent for capital investment in infrastructure, digital learning and innovation — limiting the scope for transformational change.
Agriculture: Strong on Inputs, Weaker on Markets
The budget’s agricultural provisions — including expansion of irrigation to an additional 15,800 hectares, a fertiliser subsidy allocation of NPR 32.46 billion, agricultural insurance support, farmer identity cards and the establishment of cold storage and processing facilities — are welcomed by NeDeW as a stronger-than- average agricultural package. However, the organisation characterises it as primarily an input-and-infrastructure budget, and notes that small farmers will only benefit meaningfully if fertiliser is delivered on time, irrigation projects are completed, and market linkages are strengthened.
Key Gaps: Jobs, Exports and Investment NeDeW notes that despite years of political commitment, the budget lacks specific,
targeted programming for domestic job creation. It also falls short of outlining a credible strategy to grow Nepal’s export base beyond remittances and domestic consumption — sectors where Nepal holds genuine potential, including tourism, hydropower, IT services and specialised agriculture. Investment climate reforms, including legal protections for foreign investors and an end to administrative red tape, are identified as areas where bolder action is needed.
Call for Rigorous Implementation
NeDeW concludes that the 2026/27 budget represents a genuinely ambitious statement of intent. Yet Nepal has seen ambitious budgets before. The decisive test will be whether the current administration can reform the civil service from a passive gatekeeper into an active facilitator of development — translating the budget’s technocratic vision into tangible improvements in the lives of ordinary Nepalis, including the most marginalised.
About Nepal Development Watch (NeDeW)
Nepal Development Watch (NeDeW) is an independent, non-political, voluntary network of academics, experts and professionals based in United Kingdom, Germany, Denmark and Nepal monitoring, analysing and commenting on Nepal’s development policies, governance and public finance. NeDeW’s annual budget observations are a contribution to evidence- based public discourse in Nepal.
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