Budget Formulation Process Begins with Focus on Project Quality and Coordination

The budget preparation process for Nepal’s upcoming fiscal year 2026/27 (2083/84) has officially begun, with the National Planning Commission (NPC) initiating consultations with provincial and local governments. By calling for project proposals under federal matching and special grant schemes, the commission has signaled an early start aimed at improving coordination, planning discipline, and the quality of development spending.

The NPC’s move reflects growing concern over inefficiencies in past budget implementation, where projects were often selected without adequate preparation or overlapped with other funding sources. By setting a deadline for proposal submission by mid-January, the commission is attempting to ensure that subnational governments plan ahead rather than rushing proposals during the final stages of budget drafting.

A key feature of this year’s process is the emphasis on avoiding duplication. Provinces and local governments have been instructed to submit proposals only for projects that are not already funded through other sources or currently under implementation. This requirement highlights the federal government’s effort to address long-standing issues of fragmented planning and scattered investment across multiple layers of government.

The commission has also tightened procedural requirements by strictly enforcing revised matching and special grant guidelines. Under these rules, proposals must be supported by feasibility studies, technical designs, detailed cost estimates, and specifications. This marks a shift from politically driven project selection toward a more evidence-based approach, where technical readiness becomes a prerequisite for federal funding.

Environmental considerations have been given increased importance as well. The requirement to submit environmental assessment reports signals the government’s intent to align development spending with sustainability principles. Analysts say this could help reduce delays and disputes during project implementation, particularly in infrastructure and construction-related sectors.

Institutional accountability has also been strengthened. Local-level proposals must be approved by municipal or rural municipal executives, while provincial proposals require endorsement from the Provincial Planning Commission and final approval by the provincial cabinet. This layered approval mechanism is intended to ensure ownership, prioritization, and political consensus before projects reach the federal budget.

Economists view the early start to the budget process as a positive signal but caution that procedural rigor alone will not guarantee results. The real test, they argue, lies in whether approved proposals translate into timely implementation and effective capital expenditure. Nepal has historically struggled with low budget absorption, even when projects are well-designed on paper.

The proposal-based approach also reflects a broader attempt to strengthen federalism through structured coordination rather than ad-hoc negotiations. If implemented effectively, it could help align national priorities with provincial and local needs, reducing friction between different levels of government.

Overall, the initiation of the budget process indicates a shift toward planning-led budgeting rather than politically driven allocations. While challenges remain in execution, policy experts believe that enforcing technical standards, environmental safeguards, and institutional approvals could improve the impact of public spending and enhance confidence in the budget process for the coming fiscal year.