Finance Ministry Shows Faster Spending but Fiscal Stress Deepens in Second Quarter

The Ministry of Finance has made public its second-quarter performance report for the current fiscal year 2082/83, outlining progress in budget execution, revenue administration, legal reforms, fiscal federalism, financial sector management, and governance. While the report highlights an acceleration in overall spending compared to last year, it also exposes persistent structural weaknesses in capital expenditure, revenue mobilization, and arrears settlement.

By mid-January, the government had spent 46.06 percent of the annual budget, a notable increase of 10.75 percentage points compared to the same period last fiscal year. Out of the total budget allocation of Rs 19.64 trillion, expenditure had reached Rs 9.04 trillion. Officials interpret this as a sign of improved budget execution, though analysts caution that higher spending alone does not necessarily translate into stronger economic outcomes.

A breakdown of expenditure reveals a familiar pattern. Recurrent spending continues to dominate, with 40.82 percent of the allocated Rs 11.80 trillion already spent. In contrast, capital expenditure remains critically weak. Of the Rs 4.07 trillion earmarked for development projects, only 11.66 percent—or Rs 47.54 billion—had been utilized by the end of the second quarter. This imbalance suggests that development activities remain slow despite faster fund releases.

Compared to last year, recurrent expenditure increased by 3.35 percent, while capital spending declined by 4.86 percent. At the same time, expenditure under financial management surged by 53.29 percent, largely driven by debt servicing and other financial obligations. Economists warn that such a trend reduces fiscal space for productive investment and increases long-term budgetary pressure.

Revenue collection has emerged as another major area of concern. Although the government aims to collect Rs 14.40 trillion in revenue this fiscal year, it had targeted Rs 7.11 trillion by mid-January. Actual collection, however, stood at Rs 5.81 trillion—falling short by nearly Rs 130 billion. The gap reflects sluggish economic activity, weak import growth, and challenges in broadening the tax base.

The report also highlights limited progress in clearing arrears. Out of total outstanding arrears amounting to Rs 1.25 trillion, only Rs 8 billion was settled during the review period, leaving Rs 1.17 trillion unresolved. This represents just 6.4 percent progress, reinforcing long-standing concerns about accountability, enforcement, and follow-up mechanisms within public financial management.

Despite fiscal strain, election management received top priority. For the House of Representatives election scheduled for February 21, the Election Commission was granted source approval totaling Rs 6.73 billion, of which Rs 6.31 billion had already been released by mid-January. Additional funds were allocated to security agencies, including the National Investigation Department, the Nepali Army, and the Ministry of Home Affairs, underscoring the government’s emphasis on electoral preparedness.

On the revenue administration front, the ministry introduced an online valuation system to enforce uniform customs valuation practices nationwide. It also resolved disputes related to the Nepal–Mauritius double taxation agreement, clarified capital gains taxation issues involving foreign investment funds, and formally repealed the agreement through diplomatic channels. These measures are expected to reduce ambiguity in foreign investment taxation.

Legal and regulatory reforms advanced during the quarter. The Customs Act 2082 entered implementation, while draft regulations were submitted for legal review. Regular meetings of the Central Revenue Leakage Control Committee were conducted to strengthen coordination among enforcement agencies and curb revenue leakage.

Governance and service delivery reforms also featured in the report. A grievance management system was strengthened, complaints received through platforms such as Hello Sarkar were addressed, and several administrative adjustments were introduced. These included revisions to non-tax revenue rates and the removal of revenue stamp requirements from public service documents, aimed at simplifying procedures and reducing transaction costs.

Financial sector reform remained a central policy focus. The Cabinet approved the Financial Sector Development Strategy for 2082/83–2086/87, while measures such as restrictions on large cash transactions, revisions to cross-border currency movement rules, formation of a NEPSE restructuring committee, and implementation of capital market reform recommendations were advanced. The government also released Rs 9.80 billion in interest subsidies under concessional loan programs.

Overall, the second-quarter report presents a mixed fiscal picture. While spending has accelerated and election-related commitments have been met, chronic weaknesses in capital expenditure, revenue mobilization, and arrears clearance continue to undermine fiscal effectiveness. Analysts note that without structural reforms to improve project execution and revenue performance, the remaining quarters of the fiscal year may see growing pressure on public finances.