Nepal Pours More Money Into Public Enterprises — And Gets Less Back

KATHMANDU — There is a particular kind of institutional loyalty that governments in developing economies find almost impossible to break — the habit of continuing to fund public enterprises that are not working, not because the evidence supports doing so, but because the political cost of stopping feels higher than the financial cost of continuing. Nepal's government has, for decades, practiced this loyalty with remarkable consistency. And the Public Enterprises Annual Status Review Report 2083, released this week, has once again put the consequences of that consistency on the public record in numbers that are difficult to read as anything other than a quiet institutional crisis. Investment is rising. Returns are falling. Liabilities are growing. And the state's own report acknowledges, in language that is direct by bureaucratic standards, that political interference and poor management are the primary reasons why.

The headline figure is this: the government's total investment in public enterprises reached NPR 7 trillion 98 billion 56 crore 35 lakh in fiscal year 2081/82 — a year-on-year increase of 13.44 percent. Of that amount, NPR 3 trillion 70 billion 25 crore 20 lakh represents equity investment and NPR 4 trillion 28 billion 31 crore 15 lakh is in the form of loans extended to these institutions. The state, in other words, is not merely owning these enterprises — it is also their primary creditor. When they cannot repay, the government absorbs the loss. When they underperform, the government continues to fund them anyway. The total assets held by public enterprises now stand at NPR 32 trillion 6 billion 91 crore — a 9.49 percent increase from the previous year. On paper, Nepal's public enterprise sector looks substantial. In practice, it looks like a system that has grown in size while declining in discipline.

Nepal currently operates 45 public enterprises across industrial, commercial, service, social, public utility and financial sectors. Of these, 20 are fully owned by the government and 25 have majority government shareholding. The network spans the economy in ways that touch almost every Nepali — from the electricity that powers homes to the airline that connects Kathmandu to distant districts, from the telecommunications infrastructure that carries phone calls to the insurance mechanisms that are supposed to protect workers. The breadth of this footprint was once considered a source of strength, a sign that the state was present where markets were absent. What the current report makes clear is that presence without performance is not the same as public service — it is simply public expenditure without public return.

The income picture reveals the system's deepest problem in concentrated form. Total income across all public enterprises reached NPR 7 trillion 21 billion 14 crore 77 lakh, of which operating income accounted for NPR 6 trillion 72 billion 40 crore 26 lakh. But total income grew by only 0.67 percent compared to the previous year, and operating income by 0.66 percent. To put that in perspective: the government increased its investment in these enterprises by 13.44 percent and received income growth of less than one percent. The mathematics of that relationship — capital in rising sharply, output barely moving — is not the profile of a productive investment portfolio. It is the profile of a system in which additional money is being poured into structures that are no longer capable of converting capital into output at any meaningful rate.

Twenty-seven of the 45 enterprises recorded a profit during the review period. Sixteen operated at a loss. Two are completely shut. The profitable enterprises collectively earned a net profit of NPR 48 billion 89 crore 6 lakh. The loss-making enterprises collectively posted a net loss of NPR 3 billion 80 crore 57 lakh — down 4.14 percent from the previous year, which represents a modest improvement in the worst performers. The aggregate net profit across all enterprises reached NPR 45 billion 8 crore 49 lakh, a 12.03 percent increase. This number, taken alone, might suggest a system moving in the right direction. But a 12 percent rise in net profit from a base that was already far below what a NPR 7.98 trillion investment should be generating represents neither a turnaround nor a vindication. It represents a marginal improvement in a fundamentally underperforming system.

The enterprises carrying the system are well known. Nepal Electricity Authority, Nepal Telecom and the Civil Aviation Authority of Nepal sit at the top of the accumulated profit rankings — together accounting for the bulk of the NPR 1 trillion 5 billion 45 crore 42 lakh in total accumulated profits across the public utility sector, which recorded the highest sectoral retained earnings at NPR 98 billion 50 crore 92 lakh. These three institutions benefit from structural advantages that have little to do with management quality or operational efficiency: they operate in sectors where geography, infrastructure or regulatory framework creates effective monopolies. Nepal Telecom does not outperform because it is well-managed. It generates returns because it controls infrastructure that competitors cannot easily replicate. The Civil Aviation Authority collects fees because aircraft must land somewhere. Profits generated by structural monopoly should not be mistaken for evidence of a well-functioning public enterprise system.

At the opposite end of the spectrum sits Nepal Airlines Corporation, whose accumulated losses have reached NPR 18 billion 90 crore 98 lakh — the largest accumulated loss of any public enterprise in the country. More tellingly, the carrier's shareholder equity is in negative territory by NPR 7 billion 93 crore 44 lakh. This means the corporation's liabilities exceed its assets by that margin — a condition that, in a private company, would typically trigger insolvency proceedings or forced restructuring. In Nepal's public enterprise framework, it triggers another round of government review, another round of restructuring proposals, another set of promises about fleet renewal and route rationalization, and then, generally, another year of the same losses. Nepal Airlines has been a source of national embarrassment and fiscal drain for long enough that its situation no longer surprises financial analysts — but the absence of surprise should not be mistaken for acceptance. Six other enterprises also report negative shareholder equity, suggesting that the Airlines Corporation, while the most visible case, is not the only institution whose balance sheet has crossed into genuinely dangerous territory.

The industrial sector's performance stands as the most structurally alarming data point in the entire report. While the public utility sector accumulated NPR 98.5 billion in profits, the industrial sector accumulated losses of NPR 22 billion 62 crore 30 lakh — the worst loss accumulation of any sector in the public enterprise portfolio. This matters beyond the immediate fiscal cost because it reflects what Nepal's state-owned industrial institutions have failed to do over decades: build productive capacity, modernize operations, compete in markets, attract skilled management and justify their existence as economic actors. Industries that were established to anchor Nepal's manufacturing base, create employment and reduce import dependence have instead become fiscal liabilities. Their continued operation, funded by public money, represents a direct cost to the state and an indirect cost to the economy — capital that could be directed toward productive investments is instead being used to sustain enterprises that produce little of value.

Perhaps the sharpest measure of the system's dysfunction appears in the dividend data. In fiscal year 2080/81, the government received NPR 8 billion 83 crore 56 lakh in dividends from its public enterprise investments. In 2081/82, that figure declined to NPR 8 billion 37 crore 76 lakh. The state increased its total investment by 13.44 percent and received less money back. This is not a one-year anomaly — it reflects a structural trend in which the government's ownership stake is growing while its ownership income is shrinking. For a government that faces its own fiscal pressures, declining dividends from a growing investment portfolio represent a double burden: more money going out, less money coming in.

The liability picture adds a third dimension of concern that the headline numbers tend to obscure. Public enterprises collectively owe the government NPR 1 trillion 64 billion 96 crore 26 lakh across various categories — income tax obligations of NPR 11 billion 36 crore, VAT liabilities of NPR 52 billion 33 crore 7 lakh, and additional amounts in royalties, customs duties and other categories. Unfunded liabilities within enterprise funds grew by 10.10 percent to reach NPR 66 billion 40 crore 83 lakh. Contingent liabilities — potential future obligations that may or may not crystallize but must be planned for — increased by 3.03 percent to reach NPR 22 trillion 64 billion 55 crore 37 lakh. This last figure is the one that should concern Nepal's fiscal planners most acutely. Contingent liabilities of that scale represent a shadow obligation hanging over the public finances — obligations that may never fully materialize, but that could, under adverse circumstances, impose severe pressure on the state budget with very little warning.

One genuinely encouraging finding in the report is the reduction in administrative and staff costs. Total administrative and personnel expenditure fell by 8.36 percent to NPR 61 billion 5 crore 70 lakh. The public enterprise sector currently has 38,285 approved positions, of which 30,352 are actually filled across permanent, contractual and daily wage categories. Whether the gap between authorized and actual staffing reflects genuine downsizing or simply vacancies that have not been filled is an important distinction that the report does not fully resolve. But the directional movement — lower staff costs — is a positive signal in a system that has historically been criticized for overstaffing and excessive administrative overhead that erodes operational efficiency without delivering proportionate service quality.

Audit transparency remains a persistent weakness. As of the review period, only 27 of the 45 enterprises had completed final audits for fiscal year 2081/82. Only 34 had completed audits for 2080/81. In a system where government investment exceeds NPR 7.98 trillion and total assets approach NPR 32 trillion, the absence of completed, verified financial statements from nearly half the enterprises is not a technical paperwork problem — it is a fundamental governance failure. Decisions about continued investment, restructuring, dividend policy and management accountability cannot be made rationally in the absence of audited accounts. The fact that this gap persists year after year, documented in successive annual reports without being closed, suggests that the audit compliance failure is systemic rather than incidental — a product of institutional culture and incentive structures that the reporting requirement alone cannot correct.

The report's diagnostic conclusion is stated with a directness that is unusual in government documents of this kind. Public enterprises, it finds, are in difficulty due to unclear institutional mandates, absence of competitive capacity, operational inefficiency, political interference and weak management. Many institutions are not performing the functions for which they were originally established. This assessment is not new — variants of it have appeared in reports, audits and parliamentary discussions for years. What gives it renewed weight in the current context is the scale of the investment that continues despite this diagnosis. Nepal has been documenting the problems of its public enterprises while simultaneously expanding its financial exposure to them, a combination that represents a policy contradiction of the first order.

The roots of this contradiction run deeper than individual management failures or specific political appointments. Nepal's public enterprise tradition began in 1993 BS with the establishment of the Biratnagar Jute Mills — a moment when state-led industrialization was a mainstream development ideology and private capital was scarce, risk-averse and institutionally unsupported. Over subsequent decades, enterprises were created to provide essential services, stabilize prices, build infrastructure and support private sector development in areas where markets could not yet function. Many of those original rationales have since been overtaken by events — markets have developed, private capital has become more available and the comparative advantage of state ownership in many commercial sectors has diminished or disappeared entirely. But the institutional machinery built around those enterprises has proved far more durable than the economic logic that justified creating it.

The report recommends a set of reforms that are structurally sensible and politically demanding in equal measure. It calls for a clear categorization of which sectors the government should remain in and which should be opened to private sector participation. It urges that investment decisions be governed by need and return rather than political preference. It recommends restructuring weak enterprises and progressively divesting from those where government operation is no longer necessary. It calls for an integrated public enterprise reform program to be implemented immediately, alongside legal and management overhauls. These recommendations will sound familiar to anyone who has followed Nepal's public enterprise debate over the past two decades. Similar proposals have appeared in similar reports before. The question — as it always is — is not whether the recommendations are sound, but whether the political will to implement them exists in an environment where public enterprises serve not only economic functions but also political ones: providing employment for party loyalists, procurement opportunities for connected contractors and operational leverage for ministers who can direct institutional resources toward preferred constituencies.

What the Public Enterprises Annual Status Review Report 2083 ultimately documents is the cost of that political economy, measured in billions of rupees of investment that generates insufficient return, in liabilities that grow faster than assets, in dividends that shrink as stakes increase, in audit gaps that persist year after year and in airlines that fly at a loss while the balance sheet records negative equity. The arithmetic of Nepal's public enterprise system is not sustainable indefinitely. At some point, the combination of growing investment, shrinking returns and expanding contingent liabilities will create a fiscal pressure that forces a reckoning. The report's value is that it makes that reckoning visible before it becomes unavoidable — providing the government with both the data and the recommendations it needs to act while choices still exist. Whether it does so, or whether the report joins its predecessors on the shelf while the numbers continue to move in the wrong direction, is the question that the coming budget season will begin to answer.