Nepal Fiscal Deficit Analysis 2026
Nepal's fiscal position for FY 2025/26 shows a widening gap between government spending and revenue collection. With 8-month revenue at Rs. 751,856.7M (+3.04%) and expenditure plans significantly higher, the fiscal deficit remains a key challenge.
Revenue vs Expenditure (8M 2025/26)
- Total Revenue & Receipts: Rs. 751,856.7M
- Federal Government Revenue: Rs. 653,076.3M (after transferring Rs. 94,204.2M to provinces/local govts)
- Foreign Grants: Rs. 12,016.3M
- Total Resources available: Rs. 669,668.7M
Budget Expenditure Plans
From the Government Budget Operations data:
- Recurrent Expenditure: Rs. 951,503.2M — includes salaries, pensions, interest payments
- Capital Expenditure: Rs. 207,805.0M — development projects, infrastructure
- Financial Provisions: Rs. 302,281.0M — loan repayments, investments
Estimated Fiscal Gap
With resources of Rs. 669,668.7M against planned expenditure, the government must finance the gap through domestic and foreign borrowing. Key financing sources include Treasury Bills, Development Bonds, and concessional foreign loans.
Domestic Debt Position (Mid-March 2026)
| Instrument | Jul 2025 (Rs. M) | Mar 2026 (Rs. M) | Change |
|---|---|---|---|
| Treasury Bills | 375,562 | 309,662 | -65,900 |
| Development Bonds | 873,757 | 1,018,897 | +145,140 |
The government has shifted from short-term Treasury Bills to longer-term Development Bonds — reducing Treasury Bills by Rs. 65,900M while increasing bonds by Rs. 145,140M. This extends the maturity profile but increases total domestic debt.
Revenue Growth Challenge
Revenue growth at 3.04% is below both GDP growth (3.99%) and inflation (avg 2.13%). In real terms, revenue is effectively declining — creating a structural fiscal challenge. Income tax decline (-1.42%) and falling non-tax revenue (-13.31%) are particularly concerning.
Conclusion
Nepal's fiscal deficit in 2025/26 requires careful management. Revenue growth is anemic, expenditure commitments are large, and domestic debt is shifting toward longer-term instruments. Improving tax compliance, broadening the tax base, and controlling recurrent spending are essential for fiscal sustainability.