Finance Ministry Reports 46 Percent Budget Spending in Second Quarter, Structural Challenges Persist

The Ministry of Finance has released a detailed progress report outlining its performance and achievements during the second quarter of the current fiscal year 2082/83. The report covers budget execution, revenue administration, legal reforms, fiscal federalism, financial sector reform, planning and monitoring, and administrative management, presenting a broad picture of the state’s fiscal operations and governance efforts.

According to the ministry, 46.06 percent of the annual budget had been spent by mid-January. This marks an increase of 10.75 percent compared to the same period last fiscal year, indicating relatively faster budget execution. For the current fiscal year, the government had allocated a total budget of Rs 19.64 trillion, of which Rs 9.04 trillion had been spent by the end of the second quarter.

A closer look at expenditure composition, however, reveals persistent imbalances. Of the Rs 11.80 trillion allocated under recurrent expenditure, 40.82 percent—equivalent to Rs 4.82 trillion—was spent by mid-January. In contrast, capital expenditure remained weak. Out of Rs 4.07 trillion allocated for capital projects, only 11.66 percent, or Rs 47.54 billion, was spent during the review period. This underperformance in capital spending continues to raise concerns about project execution capacity and development outcomes.

Compared to the previous fiscal year, recurrent expenditure increased by 3.35 percent, while capital expenditure declined by 4.86 percent. At the same time, spending under financial management—including debt servicing and financial liabilities—rose sharply by 53.29 percent. Analysts say this trend reflects growing fiscal pressure from debt obligations and limited fiscal space for development spending.

Revenue collection also remained under strain during the review period. While the government has set an annual revenue target of Rs 14.40 trillion, it had aimed to collect Rs 7.11 trillion by mid-January. Actual revenue collection, however, stood at Rs 5.81 trillion, falling short of the target by Rs 129.8 billion. The shortfall highlights the impact of sluggish economic activity and challenges in expanding the tax base.

The report also points to weak progress in clearing arrears. Of the total outstanding arrears amounting to Rs 1.25 trillion, only Rs 8 billion was settled during the second quarter, leaving Rs 1.17 trillion unresolved. This represents a clearance rate of just 6.4 percent, underscoring long-standing weaknesses in financial accountability and follow-up mechanisms.

Despite these challenges, the ministry prioritized funding for election management. For the House of Representatives election scheduled for February 21, the Election Commission received source approval totaling Rs 6.73 billion in two phases. By mid-January, Rs 6.31 billion had already been released to the commission to support election logistics, staffing, and administration.

Additional allocations were made to security agencies to ensure election preparedness. The National Investigation Department received Rs 28 million, while the Nepali Army was provided Rs 44.25 million for security equipment procurement and Rs 1.94 billion for election-related operational expenses. The Ministry of Home Affairs and its subordinate agencies were allocated Rs 10.39 billion for House of Representatives election management.

For the National Assembly member election, the Election Commission received Rs 43.18 million, which was fully disbursed during the review period. The scale and prioritization of election-related spending reflect the government’s focus on ensuring timely and orderly electoral processes despite broader fiscal constraints.

On the revenue administration front, the ministry reported the rollout of an online valuation system to ensure full compliance with the Goods at Customs Valuation mechanism across all customs offices. The government also resolved long-standing disputes related to the Nepal–Mauritius Double Taxation Avoidance Agreement and addressed ambiguity over capital gains taxation on the Dolma Impact Fund. The agreement with Mauritius has since been repealed, with diplomatic notifications issued accordingly.

Legal and administrative reforms continued during the quarter. The Customs Act 2082 entered into implementation, while the draft Customs Regulation was forwarded for legal review. The ministry also strengthened coordination through regular meetings of the Central Revenue Leakage Control Committee, aiming to curb revenue leakage through multi-agency collaboration.

In the area of governance and service delivery, the ministry developed a grievance management system and continued addressing complaints received through platforms such as Hello Sarkar. Several regulatory adjustments were made, including revisions to non-tax revenue rates and the removal of the requirement to affix revenue stamps on public service documents. A decision was also taken to grant capital gains tax exemption for the transfer of land related to a hospital in Siraha.

Financial sector reform remained a major focus. The Cabinet approved the Financial Sector Development Strategy for 2082/83–2086/87, while measures such as restrictions on cash transactions above Rs 500,000, revision of Indian currency movement limits, 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 schemes.

Overall, the second-quarter report presents a mixed fiscal picture. While budget execution has improved and election management has been prioritized, persistent weaknesses in capital spending, revenue collection, and arrears settlement continue to pose structural challenges. Analysts warn that unless these issues are addressed in the remaining quarters, fiscal pressure and development delays may intensify in the second half of the fiscal year.