KATHMANDU: Nepal Development Watch (NeDeW) has released its commentary on the Government of Nepal’s record Rs 2.12 trillion budget for the 2026/27 fiscal year, praising its reformist direction while warning of a significant gap between policy ambition and delivery capacity.

With projected revenues at Rs 1.4 trillion, the country faces an Rs 0.8 trillion financing gap that must be covered through loans and scarce international grants.

While NeDeW welcomed governance reforms—such as reducing federal ministries from 22 to 18 and merging 31 redundant state agencies—the independent watchdog emphasized that the ultimate test lies in whether the administration can successfully transition the civil service into an active facilitator of development.

The budget heavily targets the salaried middle class, corporate investors, and tech-savvy youth by doubling the personal income tax exemption threshold to Rs 1 million, lowering the highest marginal tax rate to 29 percent, and implementing a 21 percent public sector salary hike alongside digital economy tax exemptions.

However, NeDeW noted that social inclusion remains a secondary priority, focusing primarily on welfare delivery rather than dismantling structural inequalities for marginalized groups.

Financing also remains constrained in critical sectors; health allocations sit below recommended international levels at Rs 102.95 billion, while the Rs 218.30 billion education budget saw a relative decline, with over 90 percent tied up in recurrent costs.

Furthermore, despite robust infrastructure provisions for agriculture, the watchdog highlighted that the budget lacks specific domestic job creation strategies, export growth solutions, and crucial investment climate reforms.