KATHMANDU: Finance Minister Dr. Swarnim Wagle presented the federal budget for fiscal year 2026/27 to a joint sitting of Parliament on May 29, 2026.

With a total outlay of Rs 2,124.34 billion (approximately Rs 2.124 trillion), this is the largest budget in Nepal’s history and marks a 25.2 percent increase over the revised estimates of the current fiscal year.

The budget’s stated ambitions include 7 percent economic growth, inflation capped at 6 percent, sweeping tax reforms, massive infrastructure investment and structural overhaul of public institutions — all framed as a departure from a decade of political instability toward a new era of productive governance.

What is the total size of the budget, and how is it divided?

The total budget outlay for fiscal year 2026/27 is Rs 2,124.34 billion. Of this, recurrent (current) expenditure accounts for Rs 1,270.58 billion, which is 59.8 percent of the total. Capital expenditure stands at Rs 431.10 billion, representing 20.3 percent. Financial management — covering debt repayment and lending — takes up Rs 422.64 billion, or 19.9 percent.

This division reflects a long-standing concern in Nepal’s budgeting pattern, where recurrent spending dominates capital spending, though the government has positioned this budget as one that prioritizes productive and transformative investment over routine administration.

The total size is approximately 25.2 percent larger than the revised estimate of the current year, making it the most ambitious fiscal plan Nepal has ever presented.

How does the government plan to finance this budget? 

The government has projected revenue collection of Rs 1,405.31 billion from domestic tax and non-tax sources, along with Rs 61.74 billion in foreign grants. These two sources together fall short of total expenditure by Rs 657.29 billion.

To fill this gap, the government will mobilize Rs 247.28 billion from foreign loans and Rs 410 billion from domestic borrowing. However, since Rs 245.89 billion of domestic debt must be repaid during the same year, the net new domestic borrowing is only Rs 164.11 billion.

The budget thus relies on a combination of ambitious domestic revenue growth, continued external assistance, and carefully managed borrowing — a financing structure that will only work if revenue targets, which are significantly higher than current collections, are actually met.

What are the major tax reforms announced for individuals and businesses? 

The budget contains sweeping tax reform. The income tax exemption threshold for individuals has been doubled, now reaching Rs 1 million per year — a significant relief for the middle class. The top marginal rate of personal income tax has been cut by 10 percentage points.

On the business side, customs duties on 273 categories of industrial raw materials have been reduced so that they are at least one tier below finished goods, encouraging domestic manufacturing. The existing 11-tier customs duty structure has been simplified to just 7 tiers.

Excise duty has been abolished on 360 categories of goods. Scattered levies such as road maintenance fees and pre-infrastructure development tax collected at customs points have been consolidated into a single “green levy,” reducing the complexity of the tax compliance burden.

Finance Minister Swarnim Wagle, presenting the annual estimates of revenue and expenditure (budget) for the upcoming fiscal year 2026/27 at the joint meeting of the House of Representatives and the National Assembly on Friday.
Photo: Ratna Shrestha / RSS.

Capital gains tax on listed securities has been made final, eliminating the need for separate settlement. These reforms are framed as an effort to make Nepal’s tax system business-friendly and to expand the formal economy.

What changes have been made to ease doing business and attract investment?

The budget announces a comprehensive package of legal and institutional reforms aimed at improving Nepal’s business climate. Company law will be amended to clarify conflict-of-interest provisions and simplify company dissolution.

A new law on limited liability partnerships will be drafted to encourage angel investment, venture capital, and private equity. Foreigners investing in Nepal will be allowed to lease apartments on a long-term basis (up to 25 percent of units in a building) in designated locations.

An “Investment Express” one-stop system will be operationalized within three months, allowing investors to complete company registration, financial services, tax compliance, and visa applications through a single automated portal.

Projects approved by the Investment Board will no longer need separate approvals from other government bodies. Legal frameworks for debt recovery, intellectual property protection, and commercial dispute resolution through a dedicated tribunal will also be developed.

What has the budget announced for the energy sector, particularly hydropower? 

The energy sector receives Rs 85.54 billion in allocation. The budget projects that 1,040 megawatts of new generation capacity will be added in the coming year — 670 MW from hydropower and 370 MW from solar — bringing Nepal’s total installed capacity to 5,535 MW.

Several large projects are to be accelerated, including Upper Arun (1,061 MW), Uttarganga (828 MW), Chainpur Seti (210 MW), and Tamakoshi-5 (99 MW), with financial management and tendering to begin.

The landmark Budhigandaki storage project (1,200 MW) will move toward construction under an empowered authority model. Nepal Electricity Authority will be restructured into three separate companies covering generation, transmission, and distribution.

Private sector companies will be allowed to trade electricity internationally, and new power purchase agreements will be signed on a “take or pay” basis. Rs 70 billion is separately allocated for transmission line construction.

How much is allocated to roads and infrastructure, and what are the key projects? 

Roads and urban infrastructure together receive the largest single-sector allocation: Rs 286.48 billion. Around 1,000 kilometers of road will be blacktopped and 275 road bridges constructed during the year. The 1,028-km East-West Highway will be upgraded to four lanes within five years, with Rs 37.46 billion allocated for this purpose.

The Kathmandu-Tarai/Madhesh Fast Track receives Rs 17.64 billion, with 40 bridges and 5.4 km of tunnel to be completed this year. The Pushpalal Mid-Hill Highway will be completed within three yeaRs The Nagdhunga tunnel, connecting Kathmandu Valley westward, will be inaugurated from July.

Urban mobility in Kathmandu will be transformed through electric public buses, charging stations, smart bus parks, and underground utility ducts. A nationwide road maintenance campaign receives Rs 28.52 billion.

What is the budget’s approach to agriculture and food security? 

Agriculture receives Rs 46.92 billion in direct sectoral allocation, though multiple other allocations also support farming. A pilot program will offer farmers investing a minimum of Rs 20 million in agricultural or livestock production a 40 percent capital subsidy from the government, tapering by 10 percentage points annually over four years.

Chemical fertilizer procurement is increased to Rs 32.46 billion, with a seasonal calendar to ensure supply during planting periods. Farmers will be provided crop insurance with up to 80 percent premium subsidy. An agricultural bill will be presented to Parliament to guarantee fair prices, formalize farmer-buyer contracts, and establish support mechanisms.

Land banks will be established at local government level to use idle government and reclaimed river land for farming. The budget also proposes farmer identity cards and a shift toward market-linked farming supported by cold storage and processing facilities.

How significant is the budget for education, and what are the key initiatives? 

Education receives Rs 218.30 billion, making it one of the largest sectoral allocations. The budget takes a systems-reform approach rather than simply increasing funds. A nationwide school infrastructure mapping and audit will be conducted.

Medical education quotas — currently limited across fields like medicine, nursing, and IT — will be reviewed and significantly increased during the current year. A demand-driven skills system linked directly to industry and labor market needs will be expanded, with formal recognition given to skills acquired through migration, informal work, and experience.

Top-ranked international universities will be invited to open campuses in Nepal. Open University programs will be extended to Nepalis working abroad. Residential schools will be opened for communities with low human development indicators, beginning with the Chepang community in Chitwan. Universities will be given greater academic, administrative, and financial autonomy under a cost-sharing model.

What does the budget propose for healthcare? 

Health receives Rs 101.95 billion, of which Rs 15 billion is specifically for the health insurance program. The government aims to bring 90 percent of Nepalis under health insurance within three years.

A key goal is restructuring the health insurance program to eliminate the fragmentation of multiple overlapping schemes and move toward a single-payer model. Nepal Medicine Limited will be empowered to produce at least 25 types of medicines currently provided free of charge by the state.

Construction of 336 basic hospitals will be completed within three years. Tribhuvan University Teaching Hospital, National Academy of Medical Sciences, and Patan Academy of Health Sciences will be developed as internationally ranked institutions. A national food and drug administration will be established to regulate medicines and health products.

Night duty allowance for nursing staff has been doubled, and transport allowance for female community health volunteers has been increased by 50 percent.

What has the budget announced for Nepal’s AI and technology ambitions?

The budget makes significant commitments to positioning Nepal in the AI era. A “Sovereign AI Computing Center” will be established at Syuchatar in Kathmandu — Nepal’s first — where thousands of AI processing units will be procured and offered to startups and entrepreneurs at concessional computing rates.

The vision is to convert Nepal’s hydroelectric energy into high-value AI compute services, creating skilled employment and enabling digital exports. Fifteen Nepali researchers currently making international contributions in AI will be offered prestigious fellowships and invited to return to Nepal and contribute.

Mathematics and related STEM subjects will receive higher priority in the education system. A sovereign wealth fund is planned, and part of Nepal’s comfortable foreign exchange reserves will be channeled into a “Matribhumi Fund” to invest in strategic assets including an “AI factory.” The government also plans to issue offshore bonds and diaspora bonds to finance technology infrastructure.

What is happening with Nepal Telecom, and what are the digital economy plans? 

The government will sell shares in Nepal Telecom to the public by mid-January 2027 while retaining 66 percent government ownership. Revenue from the share sale will be used to develop Nepal as a “tech hub.”

The IT sector will receive a 50 percent income tax exemption on export earnings, and sweat equity received by IT sector employees will be fully exempt from taxable income calculations. A fintech marketplace will be established under Nepal Rastra Bank’s supervision.

Dozens of government services will be integrated into the Nagarik App. Laws enabling remote work for Nepalis working for foreign employers from within Nepal will be formalized. A centralized, secure government data center will be established by merging existing scattered infrastructure.

The government also plans to open the IT sector to foreign investment, allowing foreign capital to enter Nepal’s growing digital economy.

What does the budget mean for civil servants in terms of pay? 

The budget acknowledges that civil servants have not received a salary increase for four consecutive years, during which the consumer price index rose by 17.3 percent. In response, salaries will be increased by 10 percent on the base scale, and an additional monthly performance incentive allowance of 10 percent will be introduced.

The combined effect, according to the budget, is a net increase of approximately 21 percent in take-home pay. Minimum monthly salary for civil servants will range from approximately Rs 40,000 to Rs 100,000 and above, depending on grade. The new pay scale will take effect from mid-July 2026.

Similar improvements are proposed for the military, police, and teachers. The budget also indicates that savings from streamlining 31 government bodies (abolished), merging 6 others, and restructuring 18 more will help fund these increases.

How does the budget address social protection and vulnerable communities? 

Social security receives the largest consolidated allocation: Rs 120 billion. Dalits among the poorest communities will receive a doubled child nutrition allowance of Rs 1,000 per month.

Nutrition allowances for children in 25 high-poverty districts — mainly in Madhesh, Karnali, and Sudurpaschim — will be continued. Disabled persons’ rehabilitation centers will be expanded to all provinces. Residential model schools for children with autism will be established.

A national campaign — “Those who can, give it up; those who cannot, stay covered” — will encourage economically capable citizens to voluntarily forgo their social security allowances. This released money will then serve those most in need.

The budget also announces a national declaration to make Nepal free of street children, campaigns against untouchability and caste discrimination, and programs to formalize gig workers into social security systems.

What has the government proposed for tourism and Nepal’s Visit Nepal campaign? 

Tourism receives Rs 7.34 billion in allocation, with Rs 830 million specifically for Lumbini development. The government plans to prepare intensively for Visit Nepal Year 2029 and Nepal Wellness Year 2027. Nepal will be rebranded around “wellness tourism” — yoga, meditation, Buddhist and Vedic philosophy, and high-altitude health experiences.

The Civil Aviation Authority will be restructured by mid-January 2027 to separate regulatory and operational roles, with the aim of removing Nepal from the European Union Air Safety List — a long-standing barrier to Nepali airlines flying to Europe.

Gautam Buddha International Airport and Pokhara Regional Airport will be managed in partnership with the private sector. Mountaineering tourism will be boosted with dedicated routes, including a new “Danfe Route” connecting Khaptad, Rara, Swargadwari, and Muktinath, and previously unnamed peaks above 6,000 meters will receive official Nepali names and be commercially promoted.

What does the budget propose for irrigation and agriculture water supply?

Irrigation infrastructure receives a substantial combined allocation, with the government targeting an additional 15,800 hectares of irrigated farmland this year, bringing the total proportion of irrigable land with irrigation to 64 percent.

The Sunakoshi-Marin Diversion project — which will ultimately irrigate 122,000 hectares across Bara, Rautahat, Sarlahi, Mahottari, and Dhanusha — will be re-tendered and construction begun within four years, with Rs 2.98 billion allocated.

Sikta Irrigation will extend coverage by 5,000 hectares in Banke. Babai Irrigation will cover an additional 1,066 hectares. Underground irrigation systems will be expanded in the Terai with Rs 1.83 billion.

Lift irrigation for hill terraces receives Rs 800 million. 70 km of embankments for river control and 210 hectares of land reclamation are also planned.

How does the budget plan to reform state-owned enterprises? 

The budget proposes a mix of divestment, restructuring, and strategic partnership for public enterprises. Shares in the National Life Insurance Company and Bishal Bazar Company will be publicly offered for the first time. Nepal Telecom shares will be partially sold to the public.

Nepal Airlines Corporation will be converted into a company and a strategic partner identified through a proper process. Rastriya Banijya Bank will receive additional government capital. Gorkhali Rubber Industry and six other public institutions will undergo due diligence and asset-liability assessment (DDA) for possible public-private partnership models.

The Hydroelectricity Investment and Development Company Limited will be merged with a compatible financial institution to create a specialized infrastructure financing entity.

These moves signal a shift from maintaining unproductive state-owned enterprises to making them either commercially viable or winding them down through structured processes.

What is the budget’s plan for managing Nepal’s relationship with provincial and local governments? 

The budget provides over Rs 600 billion in total transfers to provincial and local governments through revenue sharing and grants — a figure that represents a significant portion of total government spending and underscores Nepal’s commitment to fiscal federalism.

Financial equalization grants amount to Rs 61.50 billion for provinces and Rs 90.20 billion for local governments. Conditional grants for federal project implementation total Rs 39.72 billion for provinces and Rs 206.08 billion for local bodies.

Special grants and supplementary grants are also provided for specific purposes. A “Governance Innovation Challenge Fund” will be established to reward provincial and local governments that innovate in service delivery.

The budget also proposes a review of overlapping functions across three tiers of government and legal clarification to resolve the ongoing double-taxation disputes between federal, provincial, and local authorities.

What steps are being taken toward financial sector reform and capital markets? 

The budget envisions a more dynamic and investor-friendly financial ecosystem. Nepal Stock Exchange will be restructured, and intra-day trading, short selling, and derivatives will be introduced in a phased manner. Nepali companies listed on NEPSE will be allowed to issue Global Depositary Receipts for foreign stock markets.

A National Asset Management Company will be established by mid-January 2027 to deal with growing non-performing loans in the banking sector. A personal credit scoring system will be introduced, and peer-to-peer lending will be regulated.

Long-term fixed interest rates will be facilitated for key sectors like agriculture, industry, tourism, and hydropower. The capital market regulator will be strengthened to take a zero-tolerance approach to share cornering and insider trading.

Insurance will become mandatory for residential building construction, and third-party insurance coverage will be raised to Rs 1 million.

What are the budget’s targets for economic growth, and how realistic are they? 

The budget projects 7 percent economic growth for fiscal year 2026/27, with inflation controlled at 6 percent. These are ambitious targets. Nepal’s recent growth has been well below 7 percent — the economy has struggled with low capital spending absorption, sluggish private investment, and global supply chain disruptions.

The budget acknowledges these structural challenges explicitly. To achieve 7 percent growth, the government is betting on a large increase in capital expenditure execution (historically Nepal has spent only 70–80 percent of its capital budget), a doubling of the income tax threshold to stimulate consumption, sweeping investment environment reforms to unlock private sector activity, and energy exports and technology services as new growth drivers.

The Nepal Rastra Bank will issue a complementary monetary policy to support these fiscal objectives. Whether the targets are achievable will depend heavily on reform implementation speed and project execution quality — two areas where Nepal has historically underperformed.

What are the most significant structural reforms announced in this budget that differ from past budgets? 

Several elements of this budget mark a genuine departure from previous years.

First, the income tax exemption has been doubled in a single year — an unprecedented middle-class relief measure.

Second, the customs duty structure has been radically simplified from 11 tiers to 7, and excise duty has been abolished on 360 goods at once — a magnitude of tax simplification rarely attempted.

Third, the Nepal Electricity Authority restructuring into three separate companies (generation, transmission, distribution) has been promised for years and finally appears in a budget with implementation timelines.

Fourth, the creation of a Sovereign AI Computing Center, with public hydropower energy converted into AI compute capacity, is entirely new territory for Nepal.

Fifth, the government proposes to voluntarily delay Nepal’s graduation from Least Developed Country status for two more years to consolidate economic gains — an unusually candid strategic acknowledgment.

Finally, the creation of a national asset management company, partial privatization of Nepal Telecom, and diaspora bond issuance in international markets together represent a package of financial market reforms that no previous budget has attempted simultaneously.