Nepal presented its annual budget on May 29, 2026, under the leadership of Prime Minister Balendra Shah. It has drawn a significant degree of national and international attention, as it comes from a newly formed stable government with a strong parliamentary majority and high public expectations following the Gen Z movement, which demanded reform, transparency, good governance, and expanded economic opportunities. Presenting budget at Parliament, Finance Minister Swarnim Wagle said the country is at a very important economic turning point. He noted that there is immense potential in clean energy production and new technologies, while the youth demographic represents a major source of national capital and strength. The budget has identified agriculture, tourism, industry, information technology, and human capital as drivers of economic
prosperity for the coming decade, and has initiated a new phase of structural reforms.
Through this budget, a foundation has been laid to establish good governance in public administration, restore private sector confidence, make public service delivery more technology-friendly and accountable, and launch a new economic framework based on production, innovation, and entrepreneurship, the budget speech states. Finance Minister Wagle has announced that the tax system has been made simpler, fairer, and more result-oriented.
Public expenditure has been made more economical and results-oriented. As a result of these reform and transformation programs, the budget speech has set a target of achieving 7 percent economic growth, which economists have described as ambitious. While macroeconomic stability has improved—supported by strong foreign exchange reserves, easing inflation, and robust remittance inflows—economic growth remains modest at around 3.85 percent. Private investment is low, and the economy continues to rely heavily on consumption and external income rather than domestic production.
Minister Swarnim Wagle said the budget aims to address these structural weaknesses through reform agendas. Its key priorities include improving the investment climate, expanding digital infrastructure, promoting artificial intelligence and innovation, reforming the energy sector, and strengthening governance and public institutions.
The budget places strong emphasis on making the state more facilitative rather than acting like a control mechanism, promoting accountability, restoring private sector confidence, and modernizing public service delivery through the use of robust technology. It also seeks to build a more production-driven economy by prioritizing energy, agriculture, forestry, industry, tourism, information technology, and human capital development.
Fiscal reforms focus on simplifying and making the tax system more equitable and growth-oriented, while ensuring public expenditure is efficient and results-oriented. Overall, the budget outlines a transition from economic stability management to structural transformation, aiming to create a more competitive, inclusive, and innovation-driven economy. The government has said it will create 1.5 million jobs in five years, meaning 300,000 jobs annually.
Job creation is one of the major expectations of the youth population. The budget has faced criticism that it addresses the concerns of the middle class while failing to provide sufficient incentives for the poor. For the past few months, Wagle had been saying that, to boost the economy, the issues of the middle class should be addressed.
Investment climate
A central pillar of the budget is the effort to reshape Nepal’s investment climate. Major countries such as India, China, and the United States, along with the international community, have urged the government to create a favorable investment environment. Government has proposed wide-ranging legal and institutional reforms designed to reduce bureaucratic barriers and improve investor confidence. It plans to amend or repeal outdated laws, including provisions in company law, to clarify governance standards, conflict-of-interest rules, and disclosure requirements.
Government aims to simplify and accelerate business processes. In parallel, it plans to conclude agreements on foreign investment protection and double taxation avoidance with partner countries, a move aimed at reducing risks for international investors. Many countries interested in investing in Nepal have raised concerns about double taxation.
One of the most ambitious administrative reforms is the proposed “Investment Express” system, which seeks to integrate company registration, tax compliance, visa processing, and financial services into a unified digital platform. The objective is to reduce fragmented approvals and create a more predictable investment environment. The government also plans to eliminate redundant approvals for already sanctioned investment projects and simplify processes related to share transfers, taxation, liquidation, and profit repatriation. Collectively, these reforms signal a strong push toward deregulation and digital governance in investment administration.
Digital economy and AI
Budget introduces a significant shift toward positioning Nepal within the global digital economy, particularly through artificial intelligence. A key proposal is the establishment of the country’s first Sovereign AI Computing Center in Kathmandu, designed to provide high-performance computing resources for startups, researchers, and entrepreneurs. Countries like China and USA have shown interests to collaborate with Nepal in the areas of AI. The strategy is based on converting Nepal’s hydropower surplus into digital value by powering energy-intensive computing infrastructure. Government also plans to offer fellowships to internationally recognized Nepali AI researchers to encourage them to return and contribute to domestic capacity building. In addition, there is a renewed focus on strengthening foundational academic disciplines such as mathematics, which are essential for advanced technological development. This digital agenda aims to diversify Nepal’s economic base beyond traditional sectors and position the country as a potential niche player in AI-enabled services and computing infrastructure.
Energy sector
Energy remains one of the most strategically important sectors in the budget speech. Government plans to expand electricity generation capacity and improve regional energy trade. A significant portion of new hydropower and solar projects is expected to be integrated into the national grid, increasing total installed capacity substantially. Beyond domestic supply, the policy direction is increasingly outward-looking, focusing on electricity export potential. The budget proposes allowing private sector participation in international electricity trading, including enabling private entities to build transmission infrastructure and participate in cross-border energy markets through wheeling charge mechanisms—long- standing demands of Nepal’s private sector. The aim is to open Nepal’s hydropower sector to broader commercial participation beyond generation alone. The government also plans to encourage reservoir-based hydropower projects by allowing developers to sell a portion of shares early, provided investment commitments are directed toward such projects. During the upcoming fiscal year, 670 megawatts of hydropower and 370 megawatts of solar energy, totaling 1,040 megawatts, will be added to the national transmission system. As a result, total installed capacity will reach 5,535 megawatts.
Governance and institutional reform
The budget emphasizes governance reform and institutional modernization. A key priority is addressing corruption and improving administrative transparency through legal and procedural changes. The government plans to introduce conflict-of-interest laws to promote accountability in public decision-making. It also plans to integrate systems related to asset recovery and proceeds of crime into a unified platform to improve enforcement efficiency. In addition, the budget proposes exploring state funding for political parties based on electoral performance, accompanied by mandatory auditing by the Auditor General. This aims to reduce reliance on opaque funding sources and strengthen democratic accountability.
Political parties and transparency
Budget proposes a framework for providing government funding to nationally recognized political parties based on votes received in the most recent general election. This issue has long been debated but has seen little progress. However, this proposal has also faced criticism, with some describing it as problematic or undesirable.
Foreign policy
The budget aims to strengthen balanced foreign relations based on mutual benefit, national self-respect, and sovereign interests, while mobilizing Nepal’s soft power to support economic prosperity. It seeks to enhance Nepal’s international presence through economic diplomacy, cultural identity, technology, and tourism. The budget also emphasizes strengthening Nepal’s role in the United Nations and other multilateral forums. It promotes regional connectivity and cooperation and highlights Nepal’s soft power assets, including Lumbini, Mount Everest, the Himalayas, yoga, meditation, cultural diversity, and peacekeeping contributions. The government also plans to strengthen diplomatic missions abroad and expand economic diplomacy to boost exports, trade, investment, and tourism.
Tax incentives
The budget outlines total expenditure of Rs. 2,124.34 billion, with nearly 60 percent allocated to recurrent spending, about 20 percent to capital investment, and the remainder to financial management. The information technology sector receives significant support, including a 50 percent tax exemption on export earnings and full tax relief on sweat equity. These measures aim to encourage startup growth and digital entrepreneurship. Additional incentives include tax exemptions for cinema halls outside major urban areas and support measures for foreign development banks operating in Nepal under specific conditions. The government identifies agriculture, tourism, industry, information technology, and human capital as key drivers of long-term transformation. However, the effectiveness of these priorities will depend on translating incentives into real investment and production growth.
Tax on health, education and electricity bills
The government’s decision to impose taxes on health and education has drawn criticism. It has introduced an education equity fee on all fees collected by private boarding schools. Similarly, a 3 percent tax has been imposed on private hospitals. Taxes have also been introduced on consumers using more than 50 units of electricity.
Debate over budget size
The size of the budget exceeds the ceiling suggested by National Planning Commission, which was Rs. 1.89 trillion. The current budget stands at Rs. 2.12 trillion for the fiscal year 2026–27. The budget is 8.15 percent larger than the current fiscal year’s allocation. Former finance ministers and economists have stated that implementation may be difficult due to its size. Of the total allocation, Rs. 1.27 trillion (59.8 percent) has been earmarked for recurrent expenditure, Rs. 431.1 billion (20.3 percent) for capital expenditure, and Rs. 422.64 billion (19.9 percent) for financial management. Former finance ministers have raised questions about the government’s capacity to secure the necessary resources for implementing the budget.
Cautious optimism of the private sector
The private sector has expressed optimism about the budget but says resource management remains a key challenge. Business leaders welcome revisions in customs duties, an increase in the income tax threshold for the middle class, the operation of closed industries under a public–private partnership (PPP) model, and innovation-focused youth programs. They note that past coalition governments often failed to implement policies effectively. However, with a strong government holding a near two-thirds majority, they expect better execution and economic recovery. Anjan Kumar Shrestha, President of the Federation of Nepalese Chambers of Commerce and Industry, said the increase in excise duties and customs adjustments are positive steps. He added that high tax rates have long increased costs and hindered business operations. Previously, there had been a demand to raise the income tax threshold to NPR 1.2 million, but the budget has set it at NPR 1 million. Overall, the budget addresses key private sector concerns, including tax reforms, legal improvements, and easier foreign currency repatriation. It also emphasizes digital infrastructure and industrial solutions. In its initial assessment, the budget appears positive and is expected to boost investor confidence.
How is Nepal’s economy faring?
The Economic Survey accompanying the budget presents a restrained outlook. Growth is projected at 3.85 percent, reflecting weak agricultural output, slow credit expansion, and subdued private investment. Despite high liquidity in the banking system, lending to the private sector remains limited. However, the external sector is strong, supported by record remittance inflows, which have strengthened foreign exchange reserves and stabilized the balance of payments. Inflation remains low, and social indicators continue to improve. Poverty has declined, life expectancy has increased, literacy has risen, and electricity access is nearly universal. However, structural weaknesses persist. The economy remains heavily dependent on imports, with exports forming a small share of total trade. Public debt is rising, and fiscal deficits remain a concern. Job creation remains weak due to insufficient investment. Nepal’s GDP is estimated at Rs. 6,609 billion. The economy is consumption-driven, with over 90 percent of GDP linked to consumption.
The service sector contributes 61.81 percent of GDP, agriculture 24 percent, and non-agriculture 76 percent. Agricultural growth is expected to slow to 1.58 percent, while non-agricultural growth is projected at 4.54 percent. Per capita GDP is estimated at $1,513, and per capita national income at $1,535. Significant regional disparities remain, with Bagmati Province at $2,644 and Madhesh Province at $934. Remittances rose 37.7 percent to Rs. 1,449 billion, helping maintain a current account surplus. Foreign exchange reserves reached Rs. 3,413 billion, sufficient for 18.5 months of imports. The trade deficit widened by 11.2 percent to Rs. 1,098 billion, while exports accounted for only 12.9 percent of total trade.
Inflation averaged 2.13 percent. Bank deposits increased by 6.64 percent, but private sector credit grew only 4.4 percent. Non-performing loans rose to 5.42 percent. Federal expenditure increased by 10.4 percent, while revenue rose only 3.2 percent, resulting in a fiscal deficit of Rs. 58.01 billion. Social indicators show progress: absolute poverty fell to 20.27 percent, multidimensional poverty to 17.4 percent, life expectancy reached 71.3 years, and youth literacy reached 94.2 percent. Electricity access reached 99.1 percent, and installed capacity reached 4,105 MW, with 3,798 MW from hydropower. Nepal exported 2,918 gigawatt-hours of electricity.
Conclusion
The budget is best understood as a reform-heavy economic roadmap set against slow and uneven growth. It is ambitious in scope, particularly in investment liberalization, digital transformation, artificial intelligence infrastructure, and energy reform. At the same time, it reflects the realities of a consumption-driven, remittance-supported economy with deep structural constraints. While macroeconomic stability provides space for reform, the main challenge lies in execution, institutional efficiency, and attracting sustained private investment. Ultimately, the budget represents a transition in intent rather than a guaranteed transformation in outcomes. It sets out a long-term vision for a more productive, technology-driven,
and investment-friendly Nepal, but its success will depend on how effectively these policies move from paper to practice in the coming years.
