On Jestha 15 (May 29), Finance Minister Dr Swarnim Wagle presented a budget of Rs 2.124 trillion for the next fiscal year in the joint session of Parliament. Prior to the budget announcement, the ruling party, Rastriya Swatantra Party (RSP) and Finance Minister Dr Wagle had promised to deliver something extraordinary, almost as if a single budget would solve all the accumulated problems of the past decades.
Of course, no one-year budget can transform an economy overnight. However, if it adopts the right direction and takes a policy departure, it can benefit the economy in the years ahead.
So how did this much-publicized and highly anticipated budget turn out? We asked former Finance Minister Surendra Pandey. "The budget contains big discussions and claims, such as changing the very character of the state and transforming the structure of the economy. It is full of high-sounding language. It even talks about drawing a completely new map of the country. But despite the language, I do not see many genuinely new ideas in it."
In other words, no matter how attractive the language sounds, a budget without an ideological clarity cannot deliver meaningful results. We asked Pandey again: "So, is there a mismatch between what is being said and what is being done?"
"Yes, there is. Looking at how funds have been allocated and how tax policies have been designed, I do not see any new blueprint capable of fundamentally changing the state or the economy. It largely continues what has been done in the past. It is essentially a continuation of the status quo."
Expanding on this point, Pandey said: "People ask me whether this budget follows a liberal path that promotes the private sector or embraces a socialist direction. What exactly is its orientation? My answer is that it contains elements of both. What existed before continues to exist now."
He believes the budget has not moved beyond traditional, ritualistic policymaking. For example, there have long been arguments that the senior citizen allowance has become ineffective or unnecessary.
"Yet the government could not abandon it. Instead, it suggested that those who can afford to should voluntarily forgo senior citizen allowance while those in need should receive it. The Finance Minister has repeated that same approach. But the state itself should clearly say, 'You belong to the upper or middle class and are financially capable; therefore, you are not eligible for this allowance."
Just one day after the budget was unveiled, on Saturday, amendments to the Economic Bill began. The Economic Bill, which is an important part of budget, contains detailed provisions regarding tax rates and other fiscal measures. In recent days, the government has been amending the bill almost daily.
This has sparked debate: Can a bill already tabled in Parliament be altered in this manner?
"Generally, no," says former Finance Minister Pandey.
He recalled an experience from his own tenure: "When I was Finance Minister, there was no possibility of passing a new budget because the Prime Minister had already resigned. As a caretaker government, we were compelled to continue the previous year's tax policies. At that time, India had increased customs duties on gold while gold remained cheaper in Nepal. As a result, gold began flowing from Nepal to India. Within a few months, Nepal imported NPR 41 billion worth of gold, putting significant pressure on our foreign exchange reserves. Using Section 18 of the Economic Act, I increased customs duties. The opposition strongly criticized the move. In principle, tax rates can be adjusted, but there is a process. The Ministry of Finance must take the proposal to the Cabinet, and once approved, it must be presented to Parliament for endorsement. But introducing a budget today, amending it tonight, and changing it again tomorrow does not demonstrate maturity. The principle is that once a budget is presented to Parliament, not even a single rupee should be altered. Everything must be read before Parliament, and only what is read becomes law."
The government enjoys a parliamentary majority and is often described as a government of young leaders. Many expected bold policy departures. Yet the budget has imposed additional taxes on education and healthcare.
Is the state now trying to bring education and health services further into the tax net? How practical is that?
Pandey says: "I do not fully understand this decision. During the tenure of former Finance Minister and Prime Minister Dr Baburam Bhattarai, a 5 percent education and health service fee was imposed on private hospitals and schools. Later, when I became Finance Minister, I reduced it to 1 percent."
At the time, a fundamental question arose: "Who would actually bear this tax? Would schools pay it from their income, or would they pass it on to students and parents through higher fees? If schools paid it themselves, they were already paying income tax. If parents paid it, then it became a direct financial burden on them. Even ordinary families in rural areas make great sacrifices to send their children to private schools. Why place additional burdens on them? Eventually, the provision was removed."
However, Dr Wagle appears to have revived a similar approach of Dr Bhattarai.
“Even in developed capitalist countries like the US, education up to Grade 12 is free. They collect property taxes and invest a substantial portion of those revenues in education. We do not have such a model. Therefore, there is a possibility that this provision may eventually have to be withdrawn again.”
Pandey suspects that pressure to raise revenue may have led to such decisions. In Nepal, budget-making often begins with expanding expenditures rather than estimating available resources first.
He agrees: "Ideally, expenditure should be determined after assessing available resources. But our practice is the reverse. Every Finance Minister wants to make the budget slightly larger and announce a few new programs. Dr Wagle has done the same."
According to him, revenue pressure often drives such policy choices.
At present, revenue growth is very weak, around 7 percent. Even collecting Rs 1.2 trillion in revenue during the current fiscal year will be difficult. Yet the government has set a target of more than Rs 1.58 trillion for the next fiscal year.
Pandey believes this target is unrealistic because almost all collected revenue is consumed by salaries, pensions, social security allowances, and grants to provincial and local governments. A huge amount is also spent on debt servicing.
"After all that, how much money is really left for development projects as capital expenditure?" he asks.
We then asked whether the government's target of 7 percent economic growth could be achieved.
Pandey was unconvinced. "It does not seem possible. To achieve 7 percent growth, every sector would need to record strong average growth rates. This year, approximately Rs 400 billion was allocated for capital expenditure, but only around Rs 100 billion has been spent so far. Next year appears similar. How can capital expenditure of only Rs 150-200 billion generate 7 percent economic growth?"
In his view, the budget neither discourages capitalists from doing business nor fully incentivizes them. “It has come through a middle path.”
Nepal, he argues, is currently facing a serious economic situation. “Yet this budget treats the situation as if everything is normal. It lacks both the necessary focus and the boldness required to address the country's economic challenges.”
Watch the full video conversation with former Finance Minister Surendra Pandey on Nepal Khabar's 'Tatkalai'.
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