Last few weeks, the media and the streets have been resonant with pro-monarchy voices. In response, some republican forces have decided to join forces in defence of the federal democratic republic, while others are ostensibly dismissing the royalist voices as mere nostalgia. The political spectacle, however, is symptomatic of another crisis—the government’s inability to deliver on its promises. This failure is exemplified by its inability to execute budgets effectively. Simply put, Nepal’s budget credibility is weak. As the state machineries prepare for the FY 2025/26 budget in the midst of the political theatrics, this is a good time to revisit why budget credibility matters.
The ordinary people are indeed frustrated with the major parties—particularly their power-driven leaderships. But what fuels this frustration underneath, for a majority, is those leaders’ apathy towards people’s everyday concerns. These everyday concerns, however, are not extravagant. Water doesn’t run when people turn on their taps, and electricity remains unreliable. Roads remain perpetually under construction, only to disintegrate at the first monsoon. Hospitals and schools are under-resourced. Jobs are scarce, nor is it easy to do business, while the cost-of-living soars. These and many similar basic concerns go unresolved despite the government promising change year in and year out, and people duly paying taxes for it.
This is where the budget comes in. At its core, the budget (or the fiscal policy) is the government’s annual promise—a plan for how it aims to improve people’s lives and move the country forward. Be it building roads, bridges, schools, or hospitals; or creating jobs; or providing fertilisers and agriculture subsidies to farmers; or expanding any social welfare programme; a government only pursues a programme that has been put in the budget for the fiscal year. Therefore, if a government executes its budget fully, the annual promises get delivered; and if not, they’re delayed at best, or dropped if they fail to make it to the next year’s budget.
Now, if we look back, for example, at the federal government’s budget performance, we see a troubling trend: the budget allocations (promises) far exceed the actual performance (delivery). In fact, the federal government has been making bigger promises each year, with no relative improvement in delivery.
If we consider the period from FY 2017/18 to FY 2022/23, promises have grown at an annual average growth rate of 7.24 percent, while actual performance has grown by 5.67 percent only. We should be careful though, to not view this latter data in isolation. Before attaching meaning to the growth rate of delivery, we should ask: How much of what was promised is actually being delivered each year? A good starting point is to look at the proportion of actual spending to allocated budget. In this regard, the government has only been spending about 80 percent of what it allocates each year, meaning the 20 percent of promised development never materialises.
This 20 percent deviation each year between promise and delivery means that our federal budgets are not credible. The implication of this degree of deviation is enormous. The Public Expenditure and Financial Accountability (PEFA) assessment, which is one of the most popular tools used to assess how well governments plan, spend, and keep track of public money, contains an indicator called “aggregate expenditure outturn” which measures the extent to which overall spending reflects the amount originally approved. A performance of up to five percent deviation in either direction is considered good, and one above 15 percent is considered poor. The 2024 PEFA assessment of Nepal gives our state a score of D, suggesting that ours is one of the poorest states in the world in terms of delivering on promise.
Consequences of weak budget credibility
From a citizen’s perspective, weak budget credibility implies that government is not delivering things that convert into the improvement of the living standards of the people. It means that that our public infrastructures like roads, bridges, hospitals, schools are not being built or serviced properly. It means that our public services like health, education, social welfare are being underfunded. All of this impact the well-being of citizens, particularly the most vulnerable populations.
For the state, it signals a governance crisis. A pattern of such consistent underperformance suggests that either budgets are inflated as governments engage in politics of populism, or that they are too optimistic because macroeconomic projections are unreliable, or both, as is the case when it comes to Nepal. In our case, we’ve also missed any chance whatsoever to test a stable government for a decent term which is the idea behind having regular elections, periodic development plans, mid-term expenditure frameworks and eventually annual budget. Constant political instability has meant that our fiscal policies are not coherent with election manifestos or development plans—long-term or medium-term. Regardless of the primary causal factor though, “incredible” budgets weaken accountability in part of the government, and citizens begin to lose trust in government institutions.
Need for a systemic fix
Now, some are suggesting that the way forward at this point is to go back to monarchy. Many others consider leaders from some new and alternative forces to be more competent, and thus favour them. However, having one or the other person at the helm does not in itself guarantee that everyday concerns are delivered on, or that they continue to be delivered on. For that, we need to fix the budget. We need to improve our public financial management system, i.e., the way in which the government goes about implementing its fiscal policy. A well-functioning public financial management, which is the sum of laws, institutions, systems, and procedures that guide the ways in which governments implement the fiscal policy, acts as an impartial and self-correcting mechanism, ensuring that resources are allocated efficiently and that budgets are implemented effectively.
Opportunity to rebuild trust
As the government prepares the next fiscal year’s budget, this is a pivotal moment to engage the public. At the moment, we’re already at a point where the Ministry of Finance has already requested budget proposals from ministries and central agencies. Now in April and May, there will be rounds of consultations. This presents a crucial opportunity to demonstrate that the government is willing to listen; that citizens have a stake in the process, and that their voices matter.
Afterall, a budget is not just a government document; it is a national contract that affects every citizen. Ensuring budget credibility therefore requires a truly collective effort from the political leaders, government agencies, civil society, the private sector, and most importantly, the public. Strengthening public participation in budget-making, and in oversight, will help ensure that allocations reflect real priorities and address pressing needs. At the same time, citizens must have clearer channels to track where their tax money is going, demand transparency, and hold the government accountable. The goal is not only to have a more credible budget but to ensure that every rupee spent translates into tangible improvements in people’s daily lives.
At this juncture where Nepal currently stands, there is a need to restore trust in government institutions, and for that, moving toward a budget system that delivers is one of the pre-requisites.
Akash Shrestha is a policy researcher. Views are personal.
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