The federal structure is consuming most of the budget. Increasingly, the low proportion of development expenditures shows that budgets are not for the people at large
The world economy has changed swiftly since the return of Donald Trump as U.S. President in January 2025. In his first 100 days he has introduced a series of economic measures, especially tariffs on goods and commodities imported. In return, other countries have also reciprocated by imposing tariffs on goods imported from the US.
The tariffs vary from country to country, with Chinese goods bearing the highest. Tariffs on Nepalese goods are about 10 per cent while for other South Asian countries they are much higher.
In addition, the Department of Government Efficiency, created by the President under Elon Musk, has dismantled USAID and reduced the size of civil servants in a bid to drastically reduce America's debt. Whatever Trump is doing he is doing to put America's priority first.
At present, US funding support to Nepal is virtually nil. This has affected almost every sector of the Nepalese economy. There are both positive and negative sides to it. Positive in that it has taught us to depend less and less on external support. The negative aspect to it is that it has made the Nepal government to look for alternative funding sources in a very short period.
Against the changing international economic order, Nepal needs to work out economic policies that are less dependent on external donors while promoting and strengthening economic growth from within. The Ministry of Finance claims that the economy is not in a bad shape; it has set a target of achieving GDP growth of 6 per cent, while in the first quarter of the current FY, the growth rate was only around 3%.
Since 1990/91-2024/25, 36 budgets have been presented in the parliament, and of them only the first four budgets allocated above 62 per cent to development expenditures. The GDP growth was also the highest at 8 per cent in 1993/94. The proportion of development expenditure in the total budget declined from 57 per cent to 51 per cent in the following nine fiscal years until 2001/02. Before Nepal was declared a Federal Democratic Republic in 2005/06,the development expenditure was the lowest at 39 per cent, and this budget was presented by Bharat Mohan Adhikari. In 2006/07 too, Madhukar S. J. B. Rana allocated only 40 per cent as development expenditure. In the subsequent years, barring a few exceptions, most budgets allocated less than 40 per cent as development expenditure. Since 2018/19, development expenditure has hovered at around 35 per cent.
Clearly, the Federal Republic is a costly structure for Nepal. Besides, only about 35 per cent of the meagre development expenditure is spent because of bureaucratic hurdles. It is said that the federal structure is consuming most of the budget. Increasingly, the declining proportion of development expenditures shows that budgets are not for the people at large, rather they are for the politicians.
Nepal's trade is not favourable for growth. Nepal's export volume is not even 10 per cent of the import volume. Import duties help the government to collect revenue, but this is not sustainable for growth. Despite being an agrarian society, a large amount of hard-earned foreign currency through tourism and remittance is spent on feeding the population by importing cereals. Every year, a large number of Nepal's youths leave the country in search of better education and employment. Nepal does not have any plan for capitalising on the demographic dividend.
Nepal government's development projects entail huge investments, and they are called "national pride projects", but they take ages to complete. Although such projects if completed on time would contribute immensely to the growth of the economy, no timeline is set for them, and many of them have failed. There are many more problems on the economic front.
In order to address economic problems, the government must put in place a number of policies, and make plans, enact laws and prepare activities to implement them strictly. First, the government should be pro-nationalist, and import-substitution policies are needed. Second, strict economic austerity measures are needed. Ruthless measures are needed to cut down on unnecessary expenses such as buying of expensive vehicles, unproductive infrastructure, study tours abroad, perks and fringe benefits for politicians and bureaucrats, lifelong financial and other support to persons retiring from high-level positions. Third, highest priority should be given to productive investments; the government must have strong will power to resist unproductive investments. Fourth, introduce concrete policies to attract FDI. Fifth, given that the current government is a coalition of two big parties, they can amend the Constitution to reduce the representatives in the Federal and Provincial parliaments.
President Trump has accused Nepali politicians of using US$19 million a year on fiscal federalism, which implies that federalism was pushed by an external force. The current size of the Parliament stands at 275 members, translating to approximately 106,000 people represented by one parliamentarian. This ratio is relatively low compared to neighbouring countries. In India, one parliamentarian represents around 2.5 million people; in Pakistan, the figure is about 759,000; and in Bangladesh, it is approximately 500,000. In contrast, Nepal's representation ratio appears disproportionately high. Reducing the number of members in the lower house to 170 would adjust this ratio to roughly 172,000 people per parliamentarian.
Similarly, Provincial Assembly members can be reduced to half the current size. In addition, the number of provinces can be reduced to 3. This would reduce the recurrent expenditure of the government and help raise development expenditure to 60 per cent or more. Also, when a large population elects a candidate, money will not be a decisive factor; the voters will look for a credible candidate instead.
