Kathmandu, Nov. 15
Within a couple of
weeks of his assumption of the post of Finance Minister, Rameshore Prasad
Khanal initiated a drive to apply austerity measures in all forms of public
expenditure – development, operational and financing.
While this is a
practice announced by various governments in the past but implemented very
poorly, this transition government seems determined curbing the expenses that
are adding burden to the state coffers.
"The Ministry is
earnestly implementing the newly announced budget
control measures to improve fiscal responsibility and ensure efficiency in
public fund mobilisation," said Tanka Prasad Pandey, Spokesperson of the
MoF.
According to him, scrapping of small-scale,
redundant and scattered projects will help in generating Rs. 120 billion.
However, it will take a while to estimate the actual financial savings made
through the control measures applied in recurrent expenditure.
Speaking at a programme in Kathmandu on
Thursday, FM Khanal said that more than 1,000 security personnel and 30
vehicles were returned by the pervious office holders who were availing of the
facilities beyond legal provisions. He expressed his commitment to implementing
fiscal discipline and supporting the private sector through various incentives.
Through a directive,
the Ministry of Finance (MoF) decided to suspend projects without preparatory
works, that have duplicate entries, and that are outside the core objectives of
the respective agency. Through the scrapping of more than 1,200 piecemeal
projects, the government said to had saved about Rs. 120 billion. The Ministry
of Physical Infrastructure and Transport is leading this drive.
All small and
low-priority projects will be transferred to provincial or local governments
while no multi-year funding approval will be granted for newly listed projects
or procurement purposes entered in the current Fiscal Year 2025/26. The Finance
Ministry also made a move not to implement projects costing above Rs. 1 million
through consumer committees, while also checking the practice of splitting
projects into small units with an aim to implement them through such
committees.
In terms of recurrent expenditure, allocated
funds were suspended from the programmes with unclear operational modality and
unguaranteed outcomes and comprising unproductive activities. There will be no
meeting allowances for regular work, except for committees formed in accordance
with the law. The directive also barred the government agencies from
outsourcing consultants for the tasks that can be performed internally, and
also from buying new equipment and materials as far as possible.
It scrapped the practice of appointing
advisors and personal secretaries except for big-five ministers. Most of the
foreign visits were also suspended.
The Finance Ministry
said that need and justification for advisors and personal secretaries, while
the availability of the latter has discouraged the office-bearers from studying
and understanding matters themselves. "Some personal
secretaries have emerged as intermediaries as well," it said.
Suman Dahal, Joint
Secretary and Chief of Budget Division at the MoF, had earlier said that the
provisions were implemented to ensure that ongoing,
nationally significant and strategic projects—initiated with prior approval of
funding sources—do not face budget shortages.
According to him, since the present
government has a mandate until the next election, slated for March 5 next year
– it doesn't want to create long-term liabilities. "With the scrapping of
sick projects and contracts, a large amount of funds has now been at the
disposal of the government," he had said following the announcement of the
directive.
The MoF said that the
scrapped projects and programmes were incorporated in
the budget based on political influence, pressure and connections rather than
clear identification. They were also identified without maintaining regional
balance.
The directive has also eliminated the trend
of holding unnecessary meetings simply to claim allowances even for regular
work, and hiring consultants for routine tasks. Allowances can still be given
for meetings held outside of office hours for legally established committees.
A requisite reform
As a former Secretary
of Finance who resigned from the post in March 2011, on the pretext of impunity
to about 450 business firms that did not pay the Value Added Tax (VAT) or that
fraudulently claimed excess VAT refund, FM Khanal's move was expected.
He was also critical of
the supplementary budget that then Finance Minister Bharat Mohan Adhikari
wanted to bring about. Khanal’s reason was: cheating on VAT and moving to
announce a supplementary budget were against fiscal discipline and
counterproductive to the national economy.
Khanal has the
advantage of not being among the political leaders from various levels and
under the pressure to allocate budgets to politically-motivated projects and
programmes, many of which were used as an instrument to win an election.
Finance ministers like Dr. Yuba Raj Khatiwada, Dr. Prakash Sharan Mahat and
Surendra Pandey couldn't fully implement their visions on economic reforms.
FM Bishnu Prasad
Paudel had announced the control measures three years ago but it was limited to
rhetoric only. It could bring no change.
The very political
reasons and the finance ministers’ lack of desire hindered them from
implementing the recommendations made by the Public Expenditure Review
Commission, led by economist Dr. Dilli Raj Khanal.
Then Minister for
Urban Development Ram Kumari Jhakri had barred consumer committees from
construction projects, saying that the construction work implemented by them was
of low standard. But consumer committees prevailed even though the Commission
for Investigation of Abuse of Authority (CIAA) questioned the quality of their
work multiple times.
Positive but inadequate
Economist Dr. Khanal termed the
government's move 'a positive initiative' but maintained that it’s inadequate
and more should be done to maintain fiscal discipline.
"Nepal needs reforms in public
expenditure as its public capital stock is in a downward trend since 1990,
while government expenditure size is in a higher proportion in South Asia
except India," he said.
He pointed to the need for project-level
restructuring, stating that only strategic and urgent projects should be
announced and implemented with calculation of input, output, outcome and
impact, he said.
Dr. Khanal is particularly critical of
various committees formed by the government and the mismanagement of funds and
low productivity in public enterprises. "Without these actions, you can't
make real reform sought by the youth through the Gen Z movement," he said.
'Provinces' autonomy is infringed'
Meanwhile, provinces have expressed their
concerns that the federal government's directive shouldn't be forcefully
implemented there. The provincial ministers for economic affairs have been
arguing that provinces have the autonomy to make their own decisions, and if
changes are needed in provincial laws, they must be amended accordingly.
Rewati Raman Bhandari and Prabhat Kumar
Tamang, economic affairs ministers of Koshi and Bagmati, are particularly vocal
about it. "Forcing the provincial governments to follow the federal
decisions is unconstitutional and against the essence of federalism. This is an
encroachment of our jurisdiction," said Minister Tamang, pointing to the
need to scrap unnecessary federal agencies and structures.
The Bagmati government has recently formed
a committee to look into administrative restructuring and is considering scrapping
the councils that are irrelevant.
While FM Khanal said, during his visit to
Biratnagar in September, that the federal government's decision did not nullify
provincial laws, it could impose restrictions on how federal grants are used.
According to Dr. Khanal, on the pretext of
rights to design and implement programmes, misconduct is on the rise at the
subnational levels. It should be immediately checked.
But Minister Tamang remarked that the
grants were set by the National Natural Resources and Fiscal Commission, and
the provinces were receiving a small portion of the annual budget. "Seven
provinces receive only about 10 per cent of the annual budget while 69 per cent
is mobilised by the federal government," he said.
Earlier, in September, the Finance Ministry
had said that the federal government can set standards and procedures for
public expenditures. The Financial Procedures and Fiscal Responsibility Act,
2019, has authorised it to make necessary arrangements for regulating and
systematising the economic procedures of the federal, provincial and local
levels.
Section 24 of the Act authorises the MoF to
prescribe expenditure standards to ensure uniformity and promote austerity, and
all officials of government bodies are obliged to comply.
Likewise, Section 34 of the
Intergovernmental Fiscal Arrangement Act, 2017 also authorises the federal
government to issue directives to provincial and local levels on financial
matters in order to regulate budgets, expenditure and maintain fiscal
discipline.
Exporters want incentives to continue
The private sector has
registered its strong objections to scrapping the incentives to businesses and
exports, and expressed concerns about the implementation of the relief measures
announced for the businesses affected by the Gen Z movement.
"Relief has been
announced, but it’s yet to be implemented even after more than two months.
Entrepreneurs should be provided with the support to boost their
confidence," said Chandra Prasad Dhakal, President of the Federation of
Nepal Chambers of Commerce and Industry (FNCCI).
Although the
government has formally announced the scrapping of incentives on exports,
entrepreneurs are hopeful of its resumption. "Actually, the subsidies on
exports were brought to nominal by the previous government. However, since the
finance minister, chief secretary and other ministers are positive, we are
hopeful of availing the facility," said Pashupati Dev Pandey, President of
Garment Association of Nepal.
According to him, if
the government feels that the subsidies were misused, parameters should be
revised to discourage such practice but products having above 30 per cent value
addition should be entitled to export subsidies.
Pandey also suggested
that if the government is short of funds, cash incentives can only be given to
third-country exports.
Especially, in the
wake of the reciprocal tariff promoted by the United States, producers should
be incentivised since the production and transportation costs in Nepal is
significantly high compared to other South Asian peers, according to the
entrepreneurs.
Published in The Rising Nepal daily on 16 November 2025.
