KATHMANDU: Economic Digest presents a brief yet comprehensive roundup of major business developments in Nepal, delivered in clear and accessible summaries.
The developments of the week reveal a government attempting to balance fiscal consolidation, welfare expansion, and growth-oriented reforms amid persistent structural weaknesses in Nepal’s economy.
While the Rs 2.124 trillion budget has received support from major business groups and the banking sector for its investment-friendly measures, concerns remain over rising public debt, higher taxes on capital gains, electricity consumption, and commercial vehicles, which could dampen private-sector confidence and household spending.
Ambitious commitments such as free education and healthcare for low-income citizens, large-scale hydropower development, tunnel road expansion, and results-based provincial budgeting signal a push toward long-term transformation, but implementation challenges continue to cast doubt on delivery.
The continued losses of Nepal Railways, unresolved problems in agricultural insurance, sluggish infrastructure projects due to material shortages, weak real estate activity, and widespread inactivity among Kathmandu’s cooperatives underscore deeper governance and institutional shortcomings.
At the same time, rising gold prices, growing borrowing requirements, and concerns over smuggling point to broader economic pressures. Overall, the week highlighted a familiar paradox in Nepal’s policymaking: an ambitious reform agenda and significant infrastructure aspirations on one hand, and enduring fiscal, administrative, and execution constraints on the other.
Gold price surges by Rs 20,500 per tola
Gold prices in Nepal recorded a sharp increase, rising by Rs 20,500 per tola (11.66 grams) on Sunday, according to the Federation of Nepal Gold and Silver Dealers’ Association. The price of gold climbed to Rs 311,100 per tola from Friday’s Rs 290,600, marking a significant jump in the domestic precious metals market.
Nepal’s public debt continues to grow
Nepal’s rising budget deficit and expanding recurrent expenditure are increasing pressure on public debt management. Both the overall debt stock and debt-servicing obligations are growing, creating additional challenges for fiscal sustainability. In fiscal year 2026/27, the country’s total public debt is projected to exceed Rs 3.4 trillion. The government plans to mobilize Rs 657 billion through public borrowing while allocating Rs 318 billion for principal and interest repayments during the year.
Finance Minister Wagle defends Rs 2.124 trillion budget as realistic
Rejecting concerns that the new fiscal plan is excessively large, Finance Minister Swarnim Wagle defended the Rs 2.124 trillion budget for fiscal year 2026/27 as realistic and fiscally responsible. Speaking at a press conference at the Ministry of Finance on Sunday, Wagle said the budget represents a move toward fiscal consolidation, accounting for only 28.5 percent of the projected GDP of Rs 7.458 trillion. He noted that this marks a departure from previous years when budget allocations reached as much as 37 percent of GDP, bringing government spending more closely in line with actual fiscal capacity.
Govt plans free education and healthcare for low-income citizens
Prime Minister Balendra Shah has stated that the government is preparing a plan to provide free education and healthcare services to economically disadvantaged citizens. Responding to lawmakers during a meeting of the House of Representatives on Sunday, the Prime Minister outlined the government’s strategy for supporting low-income groups. Answering a question from Nepali Communist Party lawmaker Pramesh Hamal, Shah said Nepal must pay close attention to challenges such as the loss of export-related tariff exemptions and other trade benefits as the country prepares to graduate to developing-country status. He added that the government had proposed postponing the graduation process by a few years to allow Nepal more time to strengthen its export capacity.
Nepal Railways remains loss-making despite expansion plans
Despite government plans to expand the railway network and connect it to the Fast Track project, Nepal Railways Company Limited continues to record significant financial losses. According to the Economic Activity Study and Annual Report 2024/25 of Nepal Rastra Bank for Madhesh Province, operating expenses consistently exceed revenues, largely due to inadequate infrastructure and heavy dependence on ticket sales. The report stresses the need for maintenance facilities, workshops, fuel storage, washing bays, signaling systems, and skilled technical personnel to ensure the long-term viability of the Jayanagar–Kurtha–Bijalpura Railway.
New VAT on electricity consumption above 50 units may affect households
The government’s decision to impose VAT on monthly electricity consumption exceeding 50 units is expected to affect a large number of households. Under the new provision, consumers using more than 50 units of electricity per month will be required to pay a five percent VAT on their bills. Critics argue that the measure could discourage the use of electrical appliances and undermine efforts to promote domestic electricity consumption. Through Clause 55 of the Finance Bill, Finance Minister Swarnim Wagle proposed amendments to the VAT Act that would allow the government to collect the tax directly from end-users.
Capital gains tax increase dampens enthusiasm for market reforms
Although the fiscal year 2026/27 budget introduces several capital market reforms, investors remain concerned about higher capital gains taxes. The government has announced measures to facilitate investment by Non-Resident Nepalis, introduce derivative trading, and restructure the Nepal Stock Exchange. However, investors, brokers, and market analysts argue that the increase in capital gains tax makes the budget appear more focused on revenue collection than on encouraging investment and market growth.
Budget supports expansion of tunnel road infrastructure
Tunnel road development continues to gain momentum in Nepal, with three tunnels currently under construction at Lendanda, Dhedre, and Mahadevtar along the Kathmandu–Terai/Madhes Expressway. Additional works are underway at Devichaur, Sisautar, and Chandrambhir. In the new budget, the government announced plans to advance more tunnel projects during the coming fiscal year. Earlier budgets had already allocated funds for the Lamabagar and Dharan–Leuti tunnels, while discussions have also been held regarding the proposed Majhimtar–Shaktikhor–Jogimara tunnel road.
Budget leaves agricultural insurance challenges unresolved
The budget for the upcoming fiscal year has once again failed to address longstanding issues in Nepal’s agricultural insurance sector. Rather than introducing reforms, the government has reduced funding for insurance premium subsidies compared to the current fiscal year and has not announced any major modernization measures. While the budget states that up to 80 percent premium subsidies for crop and livestock insurance will continue, with other subsidies gradually being phased out, stakeholders note that the Crop and Livestock Insurance Subsidy Guidelines had already been revised in October 2024, leaving many structural problems unresolved.
Real estate developers call for policy reforms
The Nepal Land and Housing Developers’ Association has urged the government to introduce policy reforms and supportive measures to revive the struggling real estate sector. During its 19th annual general meeting, the association highlighted the difficulties facing the housing and land development industry and argued that inconsistent government policies have pushed many developers into financial distress while making homeownership increasingly difficult for ordinary citizens.
Government raises annual taxes on commercial vehicles
The government has increased annual income tax rates on a range of commercial vehicles, raising operating costs for public transport operators and businesses. The revised rates, which are collected during vehicle registration and renewal through transport management offices, increase taxes on vehicles from small cars to larger and electric vehicles by between Rs 1,000 and Rs 2,500. Under the new structure, the annual tax on cars, jeeps, vans, and microbuses with engine capacities of up to 1,300cc has risen from Rs 5,500 to Rs 6,500.
Smuggled synthetic fabrics continue to challenge domestic textile industry
Industry representatives have warned that smuggled synthetic fabrics are undermining Nepal’s textile market by creating unfair competition for domestic businesses. While cotton garments imported from India benefit from preferential treatment under the South Asian Free Trade Area agreement, higher customs duties and VAT on synthetic textiles in Nepal have widened price differences in border markets. Nepal currently imposes a 15 percent customs duty and VAT on synthetic fabric imports, encouraging illegal cross-border trade, according to industry stakeholders.
More than 4,300 apply for vacancies under tourism ministry agencies
More than 4,300 individuals have applied for positions in a roster system created to fill vacancies across 17 agencies under the Ministry of Culture, Tourism and Civil Aviation. The ministry received 4,348 applications following a call issued on May 14, including 3,414 men, 921 women, and 13 applicants identifying outside the gender binary. Authorities have already appointed four board members to Nepal Airlines Corporation and selected one candidate as Director General of the Civil Aviation Authority of Nepal.
Govt adopts authority model for Budhigandaki hydropower project
The government has announced that the 1,200 MW Budhigandaki Hydropower Project will be developed through an autonomous authority model. The budget also commits to completing the financial closure of the 670 MW Dudhkoshi Storage Hydroelectric Project and beginning the tender process. In addition, the government has pledged support for nearly 3,000 MW of hydropower projects being advanced through Investment Board Nepal, including the 900 MW Arun III Hydroelectric Project and the 669 MW Lower Arun Hydropower Project.
Lumbini residents welcome focus on Siddhababa Tunnel
Residents of Lumbini Province have welcomed the federal government’s decision to prioritize completion of the Siddhababa Tunnel during the current fiscal year. The Siddhababa section has long been known for landslides and frequent travel disruptions. Once completed, the tunnel is expected to improve safety and reliability along the Butwal–Palpa–Pokhara corridor. The budget also includes plans to develop the Butwal–Pokhara section of the Siddhartha Highway into an expressway.
CBFIN says budget can support economic recovery
The Confederation of Banks and Financial Institutions Nepal has expressed confidence that the fiscal year 2026/27 budget can help stimulate the economy. In a statement, the confederation said the budget’s policy reforms and structural measures could boost investor confidence, encourage private-sector participation, and support the transition toward a production-oriented economy. CBFIN noted that the measures are particularly important given the current economic challenges facing the country.
Construction material shortages slow Dhulikhel–Khawa road project
Work on upgrading and blacktopping the Dhulikhel–Khawa section of the Arniko Highway has slowed due to shortages of construction materials. Although the project has entered its final phase, progress has weakened in recent weeks, disappointing residents and travelers who have long dealt with dust, mud, and traffic congestion. According to the Bhaktapur Road Division Office, blacktopping work continues gradually from the Dhulikhel junction despite supply constraints.
Koshi Province shifts toward results-based budgeting
The government of Koshi Province plans to introduce a results-oriented budget for fiscal year 2026/27 by reducing distribution-focused programs and emphasizing measurable outcomes. Economic Affairs and Planning Minister Bidur Lingthep told the provincial assembly that future spending will prioritize agriculture, industry, tourism, infrastructure, health, and education while focusing on production growth, employment generation, economic expansion, and completion of unfinished projects.
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