Nepal Budget 2026-27: Ambitious Goals, Questionable Math

Nepal's Finance Minister Swarnim Wagle has unveiled an ambitious budget for fiscal year 2026-27, aiming for 7 percent economic growth despite a challenging economic landscape. The budget, totaling Rs 2,124.34 billion, acknowledges structural problems and proposes a cleaner tax system.

Key reforms include a significant overhaul of the personal income tax, raising the exemption threshold to Rs 1 million and applying a nominal 1 percent tax. This move aims to bring informal incomes into the formal system, offering individuals a formal record and potential access to credit. The budget also compresses the 11-tier customs structure to seven, removes excise on 360 goods, and clarifies capital gains tax on shares. The abolition of 31 agencies and partial divestment of Nepal Telecom are also part of the reform package.

Despite these positive structural changes, the budget's financial viability is questioned. The government proposes to spend Rs 2.12 trillion while aiming to raise Rs 1.4 trillion in revenue, a target set concurrently with tax rate reductions. The minister's own figures indicate a halving of average annual revenue growth and a slide in revenue-to-GDP ratio. Bridging the projected Rs 657 billion deficit through Rs 247 billion in foreign loans and Rs 410 billion in other financing raises concerns about prudence versus political expediency.