Nepal budget lacks measures to absorb surging bank deposits, analysts say

Nepal's banking system is awash with cash, holding over Rs1.4 trillion in potentially lendable funds. Remittance inflows are at record highs, and foreign exchange reserves have climbed to an unprecedented Rs3.494 trillion, with the current account and balance of payments comfortably in surplus. Despite these robust external indicators, the fiscal year 2026-27 budget, presented by Finance Minister Swarnim Wagle, has received mixed reviews.

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Allowing strategic infrastructure projects to raise investment directly from the domestic market secures project capital without placing an additional fiscal burden on the state treasury.

While the budget introduces investment-friendly reforms, analysts contend it falls short of tackling the core structural problems hindering the deployment of idle funds and the revitalization of an economy suffering from prolonged low demand. Even with historically low interest rates and eager banks, businesses are hesitant to borrow, prioritizing capital safety and predictable returns over cheap credit.

Industry insiders point to the lingering effects of recent socio-political upheavals, including a Gen Z movement that challenged traditional business networks, as a factor in the private sector's caution. Experts emphasize the state's failure to provide a significant fiscal stimulus to restore business morale. Economist Nar Bahadur Thapa suggested the government should have adopted an off-budget, self-funding model, similar to the Upper Tamakoshi Hydroelectric Project, for key infrastructure projects like the Budhi Gandaki Hydroelectric Project, West Seti, and Nijgadh International Airport. This approach, he argued, would secure capital without burdening the state treasury and simultaneously absorb excess liquidity.

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The government should have used this budget to announce clear development blueprints for high-yield ventures such as the Budhi Gandaki Hydroelectric Project, West Seti, and the Nijgadh International Airport under this specific framework.

Thapa noted that while the budget broadly mentions raising project finance outside the standard system, it lacked specific eligible projects. The budget formally commits to boosting investment and restoring business confidence, but the effectiveness of its execution on the ground remains the primary concern.

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The budget speech makes a broad, generic reference to raising project finance outside the standard budgetary system. However, it would have been more impactful had the government specified eligible projects.