Bigyan Adhikari
Kathmandu, Nov 26: Since the 1990s, Public Financial Management (PFM) reform has been a core component of governance reform strategies, aiming to strengthen government revenue, budget allocation, project management, expenditure control, and public–private partnerships. These reforms are expected to improve the investment climate, maintain price stability, and enhance overall financial accountability. Nepal has also adopted expenditure management strategies and implemented the Public Expenditure and Financial Accountability (PEFA) framework.
Despite these efforts, Nepal’s budget management has not ensured macro-fiscal discipline. Fiscal reforms remain inadequate and mostly procedural, resulting in weak macro-level discipline and poor institutional performance. This has negatively affected poverty reduction, public service delivery, economic growth, and sustainable development. Key policymaking bodies—including the Ministry of Finance, National Planning Commission, and Nepal Rastra Bank—must strengthen their role in shaping budget size, fiscal policy direction, and inflation targets, all of which are constrained by political and bureaucratic bottlenecks.
Nepal’s budget has traditionally been viewed as a treasury management exercise rather than an integrated policy instrument. It has not been developed as a framework connecting national goals, strategies, priorities, and economic activities. Consequently, national objectives related to growth, employment, and development remain unmet. Key elements of macro-fiscal discipline—budgeting principles, allocation criteria, classification standards, loan and aid management, private-sector mobilization, intergovernmental fiscal relations, and strengthening the national economic base—remain weak.
Parliament’s economic oversight is also limited. It approves but does not shape or amend the budget, lacks the ability to audit extra-budgetary funds or public debt, and does not receive adequate information on climate finance, disaster funds, gender-related spending, and inclusion programs. Despite the Right to Information (RTI) law, transparency and proactive disclosure remain weak, and citizens are not effectively engaged in accountability processes.
A major challenge is the inability to integrate off-budget expenditures into the national treasury system. Extra-budgetary funds, donor assistance, and technical support remain outside parliamentary approval and public audits, undermining democratic and constitutional norms. Although Article 116 mandates depositing all government revenues into the Federal Consolidated Fund, multiple operational funds continue to operate outside this system, with risks of expansion across provincial and local governments.
The financial accountability structure is hierarchical and opaque. Performance contracts have become perfunctory, and institutions lack integrated indicators that link resources—funds, manpower, and time—to performance outcomes. The SIGAS accounting system could enhance this linkage but remains underutilized.
Constitutional provisions on disaster management funding (Article 124) are also poorly implemented. Multiple overlapping funds exist at federal, provincial, and local levels, reducing oversight and increasing the risk of irregularities. Similar inconsistencies are evident in revenue distribution from mountaineering and forest resources, where constitutional revenue-sharing ratios are not properly followed.
Intergovernmental fiscal relations remain unsystematic. Budget schedules were designed to ensure coordination between federal, provincial, and local governments, but technical linkages have not developed sufficiently. This has resulted in duplication of programs, inconsistent standards, and uneven implementation. Resource allocation also lacks clear criteria, leading to ad hoc decisions influenced by political actors, creating geographic and social disparities and undermining the principles of equitable budgeting.
To ensure strategic resource allocation, Nepal adopted the Medium-Term Expenditure Framework (MTEF) during the Tenth Plan, made mandatory by the Intergovernmental Fiscal Management Act, 2017 and reinforced by the Public Finance Procedures and Accountability Act, 2019. Although the MTEF was intended to strengthen resource planning, results tracking, monitoring, and accountability, it has been treated largely as a formality. As a result, annual development programs have become ad hoc, and the project bank, annual budget, and periodic plans remain disconnected. Budget-announced policies are not systematically reviewed to guide or regulate the cooperative, private, and non-government sectors. #nepal #finance #PFA
