Government of Nepal

Ministry of Finance

Fiscal Policy Statement for Fiscal Year 2023/24

I. Introduction
1. Budget for fiscal year 2023/24 is directed towards achieving
high, sustainable, broad based and inclusive economic growth
by boosting the confidence of the private sector, reducing
transaction costs and improving effectiveness of public
expenditure. Creating employment opportunities along with the
expansion of income generating activities for the marginalized
people and communities has been accorded high priority. This
budget aims to achieve prosperity, ensure effective governance
and social justice for Nepali Citizen.
2. The government has maintained a prudent financing strategy to
support economic growth by maintaining macroeconomic
stability as well as fiscal and debt sustainability. The government
will continue efforts to improve public investment management,
budget execution, domestic resource mobilization and adopt a
prudent mix of domestic and concessional external borrowings
to reduce financing costs.
3. The macroeconomic framework and fiscal policy statement for
FY2023/24 is based on the policies set on the Fifteenth Plan and
Medium-Term Expenditure Framework (MTEF) for FY2023/24-
FY2025/26. The MTEF incorporates medium-term fiscal
framework (MTFF), medium-term result framework (MTRF), and
medium-term budgetary framework (MTBF). It includes current
state of the economy and projections of fiscal parameters for the
next three years. MTRF includes information of indicators and
performance against current targets, and projections for the next
three-year’s results based on the government’s projects and
programs. MTBF includes budget and projections of sectoral
allocation for the next three years, and information of major
projects and programs. The targets outlined in the MTEF and the
Fifteenth Plan serve as a basis for determining resource
envelope for a sustainable fiscal path over the medium-term.
 4. The objectives of FY2023/24 budget are: (i) to achieve broad-
based, sustainable and inclusive economic growth to make
economy vibrant; (ii) to ensure quality social development, social
security, and social justice; (iii) to boost up private sector
confidence by promoting investment-friendly environment and
reduce poverty through the creation of income generating
opportunities and gainful employment; (iv) to maintain macro-
economic stability; (v) to strengthen federalism and good
governance; and (vi) to enhance effectiveness of public
expenditure through budgetary reforms.
5. Accordingly, the priorities of FY2023/24 budget are: (i)
development of agriculture, energy and tourism sectors; (ii)
investment promotion, industrial development, and improving
trade balance; (iii) social sector development and social security;
(iv) quality infrastructure development; (v) promotion of digital
and green economy; (vi) environment protection, climate change
and disaster management; (vii) human resource development
and employment generation; (viii) financial sector development;
(ix) strengthening fiscal federalism and service delivery; and (x)
improvement in fiscal system.
II. Macroeconomic Framework and Fiscal Policy Statement
6. Macroeconomic framework. It is estimated that the economy
will grow by 2.2 percent in FY2022/23, down from the revised
estimate of 5.3 percent in FY 2021/22, owing mainly to a
contraction in manufacturing industry, construction sector, and
retail and wholesale trade. These sectors together contribute to
about 28 percent of GDP. Adoption of some tight monetary
policies in FY2022/23 helped maintain external sector balance in
the current fiscal year. However, it resulted in a significant fall in
merchandise imports. Fall in merchandise imports caused a
decline in the revenue. Further, it weakened aggregate demand.
While public investment contracted by 13.5 percent and private
investment marginally increased by 0.1 percent, final
consumption expenditure has increased by 8.3 percent. Lower
than expected capital spending and recurrent spending
rationalization, partly due to lower revenue mobilization, also
affected economic activities and banking sector liquidity.
 Consumer price inflation averaged 7.9 percent in the first nine
months of this fiscal year.

7. Credit flow to private sector has grown at a slower pace during

the first 10 months of FY2022/23 compared to the corresponding
period of the previous fiscal year. In the month of May 2023, the
weighted average interest rate of 91-days treasury bill remains
at 9.7 percent, while inter-bank rate remains at 7 percent,
deposit rate 8.3 percent and lending rate 12.8 percent. The high
interest rates are attributed to the increase in cost of borrowing
and fall in demand for credit by private sector.

8. Meanwhile, during the first 10 months of FY2022/23, trade deficit

has decreased by 15.9 percent compared to an increase of 24.9
percent in the corresponding period of the previous fiscal year.
During the period, remittance inflows increased by 23.4 percent
partly due to the sharp increase in the number of out-migrants.
Likewise, tourism sector is gaining momentum mainly after the
setback of Covid-19 and therefore, travel receipt has significantly
increased by 93.8 percent. Consequently, the current account
deficit dropped to Rs.54.7 billion compared to a deficit of
Rs.545.1 billion in the same period of the previous fiscal year.
During this period, the balance of payments has remained at a
surplus of Rs.214.7 billion and foreign exchange reserve is
sufficient to finance the import of goods and services equivalent
to 9.7 months. The external and overall debt are assessed at low
risk of debt distress.

9. Fiscal stance. Against the backdrop of a slowdown in economic

activities, there is greater need to increase investment in
infrastructures to meet the infrastructure need and generate
decent jobs simultaneously. The government will pursue a
prudent fiscal policy for the rationalization of expenditure and
increase the domestic revenue mobilization. Likewise, recurrent
spending will be rationalized and the capital spending will be
made effective with a robust implementation plan to boost
absorptive capacity. The government will adopt a financing
strategy to lower the cost of borrowing. Gross external borrowing
is targeted to NRs 212.8 billion in FY 2023/24 lower than the
estimated target of NRs 242.3 billion in FY2022/23. Similarly,
gross domestic borrowing is targeted to NRs 240.0 billion in FY
 2023/24 lower than the estimated target NRs. 256.0 billion in
FY2022/23.
10. In line with the fiscal policy stance to support medium-term
economic growth, FY2023/24 budget outlines the following:
 Real GDP growth of 6 percent
 Consumer price inflation to be contained within 6.5
percent
 Expenditure outlay of NRs 1751.3 billion
 Federal receipts of NRs 1298.6 billion
 Recurrent expenditure to be covered by domestic
revenue
 Gross domestic borrowings to be contained below 5
percent of GDP
11. Expenditure: The expenditure outlay of Government of Nepal
for FY2023/24 is 2.4 percent lower than the estimated target for
FY2022/23 and 16.4 percent higher than the revised estimate for
FY2022/23. It includes 65.2 percent for recurrent spending
including fiscal transfers, 17.3 percent for capital spending and
17.5 percent for financial provision. The allocations for recurrent
and capital budgets in FY2023/24 are lower than 3.5 percent
and 20.6 percent respectively as compared to the estimated
target of FY2022/23. It is 9.4 percent and 17.2 percent higher
than the revised estimate of FY2022/23 respectively, making the
FY2023/24 fiscal policy growth enhancing with an emphasis on
higher spending on capital projects. Reduction in the size of
budget is primarily focused on achieving fiscal discipline.
Allocations for interest payments and social security in
FY2023/24 have increased by 94.6 percent and 2.3 percent
respectively compared to the estimated target of FY2022/23. It is
higher than 71 percent and 26.4 percent respectively compared
to the revised estimates for FY2022/23. These two together
account for 20.8 percent of the recurrent budget.
One of the challenges Nepal is facing is the substantial increase
in recurrent expenses. It includes salary and allowances, social
security expenses, fiscal transfers, administrative expenses and
increasing liabilities on debt servicing. It consists of NRs.1280.25
billion which is 73.10 percent of the budget for FY2023/24. It has
created pressure for resource management of capital
investment. Estimated budget for fiscal transfer is NRs.400
billion. The focus of the fiscal policy in the medium-term is to
 achieve allocative efficiency by making expenditure more
targeted and rationalized.

12. Revenue mobilization. With the gradual improvement in overall

economic scenario of the country in the recent months, revenue
mobilization in FY 2023/24 is expected to increase. The target of
domestic revenue mobilization in the budget for FY2023/24 is
NRs.1298.6 billion and that of foreign grants is NRs 49.9 billion.
Overall, total federal receipts (revenue and grants) are targeted
to increase by 0.2 percent in FY 2023/24 over the estimated
target of FY2022/23. Domestic revenue is estimated to be
sufficient for financing the recurrent spending including the inter-
governmental fiscal transfers. The government’s initiatives to
increase the use of digital technology in revenue administration,
control revenue leakages, broaden tax base and update tax
rates for certain goods will be instrumental to achieve the
targeted revenue in the budget of FY 2023/24. Likewise,
government’s policy of providing incentives for needy sectors will
be helpful to boost national output and economic recovery.
13. Fiscal and debt sustainability. Government has been
maintaining fiscal balance at a sustainable level. Fiscal deficit is
projected to decline in FY 2023/24 resulting from the estimation
of improved performance in revenue mobilization and various
policy measures adopted by the budget of FY 2023/24 for
rationalization of recurrent expenses. Overall government
borrowing will be maintained within the ceiling prescribed by
National Natural Resources and Fiscal Commission (NNRFC).
The target of issuing domestic borrowing is below 5.0 percent of
estimated GDP of FY 2023/24 and recurrent spending has
been allocated within the coverage of domestic revenue.
External and overall debt are assessed at low risk of debt
distress by the IMF. Public debt of the government as of mid-
May 2023 stands at NRs 2134.32 billion, which is equivalent to
39.6 percent of GDP and estimated to be around 42 percent of
GDP by the end of FY 2022/23. Of the total outstanding public
debt, internal and external debts are 50.3 percent and 49.7
percent respectively.
Government initiation of adopting the policy measures of right
mix of domestic and external borrowing will be helpful to lower
the cost of financing. To generate long-term financing for
 infrastructure projects, the government will emphasize on
increasing issuance of longer-term bonds.
Ministry of Finance has started publishing Fiscal Policy
Statement from FY 2022/23 as a part of the budget reports. This
statement will be updated annually by exploring fiscal stance
based on adjusted primary balance that measures the fiscal
position net of the impact of macroeconomic developments on
the budget. Such an update will be continued in the future days.
14. Economic and Budgetary System Reform: The main thrust of
the Budget of FY 2023/24 is to provide impetus for reforms in
economic and budgetary system. Strengthening competitive
environment, building productive capacity, increasing efficiency
of the economy and promoting private sector are going to be the
major activities under economic reforms. Furthermore,
government’s ability to mobilize fund and improve
implementation of development projects will be achieved by
amending existing laws and simplifying procedures.
On fiscal side, this budget has taken four major initiatives. They
are: reform in budgetary system and effectiveness of capital
expenditure, austerity in recurrent expenses, expansion of tax
base and reduction of fiscal deficit. For budgetary system
reforms, the principles and priorities of the appropriation bill will
be submitted to the parliament two and a half months before the
submission of the next fiscal year’s budget. It will provide
sufficient time for the parliamentarians to discuss and review the
principles and priorities of the budget for the next fiscal year.
Similarly, effectiveness of the capital expenditure will be
enhanced through allocation of resources in those priority
projects which have strategic importance, produce quick return
and benefit to the large segment of the people. Resource will be
allocated to the priority sectors. The tendency of sprinkling
money for numerous tiny projects will be discouraged through
prioritization of the projects and allocative efficiency. Enhancing
project appraisal, preparing action plan for budget
implementation before the budget is enacted and taking special
measures for monitoring of the programs, solving problems of
site clearance of projects, simplifying procedures of acquisition
of land, amending public procurement law to simplify the
process, improving the process of multiyear assurance of
resources etc. are some of the important measures proposed for
improving implementation of the capital budget.
Government is also focused on the rationalization of recurrent
expenses. Twenty redundant government structures will be
removed. Standards will be set for reducing administrative costs.
Tax system will be enhanced through broadening and protecting
tax base, improving utilization of ICT, simplifying administrative
processes, while enacting policy and legal reforms to make the
tax system investment friendly. Special measures will be taken
to reduce tax evasion by enhancing institutional capacity and
integration of customs administration, inland revenue and other
systems. Exemption of 170 items in VAT and 340 items for
excise duties have been removed.