Nepal's government presented its first budget on Monday since last year's Gen Z-led protests, targeting a 7% economic growth rate and seeking to exit the Financial Action Task Force (FATF) grey list. The budget, unveiled by Finance Minister Janardan Sharma in parliament, prioritizes social welfare, digital transformation, and anti-money laundering efforts.
Key Fiscal Targets
The budget for the fiscal year 2024-25 sets a total expenditure of NPR 1.79 trillion (about USD 13.4 billion), with a revenue target of NPR 1.31 trillion. The fiscal deficit is estimated at 5.1% of GDP. The government aims to reduce the current account deficit to 2.1% of GDP from an estimated 3.2% in the current fiscal year.
Growth and Inflation
Finance Minister Sharma expressed confidence in achieving the 7% growth target, driven by agriculture, tourism, and remittances. Inflation is projected to remain at 6.5%, down from 7.8% in the previous year. The budget also allocates resources to complete major infrastructure projects, including the Kathmandu-Terai Expressway and the Gautam Buddha International Airport.
FATF Grey List Exit
A significant focus of the budget is on strengthening the country's anti-money laundering and counter-terrorism financing framework to secure an exit from the FATF grey list, where Nepal has been placed since 2022. The government has allocated NPR 1.5 billion for upgrading financial intelligence systems and enhancing regulatory oversight.
Social Welfare and Youth
In response to the Gen Z protests that erupted last year over unemployment and governance issues, the budget introduces several youth-centric programs. A new 'Digital Nepal' initiative will provide free internet access to 10,000 public schools and train 50,000 youth in digital skills. The government also plans to create 500,000 jobs over the next two years, with a focus on startups and small enterprises.
Tax Reforms
The budget proposes tax exemptions for IT companies and startups, along with a reduction in corporate tax from 25% to 22% for new businesses. The personal income tax threshold has been raised to NPR 500,000 annually, providing relief to lower-income groups. Additionally, a new 'Green Tax' on high-emission vehicles aims to promote environmental sustainability.
Digital Transformation
To modernize the economy, the government plans to digitize land records, introduce a national digital ID system, and expand mobile banking services. The budget allocates NPR 10 billion for developing a digital payment infrastructure, aiming to reduce cash dependency and improve financial inclusion.
Challenges Ahead
Economists have expressed skepticism about the feasibility of the 7% growth target, given global headwinds and domestic structural issues. The budget also faces challenges in implementation, as Nepal's political instability and bureaucratic inefficiencies have historically hampered fiscal plans. However, the government remains optimistic, emphasizing that the budget reflects the aspirations of the youth and the need for inclusive growth.
