How Government Spending Impacts Nepal’s Economy: Explained Simply

Introduction: Why Government Spending Matters to Everyone

Every year, the Government of Nepal announces a national budget. Numbers in the billions of rupees are tossed around—but what do they actually mean?

Whether you’re a student, salaried worker, farmer, or investor, government spending affects your income, job prospects, and cost of living. Understanding how helps you make smarter financial and career decisions.

In this article, we’ll break down:

• What government spending includes

• How it helps (or hurts) the economy

• Capital vs recurrent expenditure

• The impact of debt and deficit

• What to watch for in Nepal’s budget

1. What Is Government Spending?

Government spending is money the state uses to:

• Build infrastructure (roads, hydropower, hospitals)

• Pay salaries (teachers, police, civil servants)

• Subsidize sectors (agriculture, health, education)

• Run programs (social security, pensions)

🔍 In Nepal’s 2024/25 Budget:

Total budget: Rs. 1.86 trillion

• Recurrent Expenditure: Rs. 1.14 trillion (61.3%)

• Capital Expenditure: Rs. 352 billion (18.9%)

• Financial Management (debt servicing, loans): Rs. 372 billion (19.8%)

2. Types of Government Spending

💵 Recurrent Expenditure

• Day-to-day operations

• Salaries, grants, office operations

• Tends to grow every year

📉 Problem: It does not directly create new jobs or assets.

🏗 Capital Expenditure

• Spent on long-term assets

• Roads, bridges, hydropower, irrigation

• Stimulates economic activity, jobs, and private investment

📈 Benefit: Capital expenditure drives GDP growth, especially in a developing country like Nepal.

🧾 Financial Management

• Includes debt repayment and interest servicing

• Also covers investments in state-owned enterprises

3. How Government Spending Boosts the Economy

✅ Creates Jobs

Infrastructure projects generate employment directly (construction) and indirectly (services, transport).

✅ Boosts Consumption

When government pays salaries or subsidies, people have more money to spend—driving business demand.

✅ Improves Productivity

Spending on roads, electricity, and education increases long-term efficiency and private investment.

✅ Reduces Inequality

Social spending (health, education, support for poor households) helps balance growth and inclusivity.

4. The Flip Side: Problems with Government Spending in Nepal

⚠ Underspending on Capital

Nepal often fails to fully utilize the capital budget.

Example: Only ~65% of allocated capital budget is spent annually due to delays, red tape, and weak project execution.

⚠ Rising Public Debt

To cover the budget gap, Nepal borrows from:

• Domestic sources (bonds, treasury bills)

• External lenders (ADB, IMF, China, India, World Bank)

📊 As of 2025:

• Public debt ~41% of GDP

• External debt = 36.5%

• Interest payments = Rs. 160 billion/year

If mismanaged, this leads to:

• Crowding out of private investment

• Long-term financial pressure on the government

5. Budget Deficit: How It Affects You

When spending > revenue, Nepal runs a fiscal deficit. This means:

• Government borrows more

• May increase taxes in future

• Inflation risk rises if deficit is monetized (NRB prints more money)

📉 Real-world impact:

• Higher cost of goods

• Currency depreciation

• Rising interest rates

6. Examples: Government Spending in Action (Nepal)

🛣 Roads and Transport

Projects like the Kathmandu-Tarai Fast Track and Mid-Hill Highway create jobs and connect rural to urban centers.

💡 Energy Infrastructure

Spending on hydropower transmission helps increase exports to India and meet domestic demand.

🎓 Education & Health

Free school lunches, public school improvement, and health insurance schemes are key social investments.

7. How to Track Government Spending (Useful Links)

8. What to Watch for in the 2025 Budget (as a Citizen)

✅ Capital Expenditure Execution
✅ Fiscal Deficit Target
✅ New tax policies or rebates
✅ Key sector allocations (agriculture, SMEs, energy)
✅ Debt-to-GDP ratio and borrowing plans

Conclusion: Why This Matters to You

Government spending is not just about "big numbers"—it’s about:

• The road you drive on

• The hospital you visit

• The salary you earn

• The inflation you face

Understanding public expenditure helps you ask better questions, vote wisely, and plan financially.

In a developing country like Nepal, smart and accountable government spending is the backbone of inclusive growth.