Nepal has presented its budget of NRS 2.124 trillion for the fiscal year 2026-27, marking the first such announcement since the Gen-Z protests in September last year. The budget was unveiled by Finance Minister Swarnim Wagle in the Federal Parliament, with a significant emphasis on measures to facilitate the country’s exit from the Financial Action Task Force (FATF) grey list and achieve an economic growth target of 7 per cent.

Response to Financial Monitoring

The government reiterated its commitment to sound financial governance and regulatory practices to expedite the removal from the FATF grey list. Minister Wagle explained, “To mitigate exchange risks associated with foreign loans and investments, hedging services will be offered at a reasonable premium beginning this financial year.” He further expressed optimism that improved sovereign credit ratings will contribute to better economic conditions and called for the rapid removal of the grey-list status concerning money laundering activities.

Nepal is currently under increased scrutiny from the FATF after being placed back on the grey list during the plenary held in Paris from 17 to 21 February 2025. This is the second occasion Nepal has faced this designation, having previously been listed from 2008 to 2014. Those nations on the grey list must implement reforms within a two-year timeframe to avert more severe measures, including the risk of blacklisting and heightened financial constraints.

The FATF grey list includes jurisdictions identified as having strategic deficiencies in anti-money laundering and counter-terrorism financing frameworks; however, they are actively working with the organisation to rectify these issues.

Projected Economic Growth and Reforms

Despite concerns regarding financial vulnerabilities, the government has set an ambitious economic growth target of 7 per cent for the fiscal year 2026-27. Minister Wagle expressed confidence in achieving this target, anticipating that inflation will be contained at 6 per cent. He noted that the Nepal Rastra Bank will formulate a supportive monetary policy to align with the recently announced policy reforms and programmes.

As per projections from the National Statistics Office, the economic growth for the ongoing fiscal year is estimated at 3.85 per cent. The budget, delivered by the newly formed government in March, lays out a comprehensive reform plan spanning taxation, capital markets, agriculture, health, infrastructure, and governance.

The fiscal plan includes significant tax reforms, such as increasing the personal income tax exemption limit from NRS 600,000 to NRS 1 million, aimed at alleviating the financial burden on middle-income individuals. Additionally, capital gains tax on listed securities will now be classified as a final tax, thereby simplifying compliance obligations for investors.

Investment in Key Areas and Social Initiatives

The government proposal also facilitates participation from Non-Resident Nepalis in the secondary securities market as part of efforts to enhance capital inflows. Other reforms include streamlining processes for foreign investment approvals and the repatriation of profits. To maintain fiscal discipline, a 10 per cent salary increase for civil servants has been announced, with salary ranges set between NRS 40,000 and NRS 100,000.

In the agriculture sector, NRS 32.46 billion has been allocated for chemical fertiliser subsidies and NRS 46.42 billion for the Ministry of Agriculture and Livestock Development. Furthermore, NRS 2.07 billion will be dedicated to modernising agricultural practices to improve productivity.

The health sector will receive NRS 13.15 billion aimed at expanding social health protection programmes to extend healthcare access to vulnerable segments of society. Additionally, plans are in place to address the needs of squatters and landless individuals through targeted policy measures within the fiscal year 2026-27.

Cultural preservation efforts are also a priority, with intentions to seek UNESCO World Heritage designation for significant sites including Tilaurakot, Gokarneshwar, and Janakpur Dham.

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