This study analyses the fiscal envelope in Nepal with an emphasis on identifying possible areas to free
fiscal space to fund increased allocation to key social investment. It hopes to contribute to the on-going
debates about future policy directions and further initiate a broader and inclusive dialogue that will
ultimately arrive at the optimal policy mix that maximizes the society’s social welfare.
Nepal’s transitioning population pattern produces a favorable demographic situation in which working
age population has expanded in proportion to the general population. Nepal has not been able to
adequately translate this demographic window of opportunity into higher economic growth rates. This
in particular highlight the necessity of timely and relevant public investments in key social sectors to
ultimately improves productivity and generate employment for the working-age population bulge.
While the government of Nepal has significantly stepped up its planned spending for fiscal year
2014/15, the projected public spending is uneven across the different sectors and even per capita
spending on education is budgeted to decrease in real term.
The tax system in Nepal is characterized by high share of indirect taxes on goods and services. Further,
these taxes have been increasing at a higher rate than the direct tax items, indicating a possible welfare
loss and increased regrisivity of the tax system in Nepal.
Nepal has been able to almost half its public debt /GDP ratio over the past decade and currently stands
at a low level in comparison with regional comparators. Foreign exchange reserves are very high in
Nepal and have continued to build up benefiting from sustained growth in remittance inflows.