KATHMANDU: Nepal’s economic stability is being severely challenged as government delays in paying billions of rupees owed to the construction sector continue to disrupt the economic cycle, leaving laborers, businesses, and large industries in crisis. The payment backlog, which has persisted for three years, is affecting the overall capacity of industries and the livelihoods of millions.
The government has held back payments for both small-scale local projects and large national initiatives, amounting to 45 billion rupees. Construction entrepreneurs report that the real amount may be even higher. Despite earlier orders from Finance Minister Bishnu Poudel to prioritize these payments, the funds have not yet been released. The delay has led to significant consequences, such as laborers not receiving wages on time and industries operating at one-third of their usual capacity.
Impact on the Construction Sector and Industry
Construction companies are struggling to keep projects afloat, while wages for workers remain unpaid, affecting consumption and livelihood across the nation. Ravi Singh, President of the Federation of Contractors’ Associations of Nepal, stated that contracts worth over 600 billion rupees have been signed without securing resources, resulting in years of stalled development and a crippled economic system. “Thousands of signed projects have not progressed due to resource uncertainties,” Singh noted.
Industries supplying essential construction materials, such as cement and steel, have also suffered severe setbacks, leading to widespread repercussions across the employment landscape. The construction sector’s struggles have caused non-performing loans to rise sharply in banks and financial institutions, affecting their profitability and stability. Sunil KC, President of the Nepal Bankers’ Association, explained, “The chain effect of construction has impacted every sector, with non-performing loans increasing due to delayed payments.”
Political Disputes and Administrative Failures
Political disputes within local government bodies have exacerbated the crisis. In some cases, payments have been delayed despite available resources. This administrative paralysis has caused disruptions in development projects from the grassroots to the national level. Additionally, Nepal’s economic growth potential is being hindered as new employment opportunities remain scarce.
The government’s fiscal policy for the current year sets a revenue collection target of 1.4 trillion rupees, but with only 352 billion rupees allocated for capital expenditure, the financial crunch seems inevitable. Experts warn that the slow pace of revenue collection and escalating current expenses will keep construction projects stalled for an extended period.
Calls for Urgent Action
Industry leaders have emphasized the urgent need for the government to address the situation, either through internal or external borrowing, to ensure payments and revive the economy. Rajesh Agrawal, President of the Confederation of Nepalese Industries, stressed the importance of timely payments. “Reviving the construction sector is critical to stabilizing the broader economy,” Agrawal said.
However, if the state fails to clear its dues, Federation President Singh suggests that projects classified as financially troubled should be terminated under the Public Procurement Act, and settlements should be made to protect the overall economic framework.
Nepal’s construction sector remains a vital pillar of economic activity, but without decisive government action, the entire cycle of investment, labor, and industrial operation could face long-term damage, threatening national economic growth.