Revenue shortfall hampers domestic economy despite external sector gains

February 14, 2025, 11:31:28 AM |

KATHMANDU: Despite significant improvements in Nepal’s external sector, including a surge in foreign exchange reserves and a surplus in the current account, the domestic economy continues to grapple with challenges. Sluggish revenue collection has forced the Ministry of Finance to issue circulars cutting grants to provincial and local governments. Additionally, certain expenditures under the federal budget have been halted due to insufficient revenue generation.

According to data from the Office of the Auditor General , revenue collection in the first seven months of the current fiscal year reached NPR 642 billion , with total income at NPR 659 billion . While these figures are higher than the same period last year, they remain below the government’s targets. A deficit of NPR 9.1 billion was recorded during this period, which widened to NPR 15 billion after accounting for post-bond adjustments.

The government is now relying on accumulated funds from various state entities to bridge the fiscal gap. Although borrowing has increased, immediate liquidity issues have not emerged. However, concerns remain that accelerating capital expenditure could further widen the fiscal deficit.

Weak domestic demand, coupled with ongoing challenges in controlling smuggling and tax evasion, has been cited as key factors behind the shortfall in revenue collection. These issues have offset the gains achieved through remittance inflows and reduced imports, which have bolstered the external sector.

Finance Minister Bishnu Prasad Paudel acknowledged the economic challenges but expressed optimism about recovery. He noted that while market confidence had weakened in the recent past, it is now showing signs of returning. “External sector improvements alone were not sufficient to address the challenges, but confidence is now returning, and the market will soon stabilize,” Paudel remarked. He emphasized that recent improvements in revenue collection signal progress toward economic recovery and expressed hope that the economy would regain momentum by the end of the fiscal year.

Despite the positive trends in the external sector, the sluggish domestic economy remains a pressing concern. The government faces mounting pressure to implement effective reforms to boost revenue collection, curb tax evasion, and stimulate domestic demand to ensure sustainable economic growth.

Key Points:

Revenue collection in the first seven months reached NPR 642 billion , falling short of targets.
Grants to provincial and local governments cut due to insufficient revenue.
Fiscal deficit widens to NPR 15 billion after post-bond adjustments.
Weak domestic demand and tax evasion cited as key challenges.

However, Finance Minister expresses optimism about market stabilization and economic recovery by year-end.

Fiscal Nepal |

Friday February 14, 2025, 11:31:28 AM |