Government Budget in Nepal: Types, Components, and Process

GP Chudal

Government Budget in Nepal: Understanding Types, Components, and Process

The term “budget” often conjures images of financial plans, meticulous calculations, and intricate documents. However, the origin of the word “budget” has a fascinating history. It is derived from the French word ‘Bougette,’ meaning a small leather bag or wallet. In the 18th century, Charles Walpole, the Chancellor of the Exchequer in England, used to carry a leather bag to the ‘House of Commons’ containing financial proposals. Consequently, the bag itself became synonymous with the government’s financial plan. So, when we talk about the government budget, we’re not referring to a bag but the financial proposal contained within it.


What is a Government Budget?

In modern terms, a government budget is a comprehensive financial plan for a specific period. It encompasses various aspects of a country’s finances, from revenue generation to expenditure allocation.

As defined by Bastable, “The budget has come to mean the financial arrangements for a given period, with the usual implication that it has been submitted to the legislature for approval.” In essence, the government budget is a roadmap for managing public finances and ensuring transparency and accountability.

According to the World Bank, “The annual budget is usually the legal authority for public spending.” This underscores the critical role of the budget in authorizing government expenditures and programs.

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Components of a Government Budget

A government budget typically consists of several key components that provide a comprehensive view of the country’s financial landscape:

1. Summary of Economic Progress

The budget often begins with a summary of the economic progress of the previous fiscal year. This section provides an overview of how the economy performed, including key indicators like GDP growth, inflation rates, and employment figures. It sets the stage for understanding the context in which the budget is being formulated.

2. Objectives of the Budget

Clearly defined objectives are essential for any budget. This section outlines the government’s goals and priorities for the upcoming fiscal year. These objectives guide the allocation of resources and funding to specific sectors and programs.

3. Estimation of Government Expenditure

One of the core elements of a budget is the estimation of government expenditure. This includes detailed plans for how public funds will be allocated across various sectors, such as healthcare, education, infrastructure, and defense. It offers insights into where taxpayer money will be directed.

4. Revenue Proposals

Revenue generation is a critical aspect of the budget. This section outlines the sources of government revenue, which may include taxes, fees, grants, and other income streams. It explains how the government plans to fund its programs and services.

5. Sources of Deficit Financing

In cases where government expenditures exceed revenue, deficit financing becomes necessary. This section of the budget outlines how the deficit will be covered, whether through borrowing, selling government assets, or other means. It’s a crucial element in maintaining fiscal stability.

Types of Budgets

Government budgets can take on various forms, depending on the fiscal situation and policy objectives. Here are three common types of budgets:

1. Deficit Budget

A deficit budget occurs when government expenditures exceed revenue. This situation may arise when the government needs to invest in infrastructure, stimulate economic growth, or respond to emergencies. To cover the deficit, the government may borrow funds.

2. Surplus Budget

In contrast, a surplus budget occurs when government revenue exceeds expenditures. Surplus budgets are often associated with periods of economic prosperity. The surplus can be used to pay down debt, build reserves, or fund new projects.

3. Balanced Budget

A balanced budget is a scenario where government revenue equals government expenditures. It aims for financial equilibrium and is often seen as a prudent fiscal approach. However, achieving a balanced budget can be challenging, as it requires careful financial management.

Process of Budget Formulation in Nepal

When it comes to managing a country’s finances, the budget formulation process is at the heart of it all. In Nepal, this process is a well-structured and comprehensive one, involving multiple steps and various stakeholders. Let us take a closer look at how the budget is formulated in Nepal, from forecasting to approval, and explore the unique aspects of the federal, provincial, and local levels.

The Starting Point: Forecasting and Planning

The journey of creating Nepal’s budget begins with careful forecasting and planning. It’s a collaborative effort that brings together the National Planning Commission, the Ministry of Finance, and all government ministries, commissions, and secretariats. The goal is to ensure that the budget aligns with the nation’s development goals and priorities.

Medium-Term Expenditure Framework (MTEF)

Each ministry plays a crucial role in this process by preparing a Medium-Term Expenditure Framework (MTEF). This framework outlines the expected expenditures for the next three years. These MTEFs are then aggregated by the National Planning Commission to create a comprehensive overview of the country’s financial needs.

Resource Assessment

Next in line is the National Resource Estimate Committee, responsible for estimating the availability of resources and determining the maximum limit of expenditure for the upcoming three years. This step is pivotal in ensuring that the budget remains realistic and feasible.

Setting the Stage: Budget Guidelines

Armed with this information, the National Planning Commission sends out budget ceilings and guidelines to all government entities. These guidelines serve as a framework that ministries must adhere to when preparing their budget proposals.

Crafting the Budget Proposal

Each ministry takes these guidelines into account as they craft their budget proposals. It’s a meticulous process, as they must stay within the budget ceiling set by the National Planning Commission. The Ministry of Finance plays a central role in this phase, organizing discussions with the Accountable Officers of the Ministry to ensure alignment with national priorities.

From Proposal to Presentation

Once all the budget proposals are in, the Ministry of Finance consolidates them into an aggregate budget proposal. The Finance Minister then takes the stage, presenting the principles and priorities of the budget in the federal parliament. This presentation is a crucial moment, as it sets the tone for the budget’s direction.

Estimating Revenue and Expenditure

The Ministry of Finance takes on the formidable task of estimating both revenue and expenditure. These estimates are presented, along with related bills, in a joint meeting of both houses of parliament. This meeting provides a forum for discussion, suggestions, amendments, and suitable revisions to ensure that the budget accurately reflects the nation’s needs.

Approval and Implementation

After rigorous discussions and debates, the budget receives the seal of approval from the parliament. It then proceeds for implementation, where it will shape the financial landscape of Nepal for the fiscal year.

Provincial and Local Level Budget Formulation Process in Nepal

While the overall budget formulation process is similar at all levels of government in Nepal, there are a few noteworthy differences. For instance, provincial and local governments have specific deadlines for submitting their revenue and expenditure estimations. Provincial governments must present their budgets by Ashadh 1st, while local governments have until Ashadh 10th of each fiscal year.

With the implementation of the federal system in Nepal, the budget formulation process extends beyond the federal level to include provinces and local governments. These lower tiers of government play a crucial role in shaping their own budgets, and the process is guided by the Intergovernmental Fiscal Arrangement Act, 2074, along with its associated by-laws, 2076. While the general procedure for budget making follows a similar framework as at the federal level, there are some distinct provisions at the provincial and local levels.

Submission of Revenue and Expenditure Estimates

One of the key differences in the budget formulation process at the provincial and local levels is the timeline for submitting revenue and expenditure estimates. Provincial and local governments are required to submit these estimations by the end of Poush to the federal finance ministry. This early submission ensures that the federal government has a clear understanding of the financial needs and priorities of these regions.

Estimation of Financial Equalization Grants

After the submission of revenue and expenditure estimates, the federal finance ministry enters the picture. They engage in consultations with the planning commission to determine the estimated Financial Equalization Grants for the provinces and local governments. By the end of Falgun, these details are provided to the respective tiers of government. Financial Equalization Grants are a crucial component of ensuring that all regions receive a fair share of resources.

Provincial Government’s Role

Provincial governments also have a unique role in the budget formulation process. They must consult with the planning commission and provide detailed estimates of Financial Grants for the local level by the end of Falgun. This consultation process is essential for aligning provincial and local priorities and resources effectively.

Presentation of Budgets

Unlike the federal government, which presents its budget in the federal parliament, provincial governments and local governments have separate platforms for presenting their budgets. Provincial governments present their budgets in the province assembly, while local governments do so in their respective village or municipal assembly.

These presentations serve as important moments for discussing and deliberating on the budget priorities of each region. It allows for local input and scrutiny, ensuring that the budgets reflect the unique needs and aspirations of the people in these areas.

In conclusion, the budget formulation process in Nepal is a comprehensive and collaborative effort that involves careful planning, forecasting, and the active participation of various stakeholders. It’s a vital tool for steering the nation’s finances in the right direction and ensuring that resources are allocated where they are needed most.

For more detailed information on Nepal’s budget process, you can refer to official government documents such as Budget Speech, Budget highlights.

Disclaimer: The information provided in this blog is based on the budget formulation process as of 2023. Please refer to the latest official government documents and announcements for the most up-to-date information.

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