Nepal’s persistent failure to effectively spend its capital budget has become a significant obstacle to growth, according to the World Bank, which has urged the government to implement deep structural reforms to accelerate public investment and improve development outcomes.

Speaking at an event in Kathmandu on Wednesday, David N Sislen, the World Bank’s division director for the Maldives, Nepal, and Sri Lanka, said that while Nepal continues to increase its capital budget allocations annually, the actual ability to spend the money remains a chronic challenge.

“Last year, only 59 percent of the capital budget was spent, and this year the projections are very similar,” Sislen said. “Executing the budget effectively, implementing impactful policy and regulatory reforms, and improving project planning and budgeting are fundamental to addressing this problem.”

Sislen pointed out that seemingly simple issues, such as delays in cutting trees or relocating utility poles to make way for infrastructure projects, have become “macro-critical” problems holding back economic progress.

“These are solvable problems,” he said, emphasising the need for amending procurement laws, modernising budget management, and ensuring greater flexibility in spending procedures.

“These reforms are critical not just to get the capital budget spent, but actually to deliver development results for the people of Nepal.”

World Bank economist João Leonel Antunes Morgado said that Nepal continues to lag behind in infrastructure development due to persistently low public investment. The value of the country’s public capital stock—the total worth of its infrastructure—has fallen sharply, from 74 percent of GDP in the mid-1990s to about 50 percent in recent years.

“This decline is driven by low and inefficient public investment,” Morgado said. “To close its infrastructure gap, Nepal needs to invest 10 to 15 percent of GDP annually. However, public investment has been falling—from a peak of 11 percent of GDP in 2021 to just 8 percent in 2024.”

He attributed the drop to both declining allocations to capital budgets and weak execution of existing funds. “The effectiveness of public investment is hindered by weaknesses at the planning and budgeting stages,” he said.

Responding to the World Bank’s assessment, Finance Minister Rameshore Prasad Khanal stated that the government has already initiated reforms aimed at enhancing efficiency and accountability in capital expenditure. According to him, the ministry has identified and dropped more than 1,200 small projects that had little to no economic value and were often politically motivated.

“These projects neither contributed to GDP nor delivered value for money,” said Khanal. “They are currently on hold while the ministry reviews and prioritises potential projects.”

He added that the government is also working to resolve persistent issues that have stalled major national projects for years. “We are addressing the recommendations made by the World Bank, including problems related to land acquisition, tree-cutting approvals, and the valuation of bids—all of which can delay projects by two to three years,” Khanal said.

A panel discussion titled “Reforms to Accelerate Public Investment” followed the World Bank presentation, during which experts and policymakers agreed that only a complete overhaul of Nepal’s budgetary management system could fix the country’s chronic underperformance in public investment.

Dilli Raj Khanal, former chairperson of the Public Expenditure Review Commission, said that the core issue lies in weak governance and a lack of accountability in budgeting, planning, and fiscal management.

“Without an accountable and responsive governance system, no amount of budgetary adjustment will work,” he said. He also suggested ending the practice of labelling projects as ‘national pride projects’ and instead identifying them as ‘strategic projects’ based on their economic merit.

Khanal further recommended adopting a medium-term revenue framework institutionalised across ministries and the National Planning Commission to ensure predictable and reliable fiscal management.

“The procurement process must be shortened and made data-driven,” he added. “Unless a performance-based budgeting system is introduced, we cannot expedite quality projects or stop the mess in implementation.”

Bhawani Rana, chairperson of the Nepal-India Joint Business Forum and former president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), echoed concerns about the government’s slow capital spending.

“The government has spent less than 10 percent of the capital budget in nearly four months of the current fiscal year—and that’s where the problem begins,” she said.

Rana said that while the recent youth-led movements demanding good governance and anti-corruption measures were positive, they are not enough to solve systemic problems. “We need deep policy reviews and reforms,” she said. “Our tax system must become faceless, paperless, and cashless. Good governance must be practised not just by politicians but by the private sector as well.”

Dhani Ram Sharma, joint secretary at the Ministry of Finance, admitted that inefficiencies exist throughout the project cycle—from planning and implementation to evaluation. “The entire economic system gets disturbed when national projects are delayed,” he said.

According to Sharma, Nepal’s “project bank”—a mechanism meant to prioritise and evaluate projects objectively—remains largely theoretical. “It exists only on paper,” he said. “There are no clear selection criteria, and technical assessments are rarely done based on objective metrics.”

He added that reforms are underway to strengthen the project bank and improve data-driven decision-making. “With World Bank support, we are strengthening the project bank within the National Planning Commission and enhancing the Medium-Term Expenditure Framework system,” Sharma said.

Experts at the event agreed that improving Nepal’s capital expenditure performance will require more than technical fixes. Political commitment, institutional accountability, and a culture of performance-based governance are essential if the country is to turn budget allocations into tangible results.