Government investment in public enterprises increased by 13 percent this fiscal year, but dividend returns declined by over 5 percent, according to the Economic Survey 2025-26 and the Annual Status Review Report of Public Enterprises released by the government.

Compared to the previous fiscal year, the government’s share and loan investment in public enterprises rose by 13.4 percent to Rs798.56 billion. However, dividend income fell by 5.2 percent to Rs8.37 billion. The survey attributed the decline mainly to losses incurred by 16 of the country’s 45 public enterprises.

Among loss-making enterprises, Nepal Airlines Corporation recorded the highest accumulated losses, exceeding Rs18.90 billion.

Most state-owned enterprises operating in the industrial sector are running at a loss. According to the survey, institutions such as Dairy Development Corporation, Hetauda Cement Industries Limited, Nepal Drugs Limited, Udayapur Cement Industries Limited, Nepal Orind Magnesite Pvt Ltd and Nepal Metal Company Limited have suffered losses.

Similarly, Butwal Spinning Mills Limited and Dhaubadi Iron Company Limited remain non-operational but continue to incur losses due to administrative expenses.

The continued losses have raised concerns about governance and management efficiency in public enterprises.

Former joint secretary Baburam Subedi said public enterprises should be assessed from both social and commercial perspectives. According to him, it is worrying that enterprises established for commercial purposes continue to operate at a loss.

“Institutions established with social objectives are expected to provide public services rather than focus solely on profits,” Subedi said. “But operational efficiency and effectiveness are still essential.”

Experts say outdated technology and growing market competition are among the main reasons behind losses in industrial and trading enterprises.

Industries such as Udayapur Cement and Hetauda Cement possess quality raw materials but have failed to compete with the private sector because of outdated technology.

Subedi said open market policies have exposed domestic industries to cheaper imported goods, while failure to modernise technology has left public enterprises struggling to compete.

“The main challenge is maintaining a balance between the social responsibility of producing and distributing public goods and services and the commercial objective of making profits,” the annual review report said.

“There is a lack of objective laws, policies and institutional mechanisms to realistically assess returns on government investment and justify the continuation of such investments.”

The report also pointed to administrative procedures and limited autonomy as major obstacles to efficiency.

While private companies can quickly purchase goods and services based on market demand, public enterprises are required to complete lengthy procedures under the Public Procurement Act.

Subedi said this has prevented enterprises from responding quickly to market needs and expanding services efficiently. Some enterprises, he said, are reporting losses even before starting commercial operations because of administrative costs.

“The private sector can make purchasing decisions immediately, but public enterprises must comply with the Public Procurement Act, and the process is lengthy and cumbersome,” Subedi said. “This has weakened their competitive capacity.”

He said reforms are needed to improve the functioning of public enterprises.

According to him, a model that retains government ownership while monetising enterprise assets could be effective.

“Unused land owned by enterprises could be leased out, while outdated machinery that is no longer useful could be sold to improve commercial efficiency,” he said.

“Once an enterprise enters business operations, it should be allowed to function like a business. For that, enterprises need autonomy in decision-making.”

However, not all public enterprises are performing poorly.

Financial, utility, trading, service and social sector enterprises have continued to operate profitably. Institutions such as Rastriya Banijya Bank, Nepal Bank Limited, Agricultural Development Bank Limited, Nepal Reinsurance Company Limited, Citizen Investment Trust and Nepal Stock Exchange have posted profits.

Experts also cited the Nepal Electricity Authority’s expansion of transmission lines and improved electricity access as a positive example of public sector performance.

The survey and experts stressed that improvements in operational efficiency can no longer be delayed, given the large amount of government investment tied up in public enterprises.

“Public enterprises need an environment that allows them to compete in the market and greater autonomy in decision-making,” Subedi said. “The enterprises themselves also need to improve their efficiency.”

According to the survey, the total assets of public enterprises increased by 9.5 percent this year to Rs3.20 trillion, while total operating income rose by 0.7 percent to Rs672.40 billion.

The contribution of public enterprises to the federal government’s total income tax revenue fell from 5.17 percent to 3.82 percent.

Out of 38,285 approved positions in public enterprises, 30,352 employees are currently working.

Unfunded liabilities, including pensions for retired employees, increased by 10.10 percent to Rs66.40 billion. Contingent liabilities of public enterprises also rose by 3.03 percent to Rs226.45 billion.