Nepal's provinces spent about two-thirds of their budgets, then planned Rs 292bn more

Nepal's seven provincial governments have a spending problem of a familiar kind. Their combined budgets for the 2025/26 fiscal year came to about Rs 287.7bn, according to the finance ministry's mid-year review reported by B360. Provincial spending for the full year, which ended in mid-July, was Rs 183.97bn, according to Nepal Rastra Bank data drawn from the Financial Comptroller General Office, also reported by B360. That is roughly 64% of what was budgeted.

Money was not the constraint. The provinces mobilised Rs 216.23bn in resources over the year, about Rs 32bn more than they spent. Of that, Rs 159.42bn came as grants and revenue transferred from the federal government, and Rs 55.26bn from their own revenue and other receipts.

Capital spending lags most

The shortfall is concentrated in development projects. By mid-January, more than halfway through the year, the provinces had spent only 14.16% of their budgets, including 21.43% of recurrent allocations but just 9.33% of capital ones, the finance ministry said. Madhesh had spent 7.71% of its Rs 46.98bn budget and 3.36% of its capital allocation, the weakest record, while Lumbini had the highest capital spending at 18.04%. The ministry's report questioned the provinces' capacity to absorb money and pointed to planning, land acquisition and implementation as weaknesses, B360 reported.

The pattern mirrors the federal government's own difficulty with capital spending, set out in our explainer on this year's federal budget.

This year's plans

The provinces presented their 2026/27 budgets in mid-June, around the constitutional deadline of Asar 1, and together they add up to about Rs 292bn, slightly more than last year, according to figures reported by The Himalayan Times. Capital spending again takes the largest share in most of them.

Bagmati, the richest province, tabled the largest budget at Rs 66.93bn, a little below last year's Rs 67.47bn, with Rs 43.97bn for capital spending. Koshi raised its budget most, by 12.74% to Rs 40.44bn. Madhesh cut its budget to Rs 41.13bn from Rs 46.98bn, with Rs 26.47bn for capital spending, and barred allocations below Rs 1 crore per scheme as well as new vehicle purchases. Gandaki proposed Rs 32.99bn, about 61% of it capital, and plans a Rs 1.75bn internal loan to close a gap. Lumbini cut its budget to Rs 37.38bn from Rs 38.91bn. Karnali raised its budget 7.28% to Rs 35.39bn, and Sudurpashchim raised its to Rs 37.70bn from Rs 33.47bn, counting on Rs 9.62bn of savings from last year.

Federal money remains central. The finance ministry allocated Rs 109.65bn in fiscal transfers to the seven provinces for 2026/27, and Rs 314.62bn to the 753 local governments, The Rising Nepal reported. Madhesh receives the largest provincial transfer at about Rs 17.52bn, followed by Koshi and Bagmati, according to Hamro Patro's report of the ministry's figures.

Unequal economies

The provinces differ sharply in what they have to work with. Bagmati produces 36.7% of national GDP and has an estimated income per person of $2,644, according to the National Statistics Office's preliminary figures for 2025/26, reported by Himal Press. Madhesh has the lowest at $934 and the slowest growth, 1.31%, against a national rate of 3.85%. Karnali accounts for 4.2% of GDP.

Own revenue reflects that gap. Madhesh expects Rs 11.22bn in internal revenue this year and Koshi Rs 5.50bn, while Sudurpashchim expects Rs 1.72bn, The Himalayan Times reported.

What to watch: the finance ministry's mid-year review in February, which will show whether capital spending in the provinces has improved, and how provincial budgets are revised after the August flood, which damaged homes in Rasuwa, Nuwakot, Dhading, Gorkha and Chitwan.