Explain the process of budget formulation in Nepal.

The process of budget formulation in Nepal follows a structured and participatory approach involving multiple stakeholders, including government ministries, agencies, and parliamentary bodies. The process is guided by the Budget Act, 2064 (2007) and the Fiscal Responsibility and Budget Management Act, 2065 (2008). Below is a step-by-step explanation of the process:

1. Budget Formulation Phase (June–September)

• Initiation by the Ministry of Finance (MoF): The process begins in June–July, where the Ministry of Finance (MoF) initiates budget formulation by consulting with sectoral experts, development partners, and relevant stakeholders. The MoF prepares a budget circular outlining guidelines for ministries and agencies.

• Sectoral Budget Proposals (July–August): All ministries, departments, and local governments prepare their draft budgets based on their development priorities, revenue projections, and expenditure needs. These proposals are submitted to the MoF for review. Key components include:

  • Revenue estimates (tax and non-tax sources).
  • Expenditure plans (recurrent and development expenditures).
  • Capital budget (infrastructure and investment projects).

• Inter-Ministerial Coordination (August–September): The MoF reviews all sectoral proposals to ensure fiscal discipline, macroeconomic consistency, and alignment with national priorities. Conflicts in resource allocation are resolved through coordination meetings. The MoF then prepares a consolidated draft budget, which includes:

  • Fiscal policy framework (revenue and expenditure targets).
  • Priority sectors (e.g., education, health, infrastructure).
  • Debt management strategy.

2. Cabinet Approval (September–October)

• The draft budget is presented to the Cabinet for approval. The Cabinet reviews the proposals, makes necessary adjustments, and approves the final budget draft before it is presented to Parliament.

3. Parliamentary Scrutiny and Approval (October–November)

• Presentation to Parliament: The Finance Minister presents the budget to the House of Representatives (HoR) and the National Assembly (NA). The budget includes:

  • Annual Budget Statement (revenue and expenditure estimates).
  • Budget Speech (government’s economic priorities).
  • Supplementary Budgets (if any adjustments are needed).

• Debate and Amendments: Members of Parliament (MPs) debate the budget and propose amendments. The Public Accounts Committee (PAC) and Finance Committee play a crucial role in scrutinizing the budget for transparency and efficiency.

• Final Approval: After debates and amendments, the budget is voted upon and approved by Parliament. The approved budget becomes the legal financial document for the fiscal year (mid-July to mid-July).

4. Budget Implementation (Mid-November Onwards)

• The approved budget is implemented from the new fiscal year (mid-July). The MoF and Comptroller and Auditor General (CAG) monitor its execution to ensure accountability and efficiency.
• Mid-year reviews are conducted to assess progress and make necessary adjustments.

Key Features of Nepal’s Budget Formulation Process

• Participatory Approach: Involves ministries, local governments, and civil society.
• Transparency: Budget documents are made public for scrutiny.
• Fiscal Responsibility: Ensures debt sustainability and macroeconomic stability.
• Parliamentary Oversight: Strengthens democratic accountability.

This structured process ensures that Nepal’s budget aligns with national development goals while maintaining fiscal sustainability.