Freeze on Nearly NPR 100 Billion in Development Spending Begins to Slow Economic Activity

The impact of the government’s decision to freeze nearly NPR 100 billion in development expenditure has begun to surface, with capital spending falling sharply midway through the fiscal year. As more than six months of fiscal year 2025/26 have passed, government agencies report significantly low development budget utilization, raising concerns about stalled infrastructure projects and weakening economic momentum.

By mid-January, the first half of the fiscal year had concluded, prompting development offices across the country to begin their mid-term reviews. Preliminary reports from these reviews indicate that development spending remains far below expectations, largely due to budgetary restrictions imposed earlier in the year.

Cabinet Decision Tightens Development Outlays

On October 20, the Cabinet decided to freeze development budgets worth approximately NPR 125 billion, citing the need to curb unproductive spending and enforce fiscal discipline. Following this decision, the Ministry of Finance issued a 15-point circular to line ministries and government bodies, restricting the execution of various development programs.

Although some development budgets have since been partially released, officials say the amount unlocked is far below what ministries had requested. As a result, overall capital expenditure by government agencies has remained subdued in the current fiscal year.

Urban Development Sector Hit the Hardest

Among the most affected is the urban development sector. The Department of Urban Development and Building Construction reported during its mid-term review that only 14 percent of its development budget had been spent in the first six months of the fiscal year, excluding the portion frozen by the Finance Ministry.

Director General Rabindra Bohora stated that of the NPR 57 billion allocated to the department this year, around NPR 26 billion remains frozen. “Out of the NPR 31 billion currently available to us, only 14 percent has been spent so far,” he said.

While Bohora noted that spending levels appear similar to last year when frozen funds are excluded, he acknowledged that the large-scale budget freeze has started to affect project execution and overall development momentum.

Hundreds of Projects Left in Limbo

In an attempt to revive stalled projects, the Ministry of Urban Development submitted a proposal in late January seeking the release of funds for 573 development projects. However, ministry sources say only around 200 projects—primarily school and health post buildings—have received budget clearance.

“Out of the 573 proposed projects, only a limited number have been approved so far,” said a senior official, adding that many infrastructure programs remain on hold without clear timelines.

Three-Month Freeze, Partial Release

The current government has maintained the development budget freeze for nearly three months. Of the NPR 120 billion worth of infrastructure and development programs suspended, only about NPR 50 billion has been released to date, according to officials.

Urban development officials say that even projects with completed feasibility studies, procurement processes, and local government recommendations have been unable to move forward due to funding uncertainty. Despite this, department leadership remains cautiously optimistic that well-prepared projects will soon receive approval.

Criteria for Budget Suspension

The Finance Ministry’s circular specifies that projects lacking prior preparation, involving overlapping technologies, or deemed low priority were subject to suspension. Small fragmented projects that should be implemented by provincial or local governments were also included in the freeze.

Officials say the intention was to improve spending efficiency, but the broad application of the criteria has resulted in delays even for strategically important projects.

Cabinet Approval Required for Release

Because the development budget freeze was imposed by a Cabinet decision, releasing the funds also requires Cabinet approval. This has added an additional layer of delay, as proposals from line ministries must first pass through the Finance Ministry before reaching the Cabinet.

As a result, officials say the process of unlocking development funds has become slow and uncertain.

Infrastructure Ministries Also Affected

The impact of the freeze is not limited to urban development. The Ministry of Physical Infrastructure and Transport saw NPR 24 billion of its development budget frozen, of which only NPR 10 billion has been released so far.

Projects under the ministries of drinking water, energy, irrigation, and transport have also been affected, with several construction activities either slowed or suspended.

Economists Warn of Wider Economic Consequences

Economists warn that freezing development spending could have serious consequences for the broader economy. Historically, Nepal has utilized only 60–65 percent of its development budget each year. Reducing available funds further could significantly weaken economic activity.

“Development expenditure is one of the main drivers of employment and demand,” said an economist. “If capital spending slows, economic activity contracts and unemployment rises.”

Calls for Immediate Budget Release

Officials from affected ministries argue that the budget freeze was implemented without sufficient consultation. They warn that prolonged delays could fuel public frustration, increase project costs, and leave skilled workers unemployed.

Experts and civil servants alike have urged the government to immediately release frozen development funds, warning that failure to do so could make it difficult to meet annual development targets and further slow economic recovery.

As mid-year reviews continue, pressure is mounting on the government to strike a balance between fiscal discipline and the urgent need to sustain development-driven economic activity.