Provincial Governments Post Rs. 8.5B Surplus: What It Means for Federalism in Nepal

Nepal’s provincial governments recorded a budget surplus of Rs. 8.53 billion in the first month of 2025/26, according to the Nepal Rastra Bank’s latest data. The provinces mobilized a total of Rs. 8.7 billion in resources, including Rs. 5.6 billion in transfers and grants from the federal government and Rs. 3.0 billion from internal revenues and deposits, while their expenditure amounted to just Rs. 169.9 million. This significant surplus highlights the ongoing imbalance between resource mobilization and spending capacity at the subnational level.

Analysts argue that while the surplus looks positive on paper, it actually reflects the structural weaknesses of federalism in Nepal. Provinces are receiving increasing fiscal transfers from the center but have been slow to utilize funds effectively due to limited project pipelines, bureaucratic hurdles, and weak institutional capacity. The result is under-spending, especially in capital and development projects, which undermines the broader goals of fiscal federalism—balanced development, decentralization of services, and increased accountability.

The Rs. 8.5B surplus underscores a deeper question: Are provinces truly empowered to govern, or are they functioning as mere recipients of federal funds? For federalism to deliver on its promises, experts suggest that provinces need stronger planning autonomy, enhanced technical staff, and better fiscal responsibility frameworks to ensure that funds translate into tangible outcomes for citizens.