Finance Minister Dr. Swarnim Wagle’s FY 2083/84 (2026/2027) budget is one of the most ambitious economic policy documents Nepal has presented in decades. The government has projected 7 percent economic growth while targeting inflation below 6 percent despite the current fiscal year being estimated to grow at only around 3.85 percent. Nepal’s target also exceeds the projected growth rates of India at approximately 6.5 percent and Bangladesh at approximately 4.7 percent. Sustained 7 percent annual growth would allow Nepal’s economy, currently estimated at roughly US$50 to 55 billion, to approach US$100 billion within about a decade. The ambition is therefore significant. The question is whether Nepal’s current economic structure can realistically sustain such a trajectory.
The proposed national budget stands at approximately NPR 2.124 trillion (approximately US$15.7 billion). Of the government’s projected income, roughly two thirds is expected from domestic revenue while nearly one third of the budget will be financed through domestic and foreign borrowing. Foreign grants account for only a very small portion of total financing. On the expenditure side, nearly 62 percent of total spending is allocated toward recurrent expenditure including salaries, pensions, subsidies, and administration while only around 19 percent is directed toward capital expenditure tied to future productivity through infrastructure, hydropower, irrigation, transmission lines, and industrial development. Another roughly 19 percent is allocated toward financial management and debt servicing obligations. The structure of the budget therefore reveals an economy still heavily dependent on consumption, borrowing, and operational expenditure rather than productive capital formation.
What distinguishes this budget from prior years is a visible shift in economic thinking. For the first time in many years, Nepal’s budget openly embraces artificial intelligence, IT exports, digital services, startup ecosystems, remote work, and sovereign AI infrastructure as pillars of future economic transformation. Nepal’s IT export sector is estimated to have reached approximately NPR 145 billion (approximately US$1 billion) annually and has grown rapidly over the last five years. Yet despite this momentum, the sector still contributes only around 2 percent of GDP and remains far too small to independently sustain a 7 percent national growth trajectory or absorb the
scale of future electricity production Nepal hopes to generate. At the same time, the budget still rests overwhelmingly on one assumption that remittance inflows will remain stable. Nepal currently receives approximately US$12 to 13 billion annually in remittance inflows, equivalent to roughly 25 to 30 percent of national GDP. This remittance driven consumption finances imports, banking liquidity, housing, and government revenue collection. More than 60 percent of projected domestic revenue is derived from VAT, customs duties, and excise taxes, all fundamentally tied to imports and consumption. VAT alone is projected at approximately NPR 389 billion (approximately US$2.9 billion), customs duties at NPR 341 billion (approximately US$2.5 billion), and excise duties at NPR 255 billion (approximately US$1.9 billion). Nepal’s fiscal architecture therefore remains deeply dependent on remittance fueled consumption rather than domestic industrial production.
A similar structural vulnerability exists in Nepal’s energy strategy. India remains effectively the only viable large scale export market for Nepal’s hydropower while Nepal still lacks diversified regional transmission infrastructure and alternative electricity buyers. Hydropower expansion itself is heavily debt financed and depends upon predictable long term monetization. If Nepal cannot productively consume a substantial portion of its future electricity generation domestically, and India for political, economic, or strategic reasons reduces future electricity purchases, Nepal could find itself holding expensive hydropower capacity without adequate markets for the output. The result could be severe sovereign debt stress and fiscal instability. Nepal therefore cannot rely solely on electricity exports and must urgently build industries capable of consuming large volumes of electricity domestically.
This is precisely why the budget’s references to green hydrogen and green urea production may ultimately prove more strategically significant than even its AI announcements. Agriculture still employs more than 60 percent of Nepal’s population and contributes roughly one quarter of national GDP, approximately NPR 1.3 to 1.5 trillion (approximately US$9.6 to 11 billion) annually. Nepal currently imports more than 800,000 tons of fertilizer annually while actual demand is believed to exceed one million tons. By using surplus hydropower to produce domestic green hydrogen and green urea, Nepal could create a powerful productivity multiplier across the broader economy. Even a 10 percent increase in agricultural productivity through reliable fertilizer supply, irrigation, mechanization, and energy integration could increase agricultural output by approximately NPR 130 to 150 billion (approximately US$1 to 1.1 billion) annually. A 25 percent increase could raise agricultural output by NPR 325 to 375 billion (approximately US$2.4 to 2.8 billion) annually, equivalent to approximately 6 to 7 percent of Nepal’s current GDP. At the same time, a domestic green hydrogen and green urea ecosystem would create the large scale industrial electricity demand Nepal currently lacks while reducing dependence on imported fertilizer and fossil fuels.
The scale of Nepal’s import dependency makes the economic implications even more significant. Nepal spends more than US$2 billion annually importing petroleum products. Coal imports are estimated at NPR 70 to 90 billion (approximately US$520 to 670 million) annually while LPG imports exceed NPR 55 to 60 billion (approximately US$400 to 450 million). Combined with fertilizer imports and seasonal purchases of fossil fuel generated electricity during the dry season, Nepal’s annual foreign currency outflows comfortably exceed US$4 billion. Even replacing only a portion of imported petroleum, coal, fertilizer, and LPG with domestic green energy alternatives could realistically save Nepal approximately US$2 to 3 billion annually, equivalent to roughly NPR 270 to 400 billion at current exchange rates. That figure nearly equals Nepal’s entire capital expenditure budget of NPR 407 billion and almost matches the NPR 401 billion currently allocated toward debt servicing and financial management obligations. Reducing imports is therefore not merely an environmental objective but one of the largest fiscal stabilization and capital formation opportunities available to Nepal.
The optimism within Dr. Wagle’s budget is therefore not misplaced. Nepal possesses genuine advantages in hydropower potential, agricultural scale, strategic geography, and a growing skilled workforce. The vision of sustained 7 percent growth is economically defensible in principle. But Nepal cannot achieve that transformation through remittance fueled consumption, import taxation, and debt financed expansion alone. The success or failure of this growth vision will ultimately depend on whether Nepal can convert surplus energy into productive domestic industries that reduce imports, strengthen agriculture, expand exports, and build long term economic resilience. Nepal’s future may ultimately be determined not by how much electricity the country produces, but by whether it can transform that electricity into industrial capacity, national productivity, and genuine economic sovereignty.

( Galab Bahadur Dhungana, Attorney & Counselor at Law, United States.)