Growth, borrowing, execution, and the missing bridge economy

Preamble

This article is not intended as a summary of the budget. Several excellent summaries already exist.

Instead, I want to examine the budget through a broader lens: What theory of development underlies it? What assumptions must hold for it to succeed? And what strategic opportunities may still be missing?

Budget Breakdown First: What Stands Out

The FY 2026/27 budget totals NPR 2.124 trillion, making it the largest budget in Nepal’s history. Major allocations target infrastructure, energy, agriculture, education, health, digital governance, investment promotion, and technology development. The budget signals a strong push toward infrastructure expansion, administrative reform, digitization, investment facilitation, agriculture modernization, and private-sector-led growth.

The scale of the budget naturally raises questions about debt sustainability. According to data from the Public Debt Management Office (PDMO), Nepal’s public debt has risen steadily in recent years to approximately 48 percent of GDP. While still below the conventional thresholds often viewed as manageable internationally, the pace of increase warrants attention.

In a regional context, Nepal occupies a middle ground. It is far removed from the severe fiscal distress experienced by Sri Lanka, but it also lacks the export-driven dynamism of countries such as Vietnam, which has been more successful in converting borrowed resources into productive investment, manufacturing growth, and export earnings. For Nepal, therefore, the central question is not yet the size of the debt itself, but whether the economy can generate sufficient productivity, growth, and revenue to service that debt sustainably over time.

The Immediate Concerns

Several concerns have emerged in public discussion.

First is the deficit and debt burden question. Critics worry that ambitious spending plans could translate into future fiscal stress if growth and revenue projections do not materialize.

Second is the perception that the budget is overly favorable to the middle class, businesses, investors, and government employees, while offering fewer transformational opportunities for those at the bottom of the economic ladder.

Third is the criticism that the budget appears highly lender-friendly and aligned with the preferences of institutions such as the Asian Development Bank and the World Bank.

A related concern is its strong faith in technology and digital systems. While digitization can improve efficiency and transparency, skeptics question whether technological solutions alone can overcome deeper institutional and governance challenges.

Looking Beyond the Criticisms

These criticisms deserve serious consideration. However, rather than judging the budget solely through these immediate concerns, it may be more useful to evaluate it through a broader analytical framework.

A Systems Lens: Diagnosis, Design, and Discipline

Rather than viewing the budget as a collection of announcements, it may be useful to examine it through a systems lens that I have discussed elsewhere: Diagnosis, Design, and Discipline.

Diagnosis. The underlying diagnosis appears to be that Nepal’s primary constraint is not merely a shortage of money, but a combination of low productivity, weak state capacity, fragmented development efforts, and excessive bureaucratic friction. The budget implicitly assumes that Nepal’s challenge is to convert existing resources—labor, land, energy, entrepreneurship, remittances, and foreign exchange reserves—into productive economic activity.

Design. Viewed this way, the budget appears to contain a more integrated architecture than many recent budgets. Energy, infrastructure, agriculture, tourism, technology, investment, and regional development are not presented entirely as stand-alone sectors. Instead, they are increasingly linked through corridors, logistics, processing, digitization, and investment facilitation. Whether these linkages are strong enough remains open to debate, but the attempt at integration is visible.

Discipline. This is where the real challenge begins. Even a sound diagnosis and a coherent design can fail without disciplined execution. Nepal’s development history is filled with plans that looked promising on paper but faltered during implementation. Project delays, procurement bottlenecks, frequent changes in governments, widespread corruption, contractor politics, bureaucratic inertia, and weak accountability have often undermined otherwise sensible ideas. Ultimately, the success of this budget will depend less on what is written in the budget document and more on whether institutions can execute consistently and at scale.

The Development-State Bet Behind the Budget

The scale of this budget makes the debt question unavoidable. A large budget financed partly through external borrowing can be justified only if the borrowed resources generate returns higher than their cost. In that sense, the budget appears to rest on a clear development-state assumption: borrow not for consumption, but for productivity-enhancing investment.

The Three Assumptions Behind the Strategy

The budget appears to rest on three large assumptions.

First, that digitization, streamlined approvals, regulatory reform, and administrative restructuring and incentive packages will improve implementation and project delivery.

Second, that growth generated by productive investment will exceed the cost of borrowing and keep the debt burden manageable.

Third, that the gains from growth will spread broadly through the economy through jobs, enterprise creation, and rising economic opportunity reaching all the down to the marginalized communities.

In short, this is a wager on state capacity, productive investment, and growth.

Lessons from Other Countries

The concern, of course, is real. Nepal’s past problem has not been the absence of plans, but weak execution, politicized contracting, cost overruns, corruption, and delayed completion. Countries that used loans successfully for modernization—such as South Korea, Vietnam, and Rwanda—did so by combining borrowing with strict execution discipline, export orientation, bureaucratic coordination, and strong control over leakage. Where these conditions failed, loans became burdens rather than engines of growth.

The Real Test: Execution

So the issue is not simply “loan versus no loan.” The real question is whether Nepal can finally convert borrowing into productive assets.

If administrative efficiency improves, projects are completed on time, corruption is contained, private investment responds, and growth expands opportunity for those at the bottom, the debt concern may become manageable. If those assumptions fail, the same borrowing could become another layer of fiscal stress and public resentment.

In short, this budget is making a big wager: that a more disciplined state can use borrowed capital to create a more productive economy.

One caution. Much of this strategy rests on speed, discipline, and execution. Those are important strengths. But as I argued in earlier essays on The Curse of the Majority and The Arrogance of Efficiency, democratic legitimacy depends not only on outcomes but also on process.

A government enjoying an overwhelming mandate may be tempted to view parliamentary debate, criticism, and institutional checks as obstacles to be managed. That would be a mistake. The enduring strength of democracy lies precisely in its sometimes messy processes of deliberation, scrutiny, and consent-building. Efficiency can accelerate development, but process sustains legitimacy.

The challenge for this new government, therefore, is not merely to move fast, but to bring others along while doing so.

Big budget. Big dreams. Big assumptions.

One Missing Piece: The Bridge Economy

One final observation.

While the budget presents a reasonably coherent architecture around production, processing, infrastructure, energy, tourism, investment, and regional development, one important dimension appears less visible: Nepal’s role as a bridge economy.

Nearly two decades ago, in an article titled Localizing Globalization, I argued that Nepal’s long-term opportunity lies not merely in what it produces internally, but in how it positions itself between two of the world’s largest and fastest-growing economies. Later, I expanded this idea through a proposal for deeper trans-Himalayan economic cooperation among Nepal, India, and China. The central argument was simple: Nepal’s greatest strategic asset may not be its domestic market alone, but its geography.

Many elements of that vision are present indirectly in the current budget. The emphasis on corridors, connectivity, energy, tourism, logistics, and regional development all point in that direction. Yet the larger bridge-economy concept remains less explicit.

This may be the elephant still standing quietly in the room.

From Domestic Development to Regional Positioning

As Nepal seeks to move beyond a remittance-driven economy, the question is not only how to connect farms to factories, factories to markets, and energy to industry. It is also how Nepal intends to position itself within the evolving economic geography of Asia itself.

Roads, hydropower, tourism circuits, logistics systems, and industrial zones become even more powerful when viewed not simply as domestic projects but as components of a larger regional ecosystem.

A New Political Moment, An Old Aspiration

For many years, such ideas remained largely aspirational. In my own writings nearly two decades ago, I argued that Nepal would eventually require a new generation of leadership capable of moving beyond fragmented projects and toward a more integrated development vision. Much of that aspiration remained unrealized, often appearing more like a mirage than a roadmap.

Today, however, many Nepalis appear to be investing similar hopes in a new political moment—one that promises greater coordination, competence, and execution than the country has experienced in recent decades.

Whether those hopes prove justified remains to be seen.

The Next Step

The current budget suggests that the conversation is beginning to move beyond annual expenditures and toward a broader development architecture. The next step may be to place Nepal more explicitly within the larger regional architecture that surrounds it.

The vision is becoming clearer.

Now comes the harder part: making it work through speed and efficiency, yes—but also through collaboration, institutional trust, and democratic process.

Dr. Alok K. Bohara, Emeritus Professor of Economics at the University of New Mexico, writes as an independent observer of Nepal’s democratic evolution through the lens of complexity and emergence science. His systems-policy essays on Nepal’s socio-economic and political landscape appear on Nepal Unplugged.