On the eve of Nepal’s federal budget announcement for Fiscal Year 2025/26, government insiders have revealed that the state will require around Rs 300 billion just to meet its obligations for pensions and social security allowances, including elderly benefits.

According to officials involved in the budget formulation, the government is facing a significant fiscal challenge due to the rising cost of mandatory liabilities. These include pensions for civil servants and allowances under various social security schemes. The estimated requirement is nearly equivalent to the capital expenditure budget allocated for the current fiscal year, which stood at Rs 352 billion. Of that, only Rs 130 billion has been spent so far, according to the Financial Comptroller General Office.

With a sharp decline in foreign aid and a substantial drop in internal revenue, the Ministry of Finance is under pressure to manage resources for social security. A senior official said, “Just for civil servants’ pensions, concerned government bodies have demanded Rs 85 billion for the next fiscal year. When we include elderly allowances and other social security schemes, the total requirement reaches about 15–16 percent of the total budget.”

Officials from the Pension Management Office under the Finance Ministry confirmed that the pension burden has been increasing every year. The office’s chief, Bishnu Prasad Kharel, said the government would need at least Rs 81 billion for pension payments covering the military, police, teachers, and civil servants until mid-July in the current fiscal year.

“Even Rs 81 billion may fall short by the fiscal year-end,” he told New Business Age, adding that pensions alone now account for 5 percent of the total budget. Pension expenses in Fiscal Year 2016/17 stood at Rs 37 billion.

Despite this growing liability, experts say the government has yet to take concrete steps to reduce recurrent spending. Economist Keshav Acharya warned that the financial burden will double in the future if the government fails to act on the recommendations made by the Public Expenditure Review Commission. “The government continues to delay trimming unnecessary ministries, departments, and staff positions,” he said. “Some institutions are even being used for political appointments, which will only worsen the situation.”

Acharya emphasized that the government must seriously consider reducing social security expenditures due to shrinking internal revenue. Finance Ministry officials estimate that apart from pensions, around Rs 200 billion will be needed to fund elderly allowances and other welfare programs next fiscal year. Mobilizing such a large sum has become a daunting task, they said.

One possible solution under consideration is raising the eligibility age for elderly allowances back to 70 years, which would save the government over Rs 19 billion annually. Although the average life expectancy of Nepalis has increased, the age threshold for the allowance was reduced to 68 for political gain, insiders said. The government is preparing to revise the eligibility age, but officials say it remains a politically sensitive issue.

The elderly allowance, introduced three decades ago, has evolved into both a component of social security and a political agenda. “There is strong lobbying to increase the eligibility age,” said one high-ranking official involved in budget planning. “But since the elderly allowance was launched by the UML and has direct electoral implications, the prime minister has yet to approve it.”

According to the Department of National ID and Civil Registration, a total of 3,783,356 individuals currently receive social security allowances, with elderly citizens accounting for 40 percent of the total. As of now, 1,857,529 elderly individuals receive a monthly allowance of Rs 4,000 each.

Economist Acharya also cautioned that the government must take corrective steps to manage such expenditures. “The government must address duplications within the social security system,” he said. “Some genuinely deserving people are left out, while the middle class—who don’t need it—are benefiting. The government must act seriously on this issue.”