By Sushil Sharma
BBC correspondent in Kathmandu
Nepal has unveiled a new budget with total spending planned at a billion and a half dollars. It includes a marginal increase in security spending.
The rebels are fighting for a communist state
Finance Minister Bharat Mohan Adhikary said that the budget aimed to reduce poverty and restore peace by tackling the long-running Maoist insurgency.
Nepal's economy grew by a little over three per cent last year, less than what officials had expected.
A new prime minister, Sher Bahadur Deuba, was appointed last month.
The announcement of the 2004-2005 budget comes against a background of a slow economic recovery hampered by the bloody Maoist insurgency,
As internal revenue collection is expected to be far less than the expenditure, the budget will depend on foreign aid for about a third of the total expenditure.
Finance Minister Adhikary announced a number of measures to boost agriculture and reduce poverty.
Nearly 40% of Nepal's 24 million people, most of them farmers, live in absolute poverty earning less than a dollar per day.
Boost for security
Rampant poverty has been largely blamed for the escalation of Maoist uprising that has left 9,000 dead in the past eight years.
Mr Adhikary said that reducing poverty would be crucial to tackling the insurgency.
He also announced a nine per cent increase in security spending, bringing the amount to $200m.
The move is aimed at bolstering the security forces that have been fighting the Maoist rebels.
The government had earlier pledged to resolve the insurgency and hold national elections by April next year.
The elections had been suspended two years ago due to security concerns caused by the Maoist threat to disrupt the polls.