Despite steadily increasing the size of the national budget year after year, the government of Nepal has failed to boost revenue as anticipated. This persistent shortfall has resulted in a growing reliance on borrowing, pushing public debt to alarming levels—currently standing at nearly Rs 2.7 trillion.
Budget and Borrowing for Fiscal Year 2082/83 (2025/26)
Finance Minister Bishnu Paudel has proposed a Rs 1.964 trillion budget for the upcoming fiscal year 2082/83 (2025/26). To finance this, the government expects to collect Rs 1.315 trillion in revenue. The remaining gap will be bridged through foreign grants and loans—specifically, Rs 233 billion in external loans and Rs 362 billion in domestic loans, totaling Rs 595 billion in borrowing.
A Surge in Public Debt Over Recent Years
In the past six years alone, Nepal’s public debt has grown by Rs 1.6 trillion. According to the Economic Survey, the total public debt has reached Rs 2.676 trillion, up from Rs 1.048 trillion in FY 2075/76 (2018/19).
At the start of the current fiscal year 2081/82 (2024/25), public debt was Rs 2.435 trillion. By mid-May (end of Baisakh), it had risen by another Rs 188.3 billion. The Ministry of Finance reports that 51.69% of this debt is external, while 48.31% is internal.
Revenue Shortfalls and Growing Deficit
The government consistently overestimates its revenue potential. Even with expanding economic activity, actual revenue collection has not met expectations. In the current fiscal year, the government aims to collect Rs 1.2603 trillion in revenue and Rs 5.233 billion in foreign grants to fund its Rs 1.8603 trillion budget. The remaining Rs 547.67 billion will come from borrowing—Rs 217.67 billion externally and Rs 330 billion domestically. This borrowing plan has already been revised through a mid-term review.
Finance Minister Paudel has stated that domestic borrowing is being kept within the limits recommended by the National Finance Commission, and that the government is mindful of the ceiling for international aid.
Criticism Over Rising Debt and Poor Investment Returns
Parliament and stakeholders have voiced concern over the growing debt burden. Critics emphasize the need for the government to invest borrowed funds in revenue-generating projects. Instances like the Pokhara and Bhairahawa airports, which have failed to deliver expected returns despite heavy loan funding, are seen as cautionary tales.
Experts warn that borrowing to cover operational expenses—rather than productive investments—will only deepen financial vulnerability. They advise the government to adopt a more cautious and strategic approach to debt management.
Structural Challenges and the Way Forward
The Ministry of Finance has acknowledged that weak internal resource mobilization, especially at the provincial and local levels, has increased dependency on federal funding. This has further pressured the central government’s resources and led to more borrowing.
To address these challenges, the ministry stresses the need for:
- Effective resource management
- Reducing reliance on debt
- Strengthening fiscal discipline
- Improving internal revenue collection mechanisms
In conclusion, unless the government can improve revenue performance and ensure that borrowed funds are used effectively, Nepal’s rising public debt will continue to pose a major economic risk.
