While the Government of Nepal successfully raised the entire internal debt target for the fiscal year (FY) 2024/25, it fell significantly short of achieving its external debt target, according to a recent report by the Public Debt Management Office (PDMO).
The government had aimed to raise Rs 547 billion in total public debt for the fiscal year. Of this, Rs 455.39 billion, or 83.25%, was successfully mobilized. The internal debt target of Rs 330 billion was fully met. However, only Rs 125.3 billion was secured out of the targeted Rs 217 billion in external debt — amounting to just 57.79%, leaving a shortfall of Rs 91.6 billion.
Low Capital Spending Hampered Foreign Loans
According to PDMO Chief Gopikrishna Koirala, the government’s failure to meet its external borrowing goals is largely due to low capital expenditure and delays in project implementation. Since foreign loans are often disbursed as reimbursements after project milestones are achieved, the slow execution of development projects led to lower disbursements from external lenders.
Koirala explained that domestic resources are used first to fund government projects, and reimbursements from external loans are only claimed after successful implementation. With many infrastructure projects lagging behind, full reimbursement requests could not be made.
Internal vs External Debt: Different Fiscal Impacts
Although internal borrowing is more easily accessible, it is often used for recurrent expenditures and can strain the domestic financial market. When the government borrows heavily from local banks and financial institutions, it reduces available credit for the private sector and may affect liquidity in the economy.
On the other hand, external loans are generally tied to capital-intensive projects, come with lower interest rates, and have longer repayment periods. These loans are considered more effective in promoting infrastructure development and long-term capital formation.
Rising Debt and Debt Servicing Costs
As of mid-July 2025, Nepal’s total public debt stood at Rs 2,669 billion, marking a year-on-year increase of Rs 231 billion. This represents 43.71% of the Gross Domestic Product (GDP).
- External debt: Rs 1,401 billion (52.49% of total debt; 24.56% of GDP)
- Internal debt: Rs 1,263 billion (47.51% of total debt; 22.14% of GDP)
The government spent over Rs 400 billion on debt servicing (covering both principal and interest payments), which amounted to 90.01% of the allocated annual debt servicing budget and 5.94% of GDP. Of this, Rs 304 billion was spent on internal debt and Rs 58.4 billion on external debt repayment.
Outlook
The underperformance in external debt mobilization highlights the need for better project planning, execution, and fiscal discipline. Efficient capital spending not only ensures development outcomes but also facilitates the inflow of low-cost foreign financing critical for long-term economic growth.
