Nepal spent nearly Rs 362.59 billion in the Fiscal Year 2024/25 just to service its debt—paying both principal and interest on domestic and foreign loans. This massive outlay highlights the country’s growing reliance on borrowing at a time when revenue generation remains insufficient even for meeting day-to-day expenses. Making matters worse, development partners like the World Bank have hiked interest rates on their loans. In fact, the World Bank recently doubled its rate to Nepal—from 0.75% to 1.5%—citing the country’s improved economic position.
While the rate hike may appear to be a vote of confidence in Nepal’s progress, it is expected to significantly raise the cost of infrastructure projects that depend heavily on foreign financing. National Planning Commission Vice Chair Dr. Shivraj Adhikari cautioned that if projects are delayed, development costs will further escalate, putting even more pressure on the national budget. He also noted that the rate increase was influenced by a rise in Nepal’s per capita income, which now exceeds USD 1,135. This shift has also led to a revision in Nepal’s loan terms—repayment periods have been shortened from 40 to 30 years, with repayments beginning six years after loan disbursement.
Nepal’s public debt now stands at a staggering Rs 2.669 trillion, with external debt accounting for more than half of this figure. In FY 2024/25 alone, the debt burden rose by Rs 231.08 billion. Over the past decade, Nepal has used Rs 280.9 billion in foreign loans just to pay off previous loans, indicating a worrying trend of debt rollover.
The situation has prompted experts to raise concerns about the country’s ability to achieve its Sustainable Development Goals (SDGs), which require an estimated investment of Rs 21.165 trillion from 2024 to 2030. If current debt levels and borrowing patterns persist, the required average annual investment of Rs 3.023 trillion could be difficult to mobilize.
To address infrastructure needs, the government has approved a new USD 120 million concessional loan from the World Bank for electricity distribution upgrades. This includes both a short-term loan and concessional financing through the International Development Association (IDA), one of the two lending arms of the World Bank, the other being the International Bank for Reconstruction and Development (IBRD).
For FY 2025/26, the government has planned to raise Rs 600 billion in public debt—Rs 233 billion from external sources and Rs 362 billion through domestic borrowing. This accounts for a substantial portion of the total national budget of Rs 1.964 trillion, which will be funded through a combination of internal revenue, foreign loans, external grants, and domestic debt.
With public debt rising by nearly Rs 1.6 trillion in the last six years alone, Nepal faces mounting fiscal pressure. Without significant improvements in project implementation and revenue generation, the country risks entering a cycle of borrowing that could jeopardize its long-term financial sustainability and development goals.
