Nepal’s public debt has continued to rise as the government increasingly relies on domestic and foreign borrowing to finance development amid weak revenue collection.
According to the Public Debt Management Office (PDMO), the country’s total public debt reached Rs 2.878 trillion by mid-March, accounting for 47.13 percent of the gross domestic product (GDP). In just eight months, the debt has grown by over Rs 204 billion, up from Rs 2.674 trillion recorded in mid-August.
Officials say the rise is largely due to increased borrowing in line with the national budget, along with the impact of foreign exchange fluctuations. Exchange rate changes alone have added nearly Rs 98 billion to external debt liabilities.
Out of the total, domestic debt stands at Rs 1.348 trillion (46.84 percent), while external debt amounts to Rs 1.530 trillion (53.16 percent), reflecting a slightly higher dependence on foreign loans.
During the first eight months of the fiscal year, the government mobilized around Rs 346 billion in public debt. However, a significant portion—Rs 242.26 billion—was spent on servicing existing loans, including principal and interest payments, indicating that much of the new borrowing is being used to repay past obligations.
The rising debt burden is driven by multiple factors, including weak revenue collection, low capital expenditure, increasing recurrent spending, and growing dependence on external financing. Expanding administrative costs, social security obligations, and employee-related expenses have further strained government finances.
In the current fiscal year 2025/26, about 59 percent of the allocated Rs 411.01 billion for debt servicing has already been utilized by mid-March. Meanwhile, the government aims to raise Rs 595.66 billion in total public debt this year, of which around half has already been mobilized.
The Ministry of Finance (MoF) has stated that borrowing plans are designed to manage budget deficits and ensure adequate funding for development projects. The government is also shifting its strategy by reducing reliance on short-term treasury bills and increasing the use of medium- and long-term development bonds.
Prepared in coordination with the Nepal Rastra Bank, the debt management plan takes into account factors such as liquidity, interest rates, and cost-effectiveness to maintain fiscal and monetary balance.
Experts emphasize that while borrowing is necessary, its effectiveness depends on how well funds are invested. Productive use of loans can support economic growth and infrastructure development, but inefficient spending could increase long-term financial risks, making prudent debt management crucial.
