Nepal’s public debt has exceeded Rs 2.65 trillion as of mid-June 2025, marking a sharp increase from Rs 2.62 trillion recorded just a month earlier, according to the Public Debt Management Office. In the first 11 months of the current fiscal year, the government borrowed Rs 414.19 billion and repaid Rs 266.65 billion in principal, resulting in a net debt rise of Rs 220.58 billion.
A significant contributor to the rising debt burden is the depreciation of the Nepali rupee. With the exchange rate increasing from Rs 134 to Rs 138 per US dollar, the cost of foreign-denominated loans swelled, adding an estimated Rs 73 billion to the overall debt.
Of the total public debt, domestic borrowing stands at Rs 1.72 trillion, or 22.31 percent of GDP, while external debt accounts for Rs 1.82 trillion, or 24.23 percent of GDP. Combined, Nepal’s public debt now makes up 43.47 percent of the country’s GDP. Although the government has nearly met its domestic borrowing target, it has only achieved 46 percent of its external borrowing target. Analysts attribute this gap to sluggish progress in capital expenditure projects, which often condition the release of foreign aid and loans.
As of mid-June, the government has spent Rs 329.6 billion on debt servicing—Rs 223.35 billion in principal payments and Rs 106.25 billion in interest—representing over 81 percent of the total debt servicing budget of Rs 402.85 billion for the fiscal year.
Experts are raising alarms over the sustainability of Nepal’s growing debt. Data from Nepal Rastra Bank shows public debt has been rising at an average of 19 percent annually over the past eight years, with domestic debt growing even faster at nearly 23 percent. In comparison, Nepal’s public debt a decade ago stood at just Rs 623 billion.
The increase is largely attributed to spending on post-2015 earthquake reconstruction, the rollout of federalism, and COVID-19 relief measures. A high-level economic reform commission, led by former Finance Secretary Rameshore Khanal, has warned that while the debt volume continues to rise, GDP and revenue growth are not keeping pace. This results in a growing share of the national budget being consumed by debt repayments.
The commission emphasizes that unless public debt is invested in productive, high-return projects, Nepal risks falling into a debt trap. Rising debt servicing obligations could squeeze out budget allocations for essential services like education, healthcare, and national security. The report recommends avoiding borrowing for administrative and recurrent spending and urges that internal borrowing be reserved strictly for economically viable projects.
It also calls for the integration of internal borrowing mechanisms into the budget frameworks at the provincial and local levels, with a focus on infrastructure and capital formation. The National Natural Resources and Fiscal Commission has echoed these concerns, advising the government to cut unproductive spending and impose tighter scrutiny on loan-backed development projects.
