Nepal’s Public Debt Surges Amidst Rising Borrowing
As Nepal grapples with a rapidly increasing debt burden, the government acquired an additional Rs 136.31 billion in public debt during the first three months of the current fiscal year. According to the Public Debt Management Office (PDMO), the total public debt liability reached Rs 2.434 trillion by the end of the fiscal year 2023/24, climbing to Rs 2.523 trillion by the end of the first quarter—an increase of Rs 88.93 billion.
Of the Rs 136.31 billion in new loans, Rs 115 billion was sourced from domestic borrowing, while Rs 21.31 billion was from external sources. During this period, the government made debt servicing payments totaling Rs 69.03 billion, covering both interest and principal repayments.
As of mid-October, the public debt to GDP ratio has risen to 44.23%, with Nepal’s GDP estimated at Rs 5.704 trillion. This is the highest ratio recorded in 18 years; in FY 2005/06, it peaked at 49.52% before being reduced to 22.28% in FY 2014/15. The debt began to escalate again after the devastating earthquake in 2015, surging five-fold over the last decade.
Current levels of public debt exceed recommendations from several studies conducted by the Nepal Rastra Bank (NRB). A May 2024 study indicated an ideal public debt to GDP ratio of 35.43%, while a 2020 NRB Economic Review suggested an optimum ratio of 33%. These studies warned that excessive debt could result in crowding out effects, increased tax rates, and a heavier repayment burden on future generations. They emphasized that debt accumulation should align with sustainable economic development goals, focusing not only on repayment but also on fostering maximum growth.
In light of the escalating debt, the government is compelled to allocate a significant portion of its annual budget to debt repayments. For the current fiscal year, Rs 402 billion is earmarked for this purpose, accounting for 21.6% of total annual expenditure—surpassing the allocation for capital expenditure by Rs 50 billion.
While the government cites slow revenue collection as a reason for rising public debt, analysts attribute it to a lack of efforts to curb unproductive spending. This fiscal year, the government aims to secure Rs 547 billion in loans to fulfill its financial obligations.
