KATHMANDU, March 17: Nepal’s public debt continues to climb as the government increasingly turns to domestic and foreign borrowing amid a shortage of resources for development projects.
With revenue collection remaining weak, the growing reliance on loans has pushed the country’s public debt burden to nearly Rs 2.875 trillion. In the past eight months alone, the debt has increased by nearly Rs 200 billion.
According to the Public Debt Management Office (PDMO), Nepal’s total public debt liability reached Rs 2.878 trillion as of mid-March, accounting for 47.13 percent of the country’s gross domestic product (GDP).
Public debt increased by Rs 204.24 billion during the first eight months of the fiscal year (FY). As of mid-August, Nepal’s public debt stood at Rs 2.674 trillion. Information Officer at the PDMO, Mohan Singh Basnet, said the borrowing was carried out in line with provisions made in the national budget.
“The additional burden has also increased due to the rise in foreign exchange rates,” Basnet said. “The government has borrowed within the limits set by the government.”
Of the total debt liability, domestic debt accounts for 46.84 percent while external debt makes up 53.16 percent. As of mid-March, domestic debt stood at Rs 1.348 trillion and external debt at Rs 1.530 trillion. Changes in exchange rates alone have resulted in an exchange loss of Rs 97.98 billion in external debt liabilities.
Public debt hits Rs 2.8 trillion mark
The government mobilized Rs 346 billion in public debt during the eight months. During the same time, it spent Rs 242.26 billion solely on the principal and interest payments of public debt. This indicates that a large portion of new borrowing has been used to repay the principal and interest on previous loans.
Public debt has grown significantly in Nepal in recent years. Weak revenue collection, low capital expenditure, rising recurrent spending, and increasing dependence on foreign borrowing are seen as the key drivers behind the rising debt burden.
The government has been relying on loans to finance large investments needed for infrastructure development, social sector programs, and the expansion of economic activities. With revenue collection falling short of expectations, borrowing has become a necessary tool for managing expenditure.
Rising recurrent expenditure has also added to the pressure. Expansion of government structures, employee-related expenses, social security programs, and other administrative costs have continued to increase, placing additional strain on the national budget. In such circumstances, the government has had little choice but to rely on loans to bridge the resource gap.
In the current FY 2025/26, about 59 percent of the budget allocated for public debt servicing has already been spent by mid-March. A total of Rs 411.01 billion had been allocated under debt servicing expenditure. Of this amount, Rs 242.26 billion had already been paid by mid-March.
The government had set an annual target to mobilize Rs 595.66 billion in public debt in the current FY. By mid-March, it had received 50.44 percent of the total target, amounting to Rs 346.72 billion.
According to the report, Rs 204.80 billion has been paid toward the principal and interest of domestic debt, while Rs 37.46 billion has been paid for external debt servicing.
According to the government’s annual debt plan, it aims to raise to Rs 362 billion in domestic debt in the current FY. Similarly, the plan sets a target of mobilizing up to Rs 233 billion in external borrowing.
According to the government, external loans are mainly received through reimbursements from development partners based on expenditures made in various development projects, as well as through budgetary assistance. Therefore, priority has been given to managing domestic debt while preparing the annual debt plan. Monthly projections of revenue collection and budget expenditure were also analyzed while preparing the plan.
The Ministry of Finance (MoF) said the borrowing schedule was designed to ensure sufficient resources to manage possible monthly budget deficits. The plan also takes into account the obligation to repay principal and interest on loans taken in the past.
By analyzing repayment schedules, efforts have been made to maintain balance in annual debt management. In line with the medium-term debt management strategy, the government has also been adjusting the structure of domestic borrowing. The share of treasury bills, which were previously used as short-term borrowing instruments, is gradually being reduced, while the share of medium- and long-term development bonds is being increased.
The MoF said the annual debt plan was prepared in consultation with the Nepal Rastra Bank. This coordination is expected to help maintain harmony between the government’s fiscal policy and monetary policy and support overall economic management.
The government said factors such as market liquidity, prevailing interest rates, and cost-effectiveness were considered while selecting borrowing instruments. Proper debt management is expected to help mobilize necessary resources at a lower cost.
According to the MoF, the primary objective of public borrowing is to manage the budget deficit and ensure financial resources for development projects. The debt plan has been prepared taking into account the government’s expenditure needs, the state of revenue collection, and the pace of economic activities.
Experts say that if borrowed funds are invested in productive sectors, they can contribute positively to economic growth and infrastructure development. However, ineffective use of loans could increase long-term financial liabilities, making careful debt management essential.
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