KATHMANDU, Feb 21: The weakening of the Nepali currency against the US dollar in recent months has taken a toll on the government, leading to soaring debt servicing liabilities.
Records from the Public Debt Management Office (PDMO) show that fluctuations in the exchange rate have significantly impacted the country's external loans. In the past month alone, Nepal faced an additional debt burden of Rs 24.98 billion due to the appreciation of the US dollar.
As of mid-January this year, external debt accounted for Rs 1.301 trillion of the total public debt, which rose to Rs 1.328 trillion by mid-February. During this period, the government repaid Rs 520 million in interest and principal on external loans.
According to Nepal Rastra Bank (NRB) records, the Nepali currency depreciated by Rs 5.48 per dollar, with the exchange rate rising from Rs 133.45 per dollar in mid-July 2024 to Rs 138.93 per dollar in mid-January 2025. By the first week of February, the exchange rate further increased to Rs 140.43 per dollar. Since the Nepali currency is pegged to the Indian rupee, any rise in the dollar’s value in India also affects Nepal.
Economists warn that as the local currency weakens, debt servicing costs increase because foreign loans must be repaid in US dollars. At a time when budget allocations for capital expenditure are shrinking, the rising debt burden is further worsening the government’s financial position, says Nara Bahadur Thapa, former executive director of NRB.
PDMO records indicate that Nepal’s public debt surpassed Rs 2.611 trillion as of mid-February this year. In the first seven months of the current fiscal year, the government took on an additional Rs 290.57 billion in borrowings while repaying Rs 150.20 billion in loan liabilities.
According to the latest data, the ratio of public debt to gross domestic product (GDP) has reached 45.77 percent, marking a 1.31 percentage point increase from 44.46 percent in just one month. The per capita debt has now reached approximately Rs 90,000.
With mounting pressure to repay interest and principal, investment in government-run projects has suffered. While exchange rate fluctuations have contributed to the rising public debt, economists argue that excessive government spending in unproductive sectors remains the primary cause of the situation.