KATHMANDU, Aug 7: Nepal spent nearly Rs 362.59 billion in the last Fiscal Year (FY) 2024/25 solely on repaying the principal and interest of domestic and foreign loans, as public debt continues to mount. This substantial expenditure has come at a time when financial challenges are intensifying due to rising interest rates, particularly from major development partners like the World Bank.
The World Bank has recently doubled its lending rate to Nepal from 0.75% to 1.5%, citing the country's improved economic standing. However, this increase is expected to inflate the cost of numerous development projects that rely heavily on World Bank financing. Consequently, the portion of the national budget allocated for loan interest payments is also projected to rise.
Nepal has increasingly relied on borrowing to repay existing loans, as revenue growth has remained insufficient even to cover recurrent expenditures. According to National Planning Commission Vice Chair Dr. Shivraj Adhikari, the higher interest rates on foreign loans will also push up investment costs for ongoing infrastructure projects. “The World Bank raised the rate because it views Nepal’s economy as stronger,” said Adhikari, “But if we fail to complete projects on time, development costs will rise further.”
Dr Adhikari said that the rise in per capita income contributed to the World Bank’s decision to hike interest rates. He emphasized the need for better planning and timely implementation to avoid escalating project costs and financial strain.
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The World Bank, Asian Development Bank (ADB), and International Monetary Fund (IMF), among others, are Nepal’s key lending partners. With Nepal’s per capita gross national income surpassing USD 1,135, the World Bank has revised Nepal’s loan terms. Lending is done via two channels: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). IBRD loans cater to developing countries with moderate income levels, while IDA offers concessional loans to low-income, fragile economies.
The World Bank has also shortened Nepal’s loan repayment period from 40 years to 30 years, with repayments starting six years after disbursement. The Bank accounts for around 30% to 35% of Nepal’s total foreign aid. Currently, Nepal's public debt stands at Rs 2.669 trillion, with external debt making up 52.49% (around Rs 1.4 trillion) of that total.
Just last week, the government approved a concessional loan of USD 120 million (approximately Rs 16.74 billion) from the World Bank for upgrading and strengthening the electricity distribution system. This includes a short-term loan of USD 86.7 million and a concessional portion of USD 33.3 million from the International Development Association (IDA).
In FY 2024/25 alone, public debt increased by Rs 231.08 billion. Over the past decade, Nepal has spent Rs 280.9 billion in foreign loans to service existing foreign debts. Experts warn that the rising debt burden poses a serious threat to the country’s ability to achieve its Sustainable Development Goals (SDGs).
According to Dr Adhikari, external debt pressure may hinder the achievement of SDGs, which require an estimated investment of Rs 21.165 trillion (an annual average of Rs 3.023 trillion) between 2024 and 2030.
For the current fiscal year 2025/26, the government has planned to raise about Rs 600 billion in public debt—Rs 233 billion in external loans and Rs 362 billion in domestic borrowing. The total budget stands at Rs 1.964 trillion, with Rs 1.315 trillion expected to be raised from internal revenue and the remainder from external grants, foreign loans, and domestic debt.
Over the last six years alone, public debt has surged by nearly Rs 1.6 trillion, signaling growing fiscal pressure and long-term sustainability concerns
