Public debt soars to 46.91 percent of Nepal’s GDP due to government’s rampant spending

Total public debt climbs to Rs 2.676 trillion, an increase of Rs 241.93 billion in first eight months

KATHMANDU, March 20: Nepal’s public debt continues to climb at an alarming rate as unchecked government spending and sluggish revenue collection, worsening the financial strain.

According to the Public Debt Management Office (PDMO), the government took additional loans of Rs 241.93 billion in the first eight months of the current fiscal year. With the additional amount of borrowings, the country’s public debt has reached Rs 2.676 trillion as of mid-March, which stood at Rs 2.434 trillion in mid-July 2024.

In the review period, the government spent Rs 841.14 billion, out of which Rs 758.58 billion was exhausted collectively on regular expenditure and debt servicing that includes paying back of interests and principal amount on the borrowed amounts. During this period, only Rs 82.56 billion was utilized in productive investment on capital expenditure.

On the other hand, the government collected Rs 739.30 billion in total receipts, which include Rs 720.83 billion in revenue collection. This means that the government faced a shortfall of Rs 101.84 billion. The records maintained by the Financial Comptroller General Office shows that the government spent a hefty amount of Rs 140.09 billion for expenditure in direct payment under non-budgetary headings.

Experts warn that the government’s failure to adopt prudent borrowing measures has exacerbated the debt crisis. According to Bhumi Ram Sharma, the former head of the PDMO, the government lacking prudent measures to take loans has led to soaring amounts of public debt.

The government records show that the amount of public debts increased more than double in the past five years. By FY 2018/19, Nepal’s cumulative debts stood at Rs 1.048 trillion, which soared to Rs 2.434 trillion as of the end of the FY 2023/24.

Biswo Poudel, former vice-chairman of the National Planning Commission, speaking at a program a few months ago, said that spending billions of rupees in the unproductive sector has led to an increased burden of public debt than to achieve noteworthy economic growth. Dipendra Bahadur Chhetri, former governor of Nepal Rastra Bank (NRB), also expressed that the government failing to adopt austerity measures effectively has led to an increasing financial burden to the country.

With the surge in public borrowing, the country’s debt burden has reached 46.91 percent of the gross domestic product. The figure was just 42.65 percent of the country’s GDP as of mid-July 2024.

The PDMO records show the country's amount of public debt was partially impacted by the plunge in the value of Nepali currency against the US dollar. With the fluctuation in exchange rate, the country faced an additional burden of Rs 66.29 billion in its public debt.

Out of the country’s total debt, Rs 1.360 trillion (50.83 percent) was external loans. The remaining Rs 1.315 trillion (49.16 percent) was internal loans of the government. In the current FY, the government has aimed to mobilize public debt of Rs 547 billion.