Increasing dependence on foreign loans calls for prudent use of the fund

Published On: December 12, 2019 08:44 AM NPT By: RAJESH KHANAL

KATHMANDU, Dec 12: Nepal received foreign loans worth Rs 24.95 billion in the first four months of the current fiscal year, more than double the amount that the country took from foreign donors during the same period last year.

According to records at the Ministry of Finance, Nepal received foreign aid worth Rs 11.37 billion during mid July-mid November in 2018. 

Due to an increased pressure of resource gap, triggered by a heavy rise in public expenses to enforce the federal system, and slow growth in revenue collection, the government is compelled to depend largely on foreign aid to meet the earmarked expenses under both the recurrent and development headings.

The federal government's net public borrowing has reached Rs 1,084 billion as of mid-November, according to the ministry's record. Of the total debt, the external loan of the government makes 58%, worth Rs 631.41 billion.

With a whooping rise in foreign borrowing this year, the country's debt per capita has reached Rs 36,498, given an estimated population of 29.3 million. It shows that the debt burden to a citizen has increased by Rs 3,104, almost 10% more just in the last eight months.

Economist Keshab Acharya said that with the rise in budget deficit, the government has to rely more on market borrowing that is also observed in the government's latest move. 

“In this regard, the government is forced to take more loans from the external sector, as domestic borrowing could hit the private sector's initiative to inject their capital,” said Acharya.

The rise in public borrowing, however, indicates that the government's liability in debt financing will also increase significantly in future. During mid July-mid November, the government paid Rs 2.88 billion in debt financing of foreign loans. It also means that the government has to keep away the prescribed amount from investing in the infrastructure development.

It has been almost two years since the first elected government took charge after the country formally implemented federalism. Over the period, the government has been struggling to manage the financial resources in relation to the expanding government expenditure. The Economic Survey 2018-19 also shows that the government spent 80% of the public expenditure in recurrent expenditure and debt financing last fiscal year.

Dipendra Bahadur Chhetri, former vice-chairman of the National Planning Commission, said external debt has not crossed an alarming level yet. “However, it should be a matter of concern how the accepted loan is being utilized,” said Chhetri.

Chhetri criticized the government for failing to implement the policies that yield rewarding results in the long run. “If the government fails to utilize external borrowing in development activities, the surged liability for debt financing will trigger up extra tax burden on the people. It will also put more pressure on the foreign currency reserve,” he said.

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