Nepal’s Debt Crisis and Corruption

The cases of bribery, nepotism, and embezzlement that continue to plague Nepal are classic hallmarks of a kleptocracy.

As of the end of the first quarter of fiscal year 2081/82 (October 16, 2024), the total outstanding debt of the Government of Nepal has reached NPR 2,523.03 billion. Of this, NPR 1,286.73 billion (50.41%) is external debt, while NPR 1,236.30 billion (49.59%) is domestic debt. The total outstanding debt has risen by NPR 88.13 billion (3.65%) compared to the end of the previous fiscal year, with external debt increasing by NPR 33.53 billion (2.68%) and domestic debt growing by NPR 55.40 billion (4.69%), according to the latest report from the Tripureshwar-based Public Debt Management Office for the fiscal year 2024/25.

The report highlights that the total public debt, which stood at NPR 2,434.9 billion at the start of the fiscal year, has risen by NPR 88.13 billion over the past six months.

Currently, public debt constitutes 44.46 percent of Nepal's GDP. The report also notes that fluctuations in the exchange rate have added NPR 119.61 billion to the public debt by mid-January. Of the total debt, 51.31 percent is foreign debt, while 48.68 percent is domestic debt.

The cases of bribery, nepotism, and embezzlement that continue to plague Nepal are classic hallmarks of a kleptocracy, a system of government where those in power use their positions to amass personal wealth at the expense of the public. In a kleptocracy, the governing elite often prioritize their own financial interests, exploiting public resources, institutions, and state apparatus to enrich themselves and their allies. This environment of corruption is not just the result of isolated incidents but reflects a deeply ingrained culture of impunity, where the powerful feel secure in their ability to violate laws without fear of retribution.

In Nepal's case, bribery, nepotism (favoring family members for jobs or contracts), and embezzlement (misappropriating public funds for personal gain) are symptoms of a wider, systemic failure to ensure transparency and accountability. These acts are not merely the actions of rogue individuals, but rather indicate that corrupt practices are embedded in the structures of governance. When leaders use public office to enrich themselves, public trust erodes, and essential services such as healthcare, education, and infrastructure suffer. This leads to a weakened state, where the needs of the citizens are subordinated to the desires of those in power.

The consequences of unchecked corruption in Nepal, as in other kleptocratic nations, are far-reaching. Governance becomes less effective, as leaders are more focused on their personal enrichment than on the country's development. Economic growth stagnates because the misallocation of resources—whether through bribery, nepotism, or embezzlement—prevents investments from being channeled into productive sectors of the economy. Instead, money that could go towards infrastructure, social programs, or business development is siphoned off by corrupt elites.

Moreover, kleptocracy breeds inequality. As the ruling class enriches itself through corrupt practices, the majority of the population remains impoverished, with little access to economic opportunities. This disparity often fuels social unrest and political instability, as citizens grow frustrated with a system that seems rigged against them. The lack of a fair and transparent system only exacerbates these inequalities, making it harder for the country to achieve sustainable development.

In nations that have succumbed to kleptocracy, like certain authoritarian regimes or failed states, corruption has directly undermined democratic institutions, distorted markets, and curtailed long-term growth. Economic progress becomes a casualty of corrupt practices, and the nation is left mired in poverty and stagnation. Nepal, if it does not address the deep-rooted corruption within its institutions, risks following this destructive path. Therefore, combatting kleptocracy requires not only punishing individuals who engage in bribery, nepotism, and embezzlement but also dismantling the structural systems that allow such behavior to thrive. Without comprehensive reforms aimed at increasing transparency, accountability, and good governance, Nepal’s chances for sustainable progress remain uncertain.

The Struggles of Corruption and Exodus

In the picturesque hills and plains of rural Nepal, beneath the towering Himalayas, the promise of prosperity and progress was marred by a stark reality: pervasive corruption. This corruption has tainted the allocation of funds for vital infrastructure like schools and hospitals, leaving many essential projects incomplete and underfunded. Government contracts are awarded based on bribes, sidelining capable contractors in favor of those willing to pay the price for preferential treatment.

In Kathmandu, the capital, the corridors of power are rife with backroom deals and covert agreements, with politicians, bureaucrats, and business elites forming a network of mutual benefit. Ordinary citizens find it increasingly difficult to access essential services, as promises of transparency remain unmet, and trust in government institutions steadily erodes.

Amid this climate of corruption, the economy has stagnated. Unemployment rates, particularly among young people, reached alarming levels, with many individuals unable to break through bureaucratic barriers or access economic opportunities. For many families, the painful choice became whether to watch their children languish in unemployment or to send them abroad in search of better prospects.

The exodus of Nepali workers—who now make up a significant portion of the population working overseas—has marked a major chapter in the nation’s story. An estimated 3 million Nepalis work abroad, with remittances becoming a crucial source of income for families left behind. While remittances have sustained households and provided a lifeline for many, this has also highlighted a bitter reality: wealth generated abroad often supports a fragile, debt-ridden economy while individuals' dreams remain unfulfilled.

Despite the pervasive corruption, there are glimmers of hope. Civil society groups continue to raise their voices for greater transparency and accountability, while journalists take risks to expose corruption and hold power to account. Grassroots movements advocating for good governance and ethical leadership are slowly gaining traction, and a new generation of entrepreneurs is emerging, determined to create change and revive local economies.

A Call for Action

Nepal's future lies in its ability to confront the complex challenges it faces, particularly the mounting public debt and the pervasive corruption that hampers its progress. Achieving long-term prosperity requires a comprehensive approach to reform, one that addresses both structural issues and institutional failures. The nation’s leaders must place the welfare of the country above political or personal interests, steering away from short-term goals and populist measures. To build a stronger, more resilient economy, it is crucial that they prioritize fiscal discipline and governance reforms that ensure the country's resources are used effectively and for the benefit of all citizens.

Ultimately, the road ahead for Nepal is not without challenges, but with a collective effort from all sectors of society and a focus on integrity and accountability, the country can lay the groundwork for a prosperous and stable future. This would be a future where Nepal’s citizens thrive, economic opportunities are abundant, and public institutions are trusted and effective, free from the shackles of corruption and mismanagement that have long held back progress.