KATHMANDU, Dec 3: While the country is reeling under the pressure of increasing public debt, the government maintains that the country’s debt burden has not reached an alarming level.
In a meeting with representatives of the development partners on Monday, Finance Minister Bishnu Prasad Paudel said the country’s public debt has not reached a critical level. “However, there is a need to redefine the priorities of debt mobilization,” said Paudel.
The government records show that Nepal’s public debt increased by Rs 83.95 billion in the first four months of the current fiscal year, with the government relying more on borrowings for its debt servicing amid slow collection of revenue. As of mid-November, Nepal’s total debt increased to Rs 2.518 trillion.
Take prudent measures to curb public debt
In the last one decade, the figure has surged five-folds, which is largely to blame on the soaring non-productive expenses of the government. The ratio of public debt to GDP has also reached 44.14 percent, the highest in the past 18 years.
A research conducted by Nepal Rastra Bank (NRB) in May 2024 states that the ideal ratio of public debt to GDP for Nepal is 35.43 percent. Another research published in the NRB Economic Review in 2020 has also estimated the optimum public debt to GDP ratio for the country at 33 percent.
Due to a growing burden of public debt, the government is also forced to allocate a significant portion of its annual budget in loan repayments. For the current fiscal year, the government has set aside Rs 402 billion just for this purpose. The figure is 21.6 percent of the annual expenditure, while it is Rs 50 billion more than the amount allocated for the capital expenditure.
Experts have cautioned that excessive debt burden could lead to crowding out effects, increased tax rates and higher interest payment burden on the country along with exerting excessive pressure on future generations for repayments of loans.
Announcing austerity measures last year, the government decided to cut off recurrent expenses to maintain the fiscal balance in government’s income and expenditure. Despite its commitment, the government has already spent Rs 325.47 billion in its recurrent expenditure as of Sunday, 5.63 percent more than the amount spent under the heading in the same period last year.
Minister Paudel however said that the government is formulating a new law on mobilization of development assistance and internal finance mobilization in the public sector. According to him, the government has also prioritized implementation of reform measures on the public finance management system. “The government is also enforcing a new revenue mobilization strategy to achieve sustainable revenue sources,” Paudel said.
