Nepal's public debt is increasing at a frightening pace. The excessive dependence on such debt is reflected in the fact that the government borrowed Rs 240.08 billion in the first five months of the current fiscal year. The government's entire debt has risen to Rs 2.536 trillion, with domestic debt exceeding Rs 1.234 trillion and external debt above Rs 1.301 trillion. Meanwhile, lower-than-expected revenue collection has made things even worse for a country struggling to boost its economic growth to an optimum level. The government is borrowing more money to meet its costs, but this soaring public debt is not resulting in significant economic growth. While the public debt has soared, its utilization poses another worrisome aspect. Out of the Rs 240.08 billion borrowed in the first half of the fiscal year, 76% was utilized to pay interest and repay debts. Contrary to this, the amount of capital expenditure, or money that goes for construction or improving the nation’s infrastructure and goods to expedite economic growth, is quite smaller—only Rs 56.93 billion. It demonstrates that the majority of borrowed money is not being spent on development projects aimed at economic improvement. Instead, the money is spent on regular expenses, such as salaries and social security allowances, along with repayment of loans and interests that do not contribute to growth.
Although Nepal's public debt to GDP ratio is 44.46 percent, which is still lower than several other South Asian nations, the issue is getting increasingly concerning as the country fails to use borrowed cash responsibly, which is reflected in its growth rate. In the first quarter of the current fiscal year, the growth rate lingered at only 3.4 percent, way below the government's projected 6 percent. Economists have urged the government to make judicious moves about how it uses borrowed funds. The government should invest in areas that will generate incomes, create employment, improve infrastructure, and increase economic activities. For example, the government might invest borrowed funds in education, healthcare, and technology, all having the potential to help gain long-term economic growth and stability, which will only get better in the future if such steps are taken carefully. Such investments help minimize our dependence on borrowings in the future by boosting revenues, enabling us to repay debts and loans without any hassle.
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Furthermore, the government must implement steps to improve business sector confidence. The private sector is critical for economic growth because it can create employment, boost output, and provide revenue for the nation. However, if firms and investors lack faith in the government's financial management or policies, they may be hesitant to invest in Nepal. To avoid this, the government must create a conducive climate for investment and partnership with the private sector. Our authorities must now carefully manage their financial strategy for investing money in productive sectors by cutting unnecessary spending. Ultimately, what our government requires is a balanced expenditure and debt management strategy to render our economy vibrant and stable and avoid lurking economic catastrophes in the days ahead.
