Nepal’s total public debt has reached an unprecedented Rs 30.09 trillion as of the first quarter of the current fiscal year 2083/84 (mid-July to mid-October). This figure, released by the Public Debt Management Office, represents 45.59 percent of Nepal’s Gross Domestic Product (GDP) and translates to an average debt burden of over Rs 100,000 for every Nepali citizen.
The report indicates an increase from the last fiscal year 2082/83, when the public debt stood at Rs 29.81 trillion. During the first three months of the current fiscal year, the government acquired Rs 123.32 billion in new loans. While Rs 77.74 billion was paid back in principal, a gain of Rs 18.16 billion due to fluctuations in foreign exchange rates, including the US dollar, pushed the net debt burden past Rs 30 trillion.
Debt repayment outpaces development spending
The government’s expenditure on public debt servicing has significantly outstripped its capital expenditure for development projects. In the first three months of the current fiscal year, the government spent Rs 98.87 billion on principal and interest payments for public debt. In stark contrast, capital expenditure for development was limited to Rs 28.42 billion, according to data from the Office of the Comptroller General.
This means that debt servicing costs were approximately 3.5 times higher than capital expenditure during this period, highlighting a growing strain on the national budget and a potential slowdown in development initiatives. Of the total debt service, Rs 77.74 billion was for principal repayment and Rs 21.12 billion for interest. For domestic debt, Rs 82.73 billion was spent on principal and interest, with Rs 65.10 billion for principal and Rs 17.63 billion for interest. For foreign debt, Rs 12.64 billion was for principal and Rs 3.49 billion for interest.
Debt structure and budget allocation
The current public debt structure shows that external debt accounts for 53.13 percent, while internal debt makes up 46.87 percent. The size of internal debt relative to GDP is 21.37 percent. For the current fiscal year, the government has allocated Rs 417.88 billion for public debt principal and interest payments. Already, 23.66 percent of this allocated budget has been spent within the first three months.
The government aims to mobilize a total of Rs 658.28 billion in public debt for the current fiscal year. By mid-October, 18.73 percent of this annual target had been achieved, with Rs 100 billion from internal sources and Rs 23.32 billion from external sources. To meet its target, the government will need to raise an additional Rs 534.95 billion in the remaining period.
Economic growth targets and challenges
Finance Minister Swarnim Wagle presented the total budget of Rs 2.12 trillion for the fiscal year 2083/84 to the federal parliament on May 29, 2026. This budget is primarily divided into current expenditure (Rs 1.27 trillion or 59.8%), capital expenditure (Rs 431.10 billion or 20.3%), and financial management (Rs 422.64 billion or 19.9%).
The National Statistics Office has projected an economic growth rate of 3.85 percent for the current fiscal year 2082/83, which is significantly lower than the 7 percent target set for the upcoming year. The budget for 2083/84 prioritizes economic reform, private sector promotion, job creation, infrastructure development, and fiscal discipline, aiming for a 7 percent economic growth rate and limiting inflation to 6 percent.
Key initiatives in the upcoming budget include establishing Nepal’s first sovereign AI computing center, doubling the personal income tax exemption limit, a 21 percent salary increase for civil servants, and restructuring the Nepal Electricity Authority into three separate companies. The budget also targets 90 percent health insurance coverage within three years to reduce healthcare costs for Nepali families. Additionally, Rs 46.92 billion has been allocated for agriculture and livestock development, with Rs 32.46 billion for chemical fertilizer procurement and Rs 2.19 billion for an 80 percent subsidy on agriculture and livestock insurance.
Factors contributing to rising debt
The increase in Nepal’s public debt is primarily attributed to lower-than-expected revenue collection following the earthquake reconstruction efforts and the COVID-19 pandemic. The government’s inability to collect sufficient revenue has compelled it to borrow to meet expenditure needs. Mismanagement of loans taken for development projects, coupled with low capital expenditure, has led to sluggish economic growth and a growing debt burden.
Other contributing factors include increased expenses due to the implementation of federalism, 60-65% of the budget going towards current expenditure, ambitious government development plans, and limited revenue collection, all of which have increased reliance on internal and foreign loans. Many debt-funded development projects face delays, corruption, and administrative inefficiencies, leading to cost overruns and low returns, further exacerbating the debt burden.
Background
- Nepal's public debt mobilization history spans over half a century, with the budget system starting in 2008 BS.
- Internal debt became part of the budget for the first time in the fiscal year 2018/19.
- While Nepal has a history of spending from foreign aid since its first budget, it began taking foreign loans for public expenditure only from the fiscal year 2020/21.
- Public debt has shown an increasing trend since fiscal year 2070/71, exacerbated by post-earthquake reconstruction and the COVID-19 pandemic.
