Nepal’s public debt has surged alarmingly, with the government incurring an additional Rs 136.31 billion in debt during the first quarter of the current fiscal year.
According to the Public Debt Management Office (PDMO), the government’s total debt stood at Rs 2.434 trillion at the end of the fiscal year 2023/24. By mid-October 2024, this amount rose to Rs 2.523 trillion, marking an increase of Rs 88.93 billion in net outstanding loans.
Of the new loans acquired, Rs 115 billion was borrowed domestically, while Rs 21.31 billion came from external sources. During the same period, the government spent Rs 69.03 billion on debt servicing, covering both interest payments and principal repayments.
The public debt-to-GDP ratio has now reached 44.23 percent, the highest in 18 years, as Nepal’s GDP currently stands at Rs 5.704 trillion. The last time this ratio peaked was in the fiscal year 2005/06 at 49.52 percent, but it had been reduced to 22.28 percent by 2014/15. However, debt levels began to rise again after the 2015 earthquake, and the ratio has since increased five-fold over the last decade.
Research by Nepal Rastra Bank (NRB) highlights concerns over the rising debt. A May 2024 study by NRB suggests that the ideal debt-to-GDP ratio for Nepal is 35.43 percent, while a 2020 NRB Economic Review estimated this threshold at 33 percent.
Experts warn that excessive public debt could lead to crowding out private investment, higher taxes, and increased interest burdens, placing pressure on future generations. They stress that debt accumulation should align with sustainable economic growth, ensuring that repayment is balanced with efforts to maximize development outcomes.
The growing debt burden has forced the government to allocate Rs 402 billion—21.6 percent of the annual budget—for loan repayments this fiscal year, surpassing the Rs 352 billion set aside for capital expenditure.
While the government cites slow revenue collection as a reason for the rising debt, analysts criticize the lack of effort to curtail unproductive spending. The government has set a target of borrowing Rs 547 billion this fiscal year to meet its financial obligations.