Public Debt Surpasses NPR 2.9 Trillion, Per Capita Debt Exceeds NPR 100,000

April 16, Kathmandu – Nepal’s public debt has crossed NPR 2.9 trillion. According to the Public Debt Management Office, by the third quarter (mid-July to mid-March) of the current fiscal year 2082/83, the government’s outstanding debt reached NPR 2 trillion 933 billion 7 crore 94 lakh 6 thousand.

This total comprises NPR 1 trillion 388 billion 11 crore in domestic debt and NPR 1 trillion 545 billion 67 crore in external debt. Within the last nine months alone, the government has taken on NPR 348 billion 15 crore in new debt.

Exchange rate fluctuations have weakened the Nepali currency, increasing the burden of external debt by NPR 115 billion 75 crore, which has significantly contributed to the rapid rise in Nepal’s overall public debt.

Before the start of the current fiscal year, at the end of Ashar (mid-July), the public debt stood at NPR 2 trillion 674 billion 4 crore, which has now neared NPR 2.95 trillion.

When public debt is divided by Nepal’s population, the per capita debt amounts to approximately NPR 105,94. This calculation is based on the latest census reporting a population of 29,164,578 individuals.

External debt accounts for 52.69% of the total public debt, while domestic debt represents 47.31%.

Breakdown of Public Debt

Domestic Debt: NPR 1.388 trillion

External Debt: NPR 1.545 trillion

Total Debt: NPR 2.933 trillion

Based on Nepal’s Gross Domestic Product (GDP), public debt accounts for 48.04%, with domestic debt at 22.73% and external debt at 25.31%.

Debt Increased by Nearly NPR 300 Billion in Nine Months

The government raised approximately NPR 345 billion in public debt during the first nine months of the current fiscal year. The annual target for this year is to borrow up to NPR 595 billion. As of mid-March, NPR 348 billion 15 crore has been borrowed, fulfilling 58.45% of the annual target.

Within this period, NPR 283 billion 66 crore was raised through domestic debt against a target of NPR 362 billion, while NPR 64 billion 48 crore was taken from external sources against a target of NPR 236 billion 66 crore. Domestic debt stands at 78.36% and external debt at 27.60% of their respective targets.

Interest and Principal Repayment Reach NPR 258 Billion

The government spent NPR 258 billion 44 crore on principal and interest repayments over the nine months, which is 62.88% of the annual budget. By mid-March, total debt servicing equated to 4.23% of GDP.

Domestic debt principal repayments consumed NPR 163 billion 77 crore, with interest payments outlaying NPR 45 billion 60 crore. External debt principal payments totaled NPR 40 billion 39 crore, with interest payments of NPR 8 billion 67 crore. In total, principal repayments amounted to NPR 204 billion, and interest payments NPR 54 billion 27 crore.

Experts warn that the current situation—where new debt is borrowed primarily to service existing interest and principal—is indicative of a debt trap.

The government has struggled to fully mobilize revenue, and the revenue raised can barely sustain ongoing expenses. This dependence on public debt for financial management and capital expenditure has intensified.

Economist and former Vice-Chair of the National Planning Commission, Prof. Dr. Govind Raj Pokharel, describes this as the country being trapped in a debt cycle. He notes that the increase in debt is largely due to spending in unproductive sectors, failing to generate development.

Similarly, former National Planning Commission Vice-Chair Prof. Dr. Shivraj Adhikari emphasizes that if debt is not allocated to productive and appropriate sectors, the problem will worsen. Most nationally important projects are now in their final phases, and the new government must prioritize completing these swiftly to stimulate the economy.

Both experts suggest that domestic debt should be raised only for targeted projects, with clear details disclosed in the economic survey.

Public Debt Doubled in Seven Years

According to Ministry of Finance data, public debt has nearly doubled over the past seven years. From NPR 1 trillion 433 billion 40 crore in fiscal year 2076/77, it has now nearly reached NPR 2.95 trillion.

Seven years ago, public debt was 38.05% of GDP, now it has exceeded 48%. Reduced grants from the World Bank and decreasing revenue collection contributed to this rise in debt.

Several important government-initiated projects have not delivered expected results, including the Pokhara and Bhairahawa international airports. The Melamchi Drinking Water Project also missed its timelines and suffered damage from natural disasters.

A report from the High-Level Economic Reform Commission highlights that without proper improvements in public debt structure and revenue, the burden of principal and interest payments will continue to increase.

The commission warns that failure to utilize public debt efficiently could entrap the country in a debt spiral and result in budget shortages for essential sectors such as education and health. It recommends adopting fiscal prudence urgently.

Commission Calls to Ban Domestic Debt for Current and Administrative Expenses

The National Natural Resources and Fiscal Commission has strictly recommended prohibiting the use of domestic debt for current and administrative expenditures.

For fiscal year 2078/79, the commission has capped domestic debt borrowing by federal, provincial, and local governments at no more than 5.5% of GDP.

The commission urges that domestic debt investment should be limited to projects that generate employment, provide long-term benefits, and contribute to capital formation—while strictly forbidding its use for current and administrative costs.

In fiscal year 2078/79, domestic debt mobilization was only 1.41% of GDP, with most borrowed funds already allocated to servicing old debt, the commission notes.

It recommends that the project selection process include cost-benefit analysis and economic rate of return assessments to ensure domestic debt is invested only in profitable projects.

The commission also suggests domestic debt be allocated strictly for social sector projects.

When selecting ongoing or new projects, it’s essential to ensure that returns from the project can cover debt servicing and interest payments.

Only projects that are prepared to increase production, create jobs, develop infrastructure, and build capital should receive domestic debt investment, according to the commission.

Three tiers of government are also recommended to clearly specify the source of domestic debt in budgetary planning documents.

Additionally, the commission urges development of an integrated electronic information management, accounting, and reporting system for domestic and public debt managed across the three government levels through the Public Debt Management Office.

To avoid treating domestic debt as future revenue spent in the present, the commission suggests devising plans to improve revenue collection.