Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: In recent years, Nepal has been grappling with an escalating public debt crisis due to the government’s inability to offset its substantial spending with adequate revenue collection.
The fiscal strain is evident as the country’s public debt surged by Rs 135 billion in the last Fiscal Year (FY) 2023/24. As of mid-July 2024, the total public debt stood at Rs 2.434 trillion, up from Rs 2.299 trillion in mid-July 2023, representing 42.65 percent of Nepal’s Gross Domestic Product (GDP).
The Public Debt Management Office (PDMO) reports that the government’s internal debt has reached Rs 1.18 trillion, while external debt has climbed to Rs 1.253 trillion. During this period, the government expended Rs 305 billion on principal and interest payments for public debt.
Despite the financial strain, the government has continued to borrow. Within the first two weeks of the current FY, Rs 31.61 billion was raised through domestic borrowing by issuing treasury bills.
Additionally, the cabinet has approved a concessional loan of Rs 33.33 billion from the World Bank. The PDMO also announced plans to issue additional treasury bills worth Rs 21.1 billion, following a recent issuance of Rs 10.49 billion on July 22.
The mounting public debt has raised concerns among stakeholders. Criticism in parliament sessions has highlighted the issue, with experts like Bhumi Ram Sharma, former head of the PDMO, urging the government to invest in projects that provide returns on loans. Sharma cited the loans taken for the development of international airports in Pokhara and Bhairahawa as examples of investments that have not yielded returns.
The government’s reliance on loans is a response to its inability to meet current expenses through revenue collection. For the FY 2024/25, the government has allocated a budget of Rs 1.860 trillion, aiming to collect Rs 1.2 trillion in revenue and receive Rs 52.33 billion in foreign grants. The budget shortfall of Rs 547.67 million is expected to be met through domestic and foreign loans, with anticipated foreign loans of Rs 217 billion and domestic debt of Rs 330 billion.
Public debt, comprising both internal and external loans, is typically utilized to cover the budget deficit, manage economic recession, control inflation, and develop infrastructure.
However, Nepal’s revenue collection has consistently fallen short, necessitating increased borrowing. Over the past five years, public debt has grown by approximately Rs 1.2 trillion, rising from Rs 1.048 trillion in FY 2018/19 to Rs 2.4344 trillion by the end of FY 2023/24.
The rapid increase in public debt highlights the urgent need for effective fiscal management and sustainable revenue collection strategies to mitigate the country’s growing financial burden.
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