Government debt increases by Rs 102.3 billion in six months

KATHMANDU: In the first six months of the current fiscal year (Shrawan to Poush), Nepal’s government debt increased by NPR 102.3 billion, according to the Public Debt Management Office. As of the end of Poush, the total outstanding public debt stands at NPR 2.536 trillion. This marks an increase from the NPR 2.434 trillion recorded at the end of Ashadh last fiscal year. The outstanding debt as of the end of Poush amounts to 44.46% of the Gross Domestic Product (GDP).

Breakdown of Debt

The total public debt comprises NPR 1.234 trillion in domestic debt (21.64% of GDP) and NPR 1.301 trillion in external debt (22.81% of GDP). Fluctuations in exchange rates have recently contributed to a reduction in public debt obligations. The office reported that exchange rate changes as of Poush impacted debt obligations by NPR 11.61 billion. Foreign debt accounted for 51.31% of the total public debt, while domestic debt comprised 48.68%.

Fluctuations in the exchange rates of foreign currencies, including the US dollar, have caused gains and losses in public debt obligations. A depreciation of the Nepali Rupee (NPR) against foreign currencies increases external debt obligations, while an appreciation benefits Nepal. For instance, in FY 2079/80, the depreciation of the NPR against foreign currencies resulted in a foreign exchange loss equivalent to NPR 59.16 billion.

Fiscal Trends and Challenges

The Public Debt Management Office noted that this trend continued into the recent months, with similar losses recorded in Poush. Over the past seven fiscal years, four years have seen losses due to exchange rate fluctuations, while the remaining years have posted gains. For FY 2080/81, the exchange rate fluctuation led to a gain of NPR 4.23 billion.

Post the 2072 earthquake, Nepal has relied heavily on borrowing, with some loans utilized for non-productive sectors. The government’s liabilities, including salaries, allowances, and budget allocations to local and provincial levels, have reduced the size of capital expenditures at the federal level.

Debt Raising Targets

For the current fiscal year, the government aims to raise NPR 547 billion in public debt. As of Poush, it has raised NPR 240.08 billion, achieving 43.89% of the annual target. Of the total, domestic and external debts accounted for 54.86% and 27.20%, respectively. Over the remaining six months, the government needs to raise NPR 148.94 billion in domestic debt and NPR 157.96 billion in external debt.

Debt Servicing and Budget Allocations

For the current year, NPR 402.85 billion was allocated for debt servicing (principal and interest), of which NPR 182.40 billion, or 45.28% of the annual allocation, has been spent by the end of Poush. This is equivalent to 3.20% of the GDP.

The government allocated NPR 1.860 trillion for the fiscal year, with 61.31% (NPR 1.140 trillion) for recurrent expenditures, 18.94% (NPR 352.35 billion) for capital expenditures, and 19.74% (NPR 367.28 billion) for financial management. This expenditure is 6.2% higher than the allocated budget and 21.56% higher than the revised estimate.

Future Projections

For the next fiscal year, revenue is projected to cover NPR 1.260 trillion, with NPR 52.33 billion from foreign grants. This leaves a shortfall of NPR 547.67 billion, which will be met through foreign loans (NPR 217.67 billion) and domestic borrowing (NPR 330 billion).

Since last fiscal year, financial management allocations have surpassed capital expenditures, attributed to the steady rise in internal and external debts. Economists warn that declining capital expenditure and rising debt liabilities could lead to financial imbalances.

Debt Growth Over the Years

Public debt has steadily increased in recent years. Official reports indicate that Nepal’s public debt was NPR 697.68 billion in FY 2073/74, NPR 917 billion in FY 2074/75, NPR 1.048 trillion in FY 2075/76, NPR 1.433 trillion in FY 2076/77, NPR 1.737 trillion in FY 2077/78, NPR 2.013 trillion in FY 2078/79, NPR 2.295 trillion in FY 2079/80, and NPR 2.434 trillion in FY 2080/81.