Nepal’s public debt nears Rs. 27 trillion, burdening every citizen with Rs. 91,756

KATHMANDU: Nepal’s public debt has surged to nearly Rs. 27 trillion, raising alarm bells among economists and policymakers as the country grapples with a growing financial burden. According to the Public Debt Management Office, the debt reached Rs. 26.76 trillion in the first eight months (mid-July to mid-March) of the current fiscal year 2081/82 (2024/25). When divided among Nepal’s population of 29.16 million, as per the latest census, this translates to a staggering Rs. 91,756 per citizen.

While individuals are not personally liable for this debt, the state repays it through taxes collected from every Nepali. In February alone, the public debt spiked by Rs. 64.97 billion, climbing from Rs. 26.11 trillion at the end of January. As of mid-March, domestic debt stood at Rs. 13.15 trillion, while external debt reached Rs. 13.60 trillion. The total public debt now exceeds 46.91% of Nepal’s Gross Domestic Product (GDP), with domestic and external debt accounting for 23.06% and 23.85% of GDP, respectively.

Experts warn that declining revenue collection coupled with rising debt poses a serious risk to the state. Economist and former Vice-Chairman of the National Planning Commission, Prof. Dr. Bishwa Poudel, stressed the need for urgent review. “Over the past few years, public debt has quadrupled, while revenue hasn’t even doubled. This is not a positive situation,” he said. Comparing Nepal’s finances to a struggling businessman, Poudel noted that excessive borrowing beyond income capacity is unsustainable.

He criticized the lack of returns on infrastructure investments funded by loans, questioning, “Where’s the return from view towers? From airports? From convention halls?” Poudel argued that the government must reassess its borrowing strategy to ensure fiscal stability.

Rs. 3.34 Trillion Borrowed in 8 Months

With internal revenue shrinking, the government has increasingly relied on loans to meet daily expenses. In the first eight months of the fiscal year, it raised Rs. 3.34 trillion in debt—Rs. 2.69 trillion domestically and Rs. 64.46 billion externally. During this period, Rs. 1.58 trillion was repaid. However, currency exchange rate fluctuations added Rs. 66.29 billion to the debt, pushing the total from Rs. 24.34 trillion in mid-July to nearly Rs. 27 trillion by mid-March.

Net debt addition for the period amounted to Rs. 2.41 trillion.

The office attributed the sharp rise in February to an increase in the Special Drawing Rights (SDR) exchange rate, which significantly inflated the debt burden.

Target: Rs. 5.5 Trillion in Debt This Year

The government aims to borrow Rs. 5.5 trillion this fiscal year, with Rs. 3.34 trillion already secured by mid-March—61.17% of the target. Domestic borrowing has reached 81.56% of its Rs. 3.3 trillion goal, while external borrowing lags at 30.17% of the Rs. 2.17 trillion target.

To service this debt, the government allocated Rs. 4.02 trillion in the current budget, of which Rs. 2.01 trillion—over 50%—has been spent by mid-March. This includes Rs. 1.58 trillion in principal repayments and Rs. 42.74 billion in interest.

Growing Concerns Over Debt Management

The escalating debt and failure to channel it into productive capital formation have emerged as major concerns. The Ministry of Finance acknowledged in its mid-term budget review that stagnant revenue growth and declining foreign grants have forced greater reliance on domestic borrowing. Economists warn that without boosting economic activity and revenue, Nepal risks falling into a debt trap.

Prof. Dr. Poudel emphasized the need for small-scale reforms, stating, “Even a cup of coffee adds 13% to state revenue through taxes. We must start with such efforts.” He cautioned that unchecked borrowing could lead to a scenario where most of the budget is consumed by interest payments, leaving little for development.

As Nepal’s debt-to-GDP ratio climbs, calls for fiscal discipline and strategic investment grow louder, with experts urging the government to act before the burden becomes unmanageable.