Nepal's public debt surges nearly fivefold over a decade

KATHMANDU: Nepal's public debt has increased by almost five times in the last ten years, mostly as a result of the government's incapacity to drastically reduce wasteful spending and greatly increase revenue collection. According to the Public Debt Management Office (PDMO), Nepal's public debt increased by 346.61 percent by mid-August 2024, from Rs 553.50 billion in the fiscal year 2014/15 to Rs 2.472 trillion. There was a noticeable rise in debt from 2017 to 2018, with annual increments above Rs 130 billion and reaching over Rs 300 billion in the following years.

The government's inability to control its extravagant spending in the face of slow revenue growth is contributing to the country's mounting debt. To meet its debts, the government borrowed an extra Rs 43.59 billion in just one month of the current fiscal year, from mid-July to mid-August. The PDMO data also shows the increasing importance of internal debt, which increased from Rs 206.68 billion (37.3 percent of total debt) in 2014–15 to Rs 1.203 trillion (48.69 percent) by mid-August 2024.

In Nepal, public loans are mostly used to finance physical infrastructure projects, manage inflation, and address economic downturns. But as a result of the nation's declining income collection, which is now insufficient to even meet the government's immediate obligations, the government is increasingly dependent on foreign loans to fund development initiatives, such as infrastructure projects. The government has set aside Rs 353.13 billion for development projects in the current fiscal year; only 13% of this amount is expected to come from revenue sources; the remaining 87% is anticipated to come from public borrowing.

Economists caution that the rising proportion of domestic debt may have a detrimental effect on spending by the private sector and further stifle aggregate demand, which has already slowed recently and is impacting market cash flow. The government wants to raise a total of Rs 547 billion in debt for the current fiscal year, of which Rs 330 billion will come from domestic sources and Rs 217 billion from outside. The growing dependence of the government on debt to finance expenditures presents serious threats to Nepal's economic viability.