Lawmakers express concern over alarming increase in Nepal’s public borrowing

KATHMANDU: Lawmakers in Kathmandu have raised serious concerns over the escalating public borrowing in Nepal, emphasizing that the country risks falling into a debt trap unless the government takes timely and cautious measures.

During a meeting of the House of Representatives on Wednesday, legislators demanded the implementation of prudent practices in utilizing borrowed funds and the establishment of an accountable system for government debt. They stressed the importance of periodic assessments to evaluate the effectiveness of government borrowing.

Lawmaker Swarnim Wagle urged the government to regularly publish a debt sustainability analysis report, highlighting the worrisome fact that Nepal’s debt-to-GDP ratio is approaching 50 percent, which is especially alarming for a financially challenged nation.

Public Debt Management Office records reveal that Nepal’s public debt has surged to Rs 2.173 trillion as of mid-June this year, with the debt-to-GDP ratio reaching 44.79 percent—a significant increase from 22.7 percent in mid-July 2017.

Past administrations acquired substantial public borrowing primarily for implementing the federal system, post-earthquake reconstruction, and addressing the COVID-19 pandemic. Currently, the government heavily relies on borrowed funds due to the lower-than-expected government revenue collection.

For the fiscal year 2023/24, the government aims to secure Rs 453 billion in loans, with Rs 240 billion from domestic sources and Rs 213 billion from external sources. A substantial portion, Rs 182 billion, will be allocated for servicing interest and repaying previous loans.

Lawmaker Wagle emphasized the need to link the country’s borrowing with tangible returns, cautioning that Nepal will undoubtedly face severe financial challenges in the future without this crucial connection.

Meanwhile, lawmaker Gokarna Bista called for the establishment of a dedicated unit within the Economic Survey to annually assess various aspects of public debt. Bista expressed concerns over declining capital expenditure despite an increase in public debt.

Data shows that as of mid-March this year, Nepal’s fixed capital formation was 25.31 percent when the debt-to-GDP ratio stood at 38.7 percent. In the fiscal year 2019/20, the fixed capital formation reached 33.82 percent while the debt-to-GDP ratio was just 27.1 percent.

Lawmakers emphasized the risks posed to the entire economy by the simultaneous decline in capital formation and the soaring debt-to-GDP ratio in a low-income country like Nepal. Addressing these challenges promptly and effectively is crucial to safeguarding the country’s financial stability and economic growth.