Government plans to allocate Rs 436 billion for debt servicing in next fiscal year

KATHMANDU: The government is gearing up to allocate Rs 436 billion for the payment of interest and repayment of principal on public debt in the upcoming fiscal year, marking a significant increase compared to the current fiscal year’s expenditure.

The allocated amount under this heading will exceed Rs 106 billion compared to the sum exhausted in the ongoing fiscal year, reflecting the government’s substantial commitment to debt servicing.

In the budget for the fiscal year 2023/24, the government had initially announced a plan to spend Rs 307 billion on loan repayments. However, due to various factors, including increased borrowing and higher interest rates, the actual expenditure on debt servicing is projected to surpass Rs 330 billion, significantly exceeding the government’s initial estimates.

Following the National Planning Commission’s (NPC) setting of the annual budget ceiling for the next fiscal year at Rs 1.80 trillion, the government has faced criticism for its decision to allocate a substantial budget amidst sluggish revenue collection.

Prime Minister Pushpa Kamal Dahal has reportedly exerted pressure on the concerned authorities to augment the budget size for the upcoming fiscal year.

NPC Vice-chairman Min Bahadur Shrestha clarified that the actual budget allocation by the government would be Rs 1.694 trillion, to be utilized by various government bodies for their respective purposes.

Shrestha highlighted this discrepancy, noting that although the budget ceiling appeared to increase by Rs 49 billion, the actual funds allocation had decreased by Rs 57 billion. He made these remarks during a Development, Economic Affairs, and Good Governance Committee meeting under the National Assembly.

The government’s increasing reliance on public borrowing has necessitated significant allocations for debt servicing in recent years. In the fiscal year 2022-23, the government spent Rs 222.74 billion on debt servicing, including principal repayment and interest, marking an 83 percent increase from the previous fiscal year, according to data from the Public Debt Management Office (PDMO).

The trend of escalating debt servicing expenditure is evident in previous fiscal years as well, with spending reaching Rs 121.99 billion in 2021/22 and Rs 95 billion in 2020/21 under this heading.

As per PDMO data, Nepal’s public debt has surged to Rs 2.388 trillion up to mid-March of the current fiscal year 2023/24. The government’s internal debt liability stands at Rs 1.185 trillion, while its external debt liability amounts to Rs 1.202 trillion.

Over the last eight months of the current fiscal year, Nepal has accumulated an additional loan of Rs 218.86 billion. During this period, the government repaid Rs 146.64 billion of internal debt and Rs 28.86 billion of external debt, showcasing the ongoing dynamics of the country’s debt management strategy.