Nepal’s public debt crosses Rs 2.93 trillion: Per capita burden surpasses Rs 100,000

KATHMANDU: Nepal’s public debt has surged past NPR 2.93 trillion (2,933.79 billion) by the end of the third quarter of the current fiscal year 2082/83 (mid-July 2025 to mid-April 2026), underscoring intensifying fiscal pressure, rising debt-servicing obligations, and growing concerns among economists about the sustainability and productivity of borrowing.

According to the Public Debt Management Office, the government’s outstanding liabilities reached NPR 2 trillion 933 billion 794.6 million, reflecting a sharp increase from NPR 2 trillion 674 billion 40 million recorded at the end of the last fiscal year. This indicates a net addition of nearly NPR 259.75 billion within nine months, alongside further pressure from exchange rate depreciation.

Debt Structure: External Borrowing Dominates

Of the total public debt:

• Domestic debt: NPR 1.388 trillion (1,388.11 billion)
• External debt: NPR 1.545 trillion (1,545.67 billion)

External liabilities now account for 52.69%, while domestic borrowing constitutes 47.31% of the total debt portfolio. The higher share of foreign debt exposes Nepal to exchange rate risks, which has already materialized this fiscal year.

Due to fluctuations in foreign exchange rates and the weakening of the Nepali rupee, Nepal’s external debt burden increased by an additional NPR 115.75 billion, even without equivalent new borrowing. This “valuation effect” is becoming a structural risk factor in Nepal’s debt dynamics.

Per Capita Debt Crosses NPR 100,000

Based on Nepal’s latest population figure of 29.16 million (2 crore 91 lakh 64 thousand 578), the per capita public debt has climbed to NPR 100,594.

This milestone reflects a significant psychological and economic threshold, as the average Nepali citizen now effectively carries a debt burden exceeding NPR 100,000—raising concerns about intergenerational fiscal sustainability.

Debt-to-GDP Ratio Nears 50%

Public debt has now reached 48.04% of GDP, broken down as:

• Domestic debt: 22.73% of GDP
• External debt: 25.31% of GDP

While still below the commonly cited 60% danger threshold for developing economies, the rapid pace of increase—combined with weak revenue growth—has raised red flags among fiscal experts.

Aggressive Borrowing: NPR 348 Billion Raised in 9 Months

The government has mobilized NPR 348.15 billion (348.15 billion) in public debt during the first nine months of the fiscal year, achieving 58.45% of its annual borrowing target of NPR 595 billion.

Breakdown of borrowing:

• Domestic borrowing: NPR 283.66 billion (78.36% of target)
• External borrowing: NPR 64.48 billion (27.60% of target)

The data indicates heavy reliance on domestic markets to meet financing needs, while external borrowing has lagged behind targets—likely due to procedural delays and project readiness constraints.

Debt Servicing Consumes NPR 258 Billion

Debt servicing—principal and interest payments—has emerged as a major fiscal burden.

In the first nine months alone, the government spent:

• NPR 258.44 billion (258.44 billion) on debt servicing
• Principal repayment: NPR 204 billion
• Interest payment: NPR 54.27 billion

This represents 62.88% of the annual debt servicing budget and 4.23% of GDP.

Breakdown:

• Domestic principal repayment: NPR 163.77 billion
• Domestic interest: NPR 45.60 billion
• External principal: NPR 40.39 billion
• External interest: NPR 8.67 billion

This trend highlights a growing “debt trap” dynamic, where new borrowing is increasingly used to service existing obligations rather than finance productive investments.

Fiscal Stress: Revenue Struggles, Debt Dependency Rises

Nepal’s fiscal position remains under strain as revenue mobilization continues to underperform. Current revenue collections are barely sufficient to cover recurrent (administrative) expenditures, leaving capital expenditure and financial management heavily dependent on borrowing.

This imbalance has forced the government into a structural cycle where:

• Debt finances development spending
• Additional debt services past debt
• Revenue fails to keep pace

Experts Warn of “Debt Cycle Trap”

Economists have raised serious concerns about the quality and utilization of public debt.

Economist and former Vice-Chair of the National Planning Commission, Prof. Dr. Govind Raj Pokharel, describes Nepal’s situation as a “debt cycle trap,” noting that borrowing should ideally fund capital formation and productivity growth.

Similarly, former NPC Vice-Chair Prof. Dr. Shivaraj Adhikari emphasizes that inefficient allocation of borrowed funds—particularly toward non-productive sectors—has worsened the situation.

He argues that:

• Debt must be tied to specific, revenue-generating projects
• Returns from such projects should directly support debt repayment
• Internal borrowing should be project-linked from the outset

For example, borrowing for infrastructure like the Kathmandu–Dhulikhel road should clearly define repayment streams and economic returns at the planning stage.

Public Debt Doubles in 7 Years

Nepal’s public debt has nearly doubled in just seven years:

• FY 2076/77: NPR 1.433 trillion (1,433.40 billion)
• FY 2082/83 (current): ~NPR 2.93 trillion

The debt-to-GDP ratio has also risen from 38.05% to over 48%, reflecting both increased borrowing and slower economic expansion.

Key drivers include:

• Rising public expenditure
• Declining foreign grants
• Weak revenue growth
• Inefficiencies in capital project execution

Underperforming Mega Projects Raise Questions

Several debt-funded national pride projects have failed to deliver expected returns:

• Pokhara International Airport
• Gautam Buddha International Airport (Bhairahawa)
• Melamchi Water Supply Project

Delays, underutilization, and external shocks (such as natural disasters in Melamchi) have undermined the economic viability of these investments, raising questions about debt efficiency.

Policy Recommendations: Tightening Debt Discipline

The National Natural Resources and Fiscal Commission has recommended strict reforms, including:

• Prohibiting the use of domestic debt for recurrent and administrative expenses
• Limiting internal borrowing to 5.5% of GDP
• Prioritizing projects with strong internal rates of return (IRR)
• Ensuring cost-benefit analysis and financial viability before borrowing

The commission also stressed:

• Linking debt to employment generation and productivity
• Improving transparency in debt utilization
• Establishing an integrated digital public debt management system accessible across federal, provincial, and local governments

Structural Risk: Borrowing Against the Future

The commission warns that internal borrowing effectively represents “spending future revenue today.” Without sufficient economic returns, this approach risks long-term fiscal instability.

Data shows that a significant portion of domestic borrowing is already being used to repay old debt, limiting its contribution to capital formation and economic expansion.

Nepal’s rising public debt is not inherently unsustainable, but its current trajectory—characterized by weak returns, inefficient allocation, and rising servicing costs—poses significant medium-term risks.

Economists emphasize that if borrowing is redirected toward high-impact, productivity-enhancing sectors, Nepal could still leverage debt as a growth engine. However, failure to reform could entrench the country deeper into a debt dependency cycle, constraining future fiscal space and economic sovereignty.