Fiscal Nepal
First Business News Portal in English from Nepal
KATHMANDU: Nepal’s reliance on foreign loans has surged sharply over the past decade while grant assistance has declined, increasing pressure on the country’s debt profile, according to the latest economic status report released by the Ministry of Finance Nepal.
The report reveals a significant shift in the composition of foreign aid, with loans now dominating external assistance flows. In the current fiscal year 2081/82 (2024/25), foreign loans account for 81.1 percent of total aid, while grants have dropped to just 18.9 percent.
This marks a steep change from a decade ago. In fiscal year 2071/72 (2014/15), loans made up 57.4 percent of foreign aid, while grants constituted a much higher 42.6 percent—indicating a structural shift away from concessional and non-repayable support toward debt-financed assistance.
The overall volume of foreign aid mobilization has also declined over the years. On average, foreign assistance contributed around 21.5 percent of Nepal’s total budget over the past decade. However, this share has dropped significantly to just 14.6 percent in the current fiscal year 2082/83 (2025/26), reflecting both reduced inflows and weaker project execution.
According to the ministry, the decline in foreign assistance is largely attributed to persistent delays in project implementation and inefficiencies in fund utilization. Slow progress in externally funded projects has led to delayed reimbursement processes, discouraging development partners and creating cash flow pressures for the government.
Nepal’s growing dependence on external borrowing, combined with declining grant support, is raising sustainability concerns among policymakers and economists. As loans require repayment with interest, the increasing share of debt in foreign aid is expected to add to fiscal pressure in the coming years, especially amid already rising public debt levels.
The findings underscore the urgent need for improving project execution capacity, enhancing aid absorption efficiency, and rebuilding donor confidence to secure more balanced and sustainable external financing.
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