Kathmandu, June 20: Nepal’s public debt has exceeded Rs 2.65 trillion as of mid-June 2025, according to the Public Debt Management Office—up from Rs 2.62 trillion just a month earlier. Over the first 11 months of the fiscal year, the government borrowed Rs 414.19 billion and repaid Rs 266.65 billion in principal, leading to a net debt rise of Rs 220.58 billion.

A significant factor behind this growing burden is the depreciation of the Nepali rupee. The exchange rate rose from Rs 134 to Rs 138 per US dollar, adding around Rs 73 billion to Nepal’s debt, as foreign loans are repaid in the original currency.

Domestic debt now stands at Rs 1.72 trillion, or 22.31% of GDP, while external debt has reached Rs 1.82 trillion, accounting for 24.23% of GDP. Combined, public debt makes up roughly 43.47% of the GDP. While the government has achieved about 95% of its domestic borrowing target, it has reached only 46% of its external borrowing goal. Analysts say delays in capital expenditure projects—typically a trigger for foreign loan disbursement—are a key reason.

By mid-June, the government had spent Rs 329.6 billion on debt servicing, including Rs 223.35 billion in repayments and Rs 106.25 billion in interest. Over 81% of the Rs 402.85 billion allocated for debt servicing this fiscal year has already been used.

Concerns over debt sustainability are mounting. Nepal Rastra Bank data show public debt has grown at an average annual rate of 19% over the last eight years, with domestic borrowing expanding nearly 23% yearly—outpacing external debt growth. A decade ago, Nepal’s public debt was just Rs 623 billion, about one-fourth of today’s figure.

The debt surge is mainly driven by post-earthquake reconstruction, federalism implementation, and pandemic-related expenditures. A high-level economic reform panel, led by former Finance Secretary Rameshore Khanal, warned that debt is rising faster than GDP and revenue, increasing the fiscal pressure from repayments.

The panel stressed that unless borrowing is directed toward productive sectors, Nepal could risk a debt trap. It cautioned that rising debt servicing may shrink resources for key public services like health, education, and national security.

Recommendations include avoiding loans for administrative expenses and using domestic borrowing only for high-return projects. It also advised integrating borrowing into subnational budgets and prioritizing infrastructure and capital formation. The National Natural Resources and Fiscal Commission echoed the need for tighter control on unproductive spending and stricter vetting of loan-financed projects.

People’s News Monitoring Service