By P.R. Pradhan
According to a recent report, Nepal’s public debt has exceeded Rs 30 trillion. The Public Debt Management Office reported that the country’s public debt reached an all-time high of Rs 30 trillion during the first quarter (mid-July to mid-October) of the current fiscal year 2083/84.
Dividing the total public debt of Rs 30 trillion by the country’s population means that the debt burden exceeds Rs 100,000 per Nepali citizen.
According to the office, public debt has reached 45.59 percent of Nepal’s gross domestic product (GDP).
The government spent nearly Rs 100 billion on principal and interest payments during the first three months of the fiscal year.
The government’s substantially higher expenditure on debt servicing than on capital investment indicates that it is spending more on managing its liabilities than on productive development. The 63rd Annual Report of the Office of the Auditor General has identified this trend as a serious concern.
Economic experts describe Nepal’s current public debt situation as one in which the country has become indebted before becoming prosperous. Much like an individual who borrows beyond their repayment capacity, Nepal risks falling into a debt trap in which new loans are increasingly required to repay existing obligations.
Nepal’s present financial situation increasingly resembles this pattern.
According to Ministry of Finance data, Nepal’s public debt has more than doubled over the past decade. By the end of fiscal year 2076/77, public debt stood at just Rs 1.4334 trillion. Since then, the debt burden has increased rapidly, surpassing Rs 30 trillion.
Rising public expenditure, declining foreign grants and the government’s failure to mobilise revenue as expected have contributed to the continuous increase in public debt.
Experts argue that borrowing equivalent to a substantial proportion of GDP does not necessarily pose a serious risk if the borrowed funds are invested in productive projects that expand capital formation and generate sufficient returns to service and repay the loans. However, Nepal has failed to ensure that its borrowing generates comparable economic returns.
A report submitted in 2024 by the government-formed High-Level Economic Reform Recommendation Commission noted that GDP growth and revenue mobilisation had failed to keep pace with the rapidly increasing volume of public debt. Consequently, the burden of principal and interest payments has continued to rise.
“If public debt is not properly utilised and fails to generate returns, the likelihood of the country becoming trapped in a debt spiral will continue to increase,” the report stated.
According to the report, the growing obligation to repay principal and interest has left insufficient budgetary resources for essential government responsibilities, including education, healthcare and security.
The National Natural Resources and Fiscal Commission has recommended a strict prohibition on the use of domestic borrowing to finance recurrent and administrative expenditure. The commission made this recommendation while setting limits on domestic borrowing by federal, provincial and local governments for the current fiscal year.
The 63rd Annual Report of the Office of the Auditor General has also concluded that public borrowing has not been adequately utilised for capital formation.
Since Nepal adopted federalism, establishing seven provinces and 753 local governments, public expenditure on maintaining the administrative and political structures of the state has increased enormously. The costs of running the federal, provincial and local governments have placed an additional burden on the national treasury.
The present political arrangement, comprising federalism, republicanism and secularism, was imposed on Nepal through an Indo-Western Christian alliance, with little regard for the country’s long-term national interests. Rather than strengthening the nation, this arrangement has contributed to institutional and economic burdens that Nepal can no longer afford.
Although the government and political leaders appear reluctant to publicly question the existing political system, the growing economic and administrative difficulties have increasingly raised questions about its sustainability. Nepal needs to reconsider whether the present political structure is economically viable and appropriate for its national interests. To safeguard the country’s economic future, national identity and institutional stability, Nepal should consider returning to the political system established by the 1990 Constitution.
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