Government Debt Repayments Weigh on Nepal’s External Balance

Nepal’s external position remains under growing pressure from rising government debt repayments, even as remittances and reserves strengthen. According to the latest Balance of Payments (BoP) data from Nepal Rastra Bank, the government repaid loans worth USD 32.8 million in the first month of FY 2025/26 — a notable increase from USD 16.7 million during the same period last year.

While new loan disbursements totaled USD 55.6 million, the pace of repayments means that net inflows from government loans remain limited, offering little cushion to the financial account. The trend reflects the maturing of several foreign loans contracted in previous years for infrastructure and development projects, including hydropower, roads, and transmission lines.

Economists warn that rising external debt service obligations could strain Nepal’s future BoP sustainability, especially if export earnings and FDI inflows remain weak. The situation underscores the vulnerability of an economy heavily dependent on remittances and reserve accumulation rather than productive investment.

The government’s debt management strategy calls for maintaining the debt-to-GDP ratio below 40 percent, but analysts note that interest and principal repayments in foreign currency could become a major concern if the Nepali rupee depreciates further or external financing costs rise globally.

Experts have urged policymakers to focus on efficient project implementation, concessional borrowing, and export-led revenue growth to ensure long-term debt sustainability and external stability.