Government Domestic Debt Reaches Record Rs. 1.27 Trillion: Sustainability in Question

Nepal’s domestic debt has reached a record Rs. 1.27 trillion as of mid-August 2025/26, raising growing concerns over fiscal sustainability and debt management. According to the latest data from Nepal Rastra Bank, the total outstanding domestic debt rose by Rs. 12.9 billion within a single month, even as the government shifted borrowing toward long-term bonds and reduced its short-term treasury bill exposure.

The composition of the debt shows a strategic shift in fiscal policy. While treasury bills declined by Rs. 27.1 billiondue to lower short-term borrowing, development bonds surged to Rs. 913.7 billion, becoming the largest component of the government’s domestic debt portfolio. This indicates the government’s preference for stable, long-term financingamid improving liquidity and declining inflation pressures.

Commercial banks remain the largest lenders to the government, holding over Rs. 1 trillion worth of bonds and bills, accounting for nearly 80% of the total domestic debt. However, experts warn that this excessive concentration could pose systemic risks — as the government’s fiscal needs increasingly depend on the same institutions that also supply credit to the private sector.

Economists argue that while the debt level remains within a manageable range, rapid year-on-year growth in domestic borrowing could crowd out private investment and add to future repayment burdens. Nepal’s growing reliance on debt to finance deficits underscores the need for revenue expansion, spending efficiency, and fiscal discipline to prevent potential solvency issues in the medium term.