Nepal’s Public Debt Breaches Historic Rs 3 Trillion Mark Amid Heavy Domestic Borrowing and Soaring Servicing Costs

Nepal's public debt has crossed a historic threshold, surpassing Rs 3 trillion and escalating the financial burden on the national treasury. According to the latest data from the Public Debt Management Office, the government's total outstanding debt reached a staggering Rs 3,009.11 billion by mid-October of the current fiscal year, a figure that now accounts for 45.59 percent of the country's Gross Domestic Product (GDP).

The state's financial liability stood at Rs 2,981.70 billion at the end of the previous fiscal year in mid-July. Over the first three months of the current fiscal year, the government aggressively mobilized Rs 123.32 billion in new loans while simultaneously paying back Rs 77.74 billion in principal. Interestingly, the overall debt profile would have been noticeably higher if not for a favorable shift in foreign exchange rates, which effectively wiped out Rs 18.16 billion from the external debt ledger. It was the adjustment of this new loan acquisition, principal repayment, and the forex windfall that settled the total public debt at just over Rs 3 trillion.

A structural shift is becoming increasingly evident in the country's borrowing patterns, with domestic obligations expanding rapidly while external liabilities have momentarily contracted. Currently, external debt holds a 53.13 percent share of the total debt portfolio (equivalent to 24.22 percent of GDP), whereas internal debt constitutes 46.87 percent (21.37 percent of GDP). In the first quarter alone, the domestic debt stock surged by Rs 34.89 billion, reaching Rs 1,410.31 billion. While the government raised Rs 100 billion internally during this period, it had to immediately spend Rs 65.10 billion merely to service old domestic principal, indicating that fresh domestic borrowing is largely being consumed by past debt obligations.

Conversely, on the international front, the external debt stock actually shrank by Rs 7.48 billion in the first quarter, settling down to Rs 1,598.80 billion from Rs 1,606.28 billion in mid-July. This contraction, however, is not primarily a sign of aggressive debt clearance. While the government received Rs 23.32 billion in foreign loans and repaid Rs 12.64 billion in principal, it was the currency exchange rate fluctuation that provided the biggest relief, artificially reducing the external liability by Rs 18.16 billion.

The quarterly data also exposes a skewed performance in the government's annual resource mobilization strategy. Out of the ambitious Rs 658.28 billion annual borrowing target, the state has achieved 18.73 percent so far. However, a closer look reveals that while domestic borrowing is on track at 24.39 percent of its annual target, external loan mobilization is lagging drastically at a mere 9.39 percent. To meet its fiscal targets, the state remains under heavy pressure to secure over Rs 534.95 billion from both domestic and foreign sources in the remaining months.

The sheer cost of maintaining this massive debt portfolio is taking a heavy toll on the national budget. In just three months, the government has already exhausted Rs 98.87 billion—which is 23.66 percent of the Rs 417.88 billion allocated for annual debt servicing. Out of this quarterly expenditure, a massive Rs 82.73 billion was channeled into domestic debt servicing alone, comprising Rs 65.10 billion for principal and Rs 17.63 billion for interest. Meanwhile, external debt servicing consumed Rs 16.13 billion, split between Rs 12.64 billion in principal and Rs 3.49 billion in interest.

Monthly financial trends reveal an accelerating reliance on new funds as the quarter progressed. Loan receipts jumped from Rs 23.84 billion in the first month (Shrawan) to Rs 61.37 billion by the third month (Asoj), with the latter making up nearly half of the quarter's total loan receipts. The second month (Bhadra) witnessed the highest domestic debt repayment pressure at Rs 54.45 billion. This growing cycle of raising fresh capital primarily to pay off maturing bonds highlights a mounting fiscal challenge, signaling that Nepal's public finance management is becoming increasingly dominated by immediate debt servicing rather than productive capital investment.