Nepal’s Public Debt Reaches 44.61% of GDP as Government Faces Mounting Fiscal Pressure

Nepal’s public debt burden has reached a critical level, raising concerns about the government’s ability to manage rising liabilities amid weakening revenue performance and declining economic productivity. According to the latest records, the country’s public debt obligation reached Rs 27.24 trillion as of the first quarter of Fiscal Year 2082/83 — an amount equivalent to 44.61 percent of the national GDP.

Of the total debt, Rs 12.78 trillion (20.93 percent of GDP) is domestic borrowing, while Rs 14.46 trillion (23.69 percent of GDP) falls under external debt. The figures indicate that the share of foreign debt is growing faster than domestic borrowing, placing Nepal in an increasingly vulnerable fiscal position.

Analysts say the growing mismatch between debt accumulation and revenue generation reveals the deepening imbalance in Nepal’s fiscal structure. In the first three months of the current fiscal year alone, the government received loans worth Rs 1.84 billion, while debt repayments amounted to Rs 1.09 billion. Alarmingly, Rs 90.50 billion of this went toward principal repayment, and Rs 19.38 billion was spent solely on interest obligations — reinforcing the cycle of borrowing to pay previous loans.

Economists describe the situation as a worrying trend for a developing nation like Nepal. They argue that frequent borrowing to finance recurring expenses, rather than capital investment, reflects a structural weakness in governance and resource management. Wasteful expenditure, poor financial discipline, and weak institutional oversight have deepened the crisis, as the government increasingly relies on loans to cover its operating costs.

Domestic revenue has also failed to keep pace with expenditure needs. The Ministry of Finance reports that revenue grew by only 0.32 percent in the first four months of the fiscal year — one of the lowest growth rates in years. During this period, the government collected Rs 329.51 billion, far below the target of Rs 425.23 billion, resulting in a revenue shortfall of nearly Rs 95.72 billion.

At the same time, government expenditure has surged. By the end of Kartik, Nepal had spent Rs 468.88 billion, exceeding total revenue by Rs 139.37 billion. With operational expenses rising and revenue stagnating, the government has increasingly turned to domestic borrowing. In the first quarter alone, domestic loans accounted for 48.9 percent of new public debt.

The widening fiscal gap has forced the government to seek additional borrowing for the remainder of the fiscal year. Nepal aims to raise Rs 595 billion in loans for FY 2082/83, but economic observers question the feasibility of this target. By the end of the first quarter, only 16.96 percent of the borrowing target had been achieved — far below the required pace.

Adding to the pressure, Nepal collected only Rs 10.84 billion in foreign loans, a marginal amount compared to ongoing payment obligations. Fluctuating foreign exchange rates have further increased the cost of loan repayment, raising long-term sustainability concerns.

The government’s ability to invest in development has also been severely affected. Capital expenditure has reached its lowest point in the past five fiscal years, with only 6.21 percent of the annual development budget utilized by the end of Kartik. While Nepal aims to collect Rs 1.48 trillion in revenue this year, only 22.26 percent of the annual target was achieved in the first quarter — highlighting the widening gap between ambition and execution.

Economists stress that Nepal urgently needs a strong production-based economic model. Without significant improvement in domestic production, industries, energy projects, agriculture, and exports, the country will remain dependent on borrowing to finance basic administrative functions. They argue that political instability, power struggles among major parties, and weak leadership have prevented Nepal from achieving sustainable economic growth.

Public debt experts also point out that debt levels must be evaluated relative to a country’s GDP. Globally, many developing nations manage higher debt-to-GDP ratios, but those borrowings are channelled into high-return sectors such as infrastructure, manufacturing, and innovation. In Nepal’s case, however, much of the borrowed money is spent on administrative overhead, salaries, allowances, and non-essential expenses — creating debt without productive assets.

Cases like the Pokhara International Airport — funded through foreign loans but unable to generate expected returns — symbolize Nepal’s long-standing challenges in project selection, evaluation, and execution. Lack of feasibility studies, political interference, corruption, and rent-seeking behavior have contributed to stalled or unproductive mega-projects, leaving the country burdened with debt but deprived of economic benefits.

Nepal’s public debt ratio had previously reached 53 percent of GDP in 2003. While the current 44.61 percent level is not unprecedented, economists warn that the composition and purpose of today’s borrowing makes the situation far riskier. With GDP projected to reach Rs 61.07 trillion this fiscal year, the government must adopt disciplined borrowing practices to maintain fiscal stability.

Experts emphasize that debt is not inherently harmful if used wisely. Countries like India, China, the United States, and Japan operate with higher debt ratios, but they invest in infrastructure, innovation, and growth-oriented sectors. Nepal, however, has struggled to convert debt into development due to systemic governance weaknesses, which has eroded public trust and hindered national progress.

As Nepal confronts widening deficits, slow growth, and shrinking fiscal space, analysts warn that without decisive reforms in governance, production, and revenue administration, the country risks falling into a deeper debt trap. Strengthening institutions, enhancing transparency, prioritizing productive investment, and fostering youth-driven leadership are seen as essential steps to steering Nepal toward economic resilience and long-term sustainability.