Public Debt Surges to Rs 28.78 Trillion, Raises Sustainability Concerns Amid Currency Pressure

Kathmandu — Nepal’s public debt has continued to rise significantly in the current fiscal year, reflecting mounting fiscal pressure and growing reliance on borrowing. According to the latest data up to mid-February (Falgun), total outstanding public debt has reached Rs 28.78 trillion, marking an increase of over Rs 2.04 trillion compared to the beginning of the fiscal year. This sharp rise highlights the government’s expanding financing needs amid sluggish revenue growth and elevated expenditure commitments.

In proportional terms, the country’s public debt has climbed to 47.13 percent of the Gross Domestic Product (GDP), indicating a steady increase in debt burden relative to the size of the economy. Of this, domestic debt accounts for 22.07 percent of GDP, while external debt contributes a slightly higher share at 26.06 percent. The growing share of external borrowing suggests increased exposure to foreign exchange risks, particularly in the context of a strengthening US dollar.

A closer breakdown shows that Nepal’s outstanding domestic debt has reached Rs 13.48 trillion, while external debt stands at Rs 15.30 trillion. External loans now constitute 53.16 percent of total public debt, surpassing domestic borrowing, which makes up 46.84 percent. This shift toward external debt dominance reflects the government’s continued dependence on foreign financing sources, which often come with longer tenures but also carry exchange rate vulnerabilities.

One of the key drivers behind the recent increase in debt liabilities has been fluctuations in the exchange rate. The depreciation of the Nepali rupee against the US dollar has added nearly Rs 98 billion to the public debt stock within the review period. This indicates that even without fresh borrowing, Nepal’s debt burden is being inflated by external currency movements, raising concerns over macroeconomic stability and debt servicing capacity.

Despite setting an annual borrowing target of Rs 5.95 trillion for the fiscal year, the government has been able to mobilize only Rs 3.46 trillion by mid-February, achieving just over 50 percent of the target. Notably, domestic borrowing has performed relatively strongly, with Rs 2.43 trillion raised—equivalent to over 81 percent of its annual target. In contrast, external borrowing remains significantly below expectations, with only Rs 56.80 billion mobilized, representing just 18.9 percent of the target. This imbalance suggests constraints in foreign loan disbursement or delays in project implementation tied to external financing.

On the expenditure side, debt servicing has emerged as a major fiscal burden. Out of the allocated Rs 4.11 trillion for debt servicing in the current fiscal year, the government has already spent Rs 2.42 trillion by mid-February—amounting to nearly 59 percent of the annual allocation. This indicates a rapid pace of repayment obligations, which could crowd out development spending if the trend continues. In GDP terms, debt servicing alone accounts for nearly 3.97 percent, underscoring its growing weight in public finances.

During the first eight months of the fiscal year, the government has repaid a total of Rs 2.42 trillion in debt, including Rs 2.04 trillion in domestic liabilities and Rs 37.46 billion in external obligations. Of the total servicing amount, Rs 1.94 trillion has gone toward principal repayments, while Rs 48.06 billion has been spent on interest payments. The relatively high share of principal repayment suggests a tightening repayment schedule, which may require careful liquidity management going forward.

Overall, the rising trajectory of public debt, coupled with increasing external exposure and exchange rate risks, signals emerging challenges for Nepal’s fiscal sustainability. While current debt levels remain within manageable thresholds by international standards, the pace of growth and structural composition of debt warrant close monitoring. Policymakers may need to prioritize efficient utilization of borrowed funds, strengthen revenue mobilization, and mitigate currency risks to ensure long-term fiscal stability.