Sluggish Development, Aggressive Borrowing: Government Raises 8 Times More Debt Than Capital Expenditure in Two Months

Kathmandu — Nepal's fiscal landscape during the first two months (Shrawan and Bhadra) of the current fiscal year paints a bleak and paradoxical picture. While the government's spending on infrastructure and development—capital expenditure—remains dismally slow, its pace of raising public debt and repaying old loans has accelerated at an alarming rate. Recent statistics indicate a grim reality: the state treasury is gradually inching toward a classic 'debt trap.'

For the current fiscal year, the government allocated Rs 431.10 billion for capital expenditure. However, by the end of Bhadra (mid-September), a mere Rs 7.66 billion—just 1.78 percent of the annual target—had been spent. In stark contrast, during these same two months, the government aggressively mobilized Rs 61.05 billion in new public debt. This means the newly acquired debt is nearly eight times higher than the actual development spending. According to the Public Debt Management Office (PDMO), this new borrowing comprises Rs 50 billion in domestic debt and Rs 11.05 billion in external loans.

Why is a government that struggles to spend on development borrowing so heavily? The answer lies in the mounting burden of old financial obligations. Currently, the lion's share of the newly raised funds is being swallowed by principal and interest repayments. In just two months, while the government acquired Rs 61 billion in new loans, it spent a staggering Rs 85.01 billion on debt servicing. This means the new borrowings fell short by roughly Rs 24 billion just to cover past liabilities. Of the total repayment, around Rs 70.13 billion went toward clearing the principal, while nearly Rs 14.87 billion was paid as interest.

Despite these massive repayments, the overall debt burden on the state's head shows no signs of shrinking, a situation exacerbated by continuous new borrowings and volatile exchange rates. By the end of Bhadra, Nepal's total outstanding public debt had ballooned to Rs 2.973 trillion, which accounts for 45.05 percent of the country's Gross Domestic Product (GDP). Of this total obligation, external debt stands at Rs 1.611 trillion (54.19 percent), while domestic debt accounts for Rs 1.361 trillion (45.81 percent). In Bhadra alone, fluctuations in foreign exchange rates added an extra liability of Rs 430 million to the state coffers.

Economic analysts view these statistics as a critical warning sign for the nation's economy. On one hand, the failure to execute the development budget has stalled capital formation, infrastructure growth, and job creation in the market. On the other hand, a massive chunk of state revenue is being drained into unproductive sectors—primarily servicing old debts. Utilizing borrowed funds, which should ideally be invested in high-return infrastructure projects, to merely pay off past loans is a major red flag for the economy. If the government fails to accelerate capital expenditure promptly and boost internal revenue, these spiraling debt obligations will undoubtedly exert catastrophic pressure on the state treasury in the coming months.