Nepal's Public Debt Doubles in Five Years: Is It Sustainable?

Nepal’s public finance data over the past five fiscal years reveals a steady and significant rise in both domestic and external debt, highlighting the country's growing reliance on borrowing to fund its operations and development projects.

In fiscal year 2019/20, Nepal’s domestic debt stood at Rs. 613.2 billion. By mid-April 2024/25, it had more than doubled to Rs. 1,298.0 billion. This rapid increase underscores the government’s growing dependence on internal borrowing to bridge budget deficits and finance infrastructure, social services, and other state functions. Although there was a minor decline in mid-April 2023/24 to Rs. 1,175.6 billion from Rs. 1,180.9 billion recorded in the same fiscal year, the trend quickly reversed in 2024/25 with a strong upward jump.

On the other hand, external debt has also grown at a stable pace. From Rs. 819.7 billion in 2019/20, Nepal’s foreign loans rose to Rs. 1,253.2 billion by mid-April 2024/25. This rise indicates an increased inflow of concessional loans and foreign aid, but also raises long-term concerns about debt sustainability and exchange rate-related risks. Notably, there was a dip in external debt around mid-April 2023/24 to Rs. 1,170.2 billion, but it rebounded within a year, marking renewed borrowing or project disbursements.

The consistent rise in debt points to Nepal’s ongoing fiscal pressures, possibly stemming from limited domestic revenue generation, growing development needs, and post-COVID recovery expenditures. While borrowing itself is not inherently harmful, the concern arises when borrowed funds are not efficiently invested in productive or growth-generating sectors.

If this trend continues without a parallel increase in economic output and revenue mobilization, Nepal could face mounting pressure in terms of debt servicing. Therefore, it is imperative for policymakers to ensure that borrowed capital is channeled effectively into high-return sectors, while simultaneously improving fiscal discipline and strengthening the country’s debt management frameworks.