June 17, Kathmandu – The government has spent NPR 284.45 billion on public debt repayment during the first 11 months (mid-July to mid-May) of the current fiscal year 2082/83 (2025/26), which is double the amount spent on development projects in the same period. According to the Office of the Auditor General, capital expenditure until the end of Jestha was only NPR 132.66 billion.
Data from the Public Debt Management Office shows that the majority of the loans mobilized by the government are being used primarily to service existing debts. Finance Minister Dr. Swarnim Wagle, presenting the budget for the next fiscal year 2083/84 (2026/27), has set a target to spend NPR 245.89 billion on internal debt repayment. This indicates that Nepal will likely have to reduce development expenditure and allocate a substantial amount of funds toward debt repayment in the coming years.
The office reports that public debt stood at NPR 2,961.19 billion as of the end of Jestha. Over 11 months, the government mobilized NPR 418.12 billion in total public debt. In this period, foreign exchange devaluation increased the external debt burden by NPR 153.47 billion.
Consequently, total public debt grew by NPR 571.59 billion during these 11 months. Despite paying NPR 284.45 billion in principal debt, the overall public debt increased by NPR 287.14 billion during the same period.
By the end of the previous fiscal year 2081/82 (mid-June), public debt totaled NPR 2,674.04 billion. Internal debt accounted for NPR 1,377.28 billion and external debt NPR 1,583.91 billion. According to statistics, Nepal’s public debt amounts to 44.87% of its Gross Domestic Product (GDP).
Internal debt constitutes 20.87% of GDP, while external debt stands at 24%. Within Nepal’s public debt, external debt represents 53.49%, and internal debt 46.51%. In the current fiscal year, foreign exchange losses have caused public debt to increase beyond the actual debt mobilized. These foreign exchange losses account for 53.45% of the total debt increment.
Public Debt Breakdown (As of Jestha 2083)
Internal Debt: NPR 1,377 billion
External Debt: NPR 1,583 billion
Total Debt: NPR 2,961 billion
Target to Mobilize NPR 600 Billion in Debt; NPR 418 Billion Mobilized in 11 Months
The government had set a target to mobilize NPR 595.66 billion from public debt during the current fiscal year 2082/83. By the end of Jestha, NPR 418.12 billion had been mobilized, which is 70.20% of the annual goal. Internal debt mobilization has reached 93.55% of its target within this period.
The internal debt mobilization target was NPR 362 billion in the current fiscal year, and NPR 338 billion has been acquired by Jestha. The government planned to mobilize NPR 233.66 billion in external debt, but only NPR 7.946 billion has been mobilized so far, corresponding to 34.01% of the annual target.
NPR 351 Billion Spent on Principal and Interest Payments
In the first 11 months of the current fiscal year, NPR 351.74 billion has been spent on principal and interest payments of public debt. The annual target for these payments is NPR 411 billion, with 85.58% of the goal achieved by Jestha.
By Jestha, NPR 229 billion has been paid toward internal debt principal and NPR 5.561 billion in interest payments. Payments on external debt principal amount to NPR 5.484 billion and interest payments NPR 1.167 billion. Overall, the government has spent NPR 284.45 billion on principal repayments and NPR 6.729 billion on interest in the current fiscal year.
Recommendations suggest that internal debt should be mobilized only for projects and programs that increase production, generate employment, enhance income, develop infrastructure, and build capital.
This reflects that the government is spending more on managing liabilities than on improving productivity. This issue was also highlighted as a significant concern in the 63rd report of the Auditor General.
Experts describe Nepal’s current public debt situation as a ‘country becoming indebted without being wealthy.’ It is compared to an individual trapped in a cycle of constantly borrowing to repay previous loans—Nepal is currently in a similar scenario.
Public Debt Has Been Increasing as Follows
According to data from the Ministry of Finance, public debt has nearly doubled over the past seven years. In fiscal year 2076/77 (2019/20), the country’s debt was NPR 1,433.40 billion. Since then, debt has qualitatively increased and now approaches NPR 3,000 billion. Seven years ago, the debt equaled 38.05% of GDP; today, it is close to 45%.
The persistent rise in public debt results from increasing public expenditure, declining foreign grants, and lower-than-expected revenue collections. Experts say that borrowing equivalent to GDP would not pose a risk if debt is invested in productive and capital-enhancing projects that generate sufficient returns to repay the loans. However, this is not the reality in Nepal.
Many major government projects funded through loans have failed to deliver the expected outcomes. The Pokhara and Bhairahawa international airports are examples. The Melamchi drinking water project was also not completed on schedule and suffered additional damage from natural disasters. The lack of expected returns from such infrastructure projects raises questions about the effective utilization of public debt.
The report from the High-Level Economic Reform Recommendation Commission formed in 2081 states that as the structure of public debt has grown and GDP and revenue mobilization have remained unstable, the repayments for principal and interest have increased. The report warns: “Without proper utilization of public debt and returns, the country risks becoming trapped in a debt cycle.”
The report also emphasizes that rising debt servicing obligations reduce budget allocations for essential government sectors like education, health, and security. For this reason, government agencies and experts recommend limiting debt mobilization to capital-creating sectors.
Commission Recommends Strict Ban on Internal Debt for Current and Administrative Expenditures
The National Natural Resources and Finance Commission has strongly recommended prohibiting the use of internal debt for current and administrative spending. The commission set limits on internal debt that federal, provincial, and local governments can take in the upcoming fiscal year 2083/84, alongside this recommendation.
As in previous years, the commission has set a cap on internal debt mobilization so that it does not exceed 5.5% of GDP annually at the federal level. The commission explicitly calls for the strict prohibition of internal debt utilization for administrative and current expenses.
“Internal debt should be used only for projects that create employment, yield long-term benefits, and contribute to capital construction. It must be strictly prohibited for administrative and current expenditures,” the commission stated. Internal debt mobilization in 2081/82 was only 1.41% of GDP. With increasing debt servicing costs, most internal debt is being used to repay old loans.
The Auditor General has stated, “Keeping current expenditure within desired limits, the budget should be arranged so that loan amounts are invested in projects that yield returns.”
The commission concludes that this trend fails to sufficiently contribute to capital formation and economic expansion. Although the government has been urged to increase capital expenditure since 2075/76, it has not publicly disclosed details of internal debt utilization by sectors. Consequently, the commission notes that debt use and implementation of recommendations remain unanalyzed.
The commission recommends focusing internal debt on profitable projects with a cost-benefit analysis, net present value, and internal rate of return higher than prevailing capital costs. It also suggests using internal debt exclusively for social sector projects.
Projects financed by debt or identified and developed anew should ensure that returns from those projects can cover principal and interest payments. The commission also advises that internal debt be mobilized only for projects that facilitate production increase, create jobs, generate incomes, develop infrastructure, and build capital. Governments at all three levels are advised to specify required internal debt in the source details of project budgets during formulation.
The commission further recommends establishing an integrated electronic information system through the Public Debt Management Office to unify internal debt mobilized by all three levels of government and overall public debt accounting and reporting. It also suggests granting access to the commission.
Since internal debt mobilization resembles spending future revenues now, the commission emphasizes that governments at all levels should mobilize debt within recommended limits and implement revenue enhancement plans to ensure internal income can cover principal and interest payments.
Auditor General’s Conclusion: Public Debt Not Utilized for Capital Formation
The Auditor General’s recently published 63rd annual report also notes that public debt has not been spent on capital formation. Instead, significant amounts have been used for employee expenses, services and consultancy, and office operations, raising concerns.
The audit highlights that foreign currency effects have rendered debt structure vulnerable. It stresses the importance of employing financial instruments to manage exchange rate risks and recommends confining debt use to productivity-enhancing sectors.
Further, the audit observes that only 80% of the total revenue collection target was met, increasing pressure on internal resources. It notes the growing reliance on borrowing to meet other expenses due to rising debt servicing obligations and urges, “Current expenditure should remain within desired limits, and loans should be allocated to projects with returns, under proper budget arrangements.”