Nepal’s Debt Mix Shifts: Development Bonds Replace Short-Term Treasury Bills

Nepal’s public debt structure is undergoing a major shift as the government moves away from short-term treasury billstoward longer-term development bonds, marking a strategic change in its borrowing policy for fiscal year 2025/26. According to Nepal Rastra Bank’s latest data, while total domestic debt climbed to Rs. 1.27 trillion, the composition of borrowing has become increasingly long-term, signaling an effort to manage refinancing risks and stabilize debt servicing costs.

During the first month of 2025/26, the outstanding stock of treasury bills fell by Rs. 27.1 billion to Rs. 348.4 billion, continuing a trend of decline from last fiscal year. In contrast, development bonds surged by Rs. 40 billion, reaching Rs. 913.7 billion — their highest level ever recorded. This expansion means that development bonds now make up nearly 72 percent of Nepal’s total domestic debt, replacing treasury bills as the government’s primary financing tool.

Economists interpret this transition as a move toward fiscal maturity, as the government attempts to extend the duration of its liabilities and avoid short-term rollover pressure. However, they caution that the rising volume of long-term bonds could increase future interest obligations and may test the liquidity capacity of commercial banks, which currently hold the majority of government securities — over Rs. 1 trillion worth.

The Nepal Rastra Bank itself has reduced its direct exposure, holding only Rs. 12 billion of government debt compared to Rs. 74 billion a year earlier, reflecting a more market-based approach to debt management. Analysts believe that this realignment between short-term and long-term instruments represents both fiscal prudence and liquidity challenges, depending on how effectively the government balances its repayment obligations with future revenue generation.