Nepal’s Domestic Debt Crosses Rs. 1.27 Trillion in 2025/26: Development Bonds Drive Growth

Nepal’s outstanding domestic debt has surged past Rs. 1.27 trillion by mid-August 2025/26, reflecting the government’s growing reliance on internal borrowing to finance its budget deficit. Compared to mid-July, total domestic debt rose by Rs. 12.9 billion, showing a steady but slower pace of accumulation.

The primary driver of this rise has been development bonds, which increased by nearly Rs. 40 billion in one month, reaching Rs. 913.7 billion. Commercial banks remain the largest holders, absorbing over Rs. 753 billion worth of bonds, highlighting the banking sector’s central role in financing government debt.

In contrast, treasury bills fell sharply by Rs. 27.1 billion, suggesting the government has shifted towards longer-term borrowing instruments to manage rollover risks. Similarly, citizen saving bonds and foreign employment bonds showed little movement, remaining relatively stable at Rs. 13.4 billion and Rs. 0.33 billion respectively.

Analysts note that while the increase in long-term bonds provides financing stability, the growing debt burden poses challenges for fiscal sustainability. With commercial banks holding the bulk of government securities, concerns about crowding out private sector credit continue to loom.