Nepal’s Public Debt Climbs to 46.91% of GDP, Rises by Rs 241.93 Billion in Eight Months Amid Dollar Surge

Nepal’s public debt has surged by nearly Rs 241.93 billion in the first eight months of the fiscal year 2081/82 (2024/25), reaching a total outstanding amount of Rs 2.676 trillion by the end of Fagun (mid-March 2025). According to the latest monthly report from the Public Debt Management Office (PDMO), this escalation reflects a combination of fresh borrowings and the impact of a rising US dollar exchange rate, pushing the nation’s debt-to-GDP ratio to 46.91%.

Debt Breakdown and Growth

As of Sawan 1, 2081 (mid-July 2024), Nepal’s outstanding public debt stood at Rs 2.434 trillion. Within eight months, it ballooned by Rs 241.93 billion, with the total outstanding debt recorded at Rs 2,676.03 billion by Fagun end. This figure includes both internal and external borrowings:

• Internal Debt: Rs 1,315.57 billion, up from Rs 1,180.90 billion at the start of the fiscal year.

• External Debt: Rs 1,360.46 billion, an increase from Rs 1,253.19 billion.

The composition of the total public debt shows external debt slightly edging out internal debt, accounting for 50.83% (Rs 1.36 trillion) compared to 49.16% (Rs 1.315 trillion) for internal debt. Relative to Nepal’s GDP, internal debt constitutes 23.06%, while external debt stands at 23.85%, resulting in a combined debt-to-GDP ratio of 46.91%.

Impact of Exchange Rate Fluctuations

A significant portion of the debt increase—Rs 66.29 billion—is attributed to the rising value of the US dollar against the Nepali rupee. Since much of Nepal’s external debt is denominated in foreign currencies, particularly the dollar, the depreciation of the Nepali rupee has inflated the debt burden in local currency terms. This exchange rate effect has added pressure on the government’s fiscal position, even without additional borrowing.

Debt Mobilization Progress

The government set an ambitious target of mobilizing Rs 547 billion in public debt for the fiscal year. By Fagun end, it had raised Rs 334.62 billion, achieving 61.17% of the annual goal. This includes:

• Internal Debt: Rs 269.15 billion, or 81.56% of the Rs 330 billion target.

• External Debt: Rs 65.47 billion, or 30.17% of the Rs 217.67 billion target.

The higher progress in internal debt mobilization reflects the government’s reliance on domestic borrowing tools like treasury bills and bonds, while external debt inflows have lagged, possibly due to delays in disbursements from multilateral lenders or stringent borrowing conditions.

Debt Servicing and Repayments

The fiscal year budget allocated Rs 402 billion for debt servicing, covering both principal and interest payments. By Fagun end, Rs 201.72 billion—50.86% of the allocation—had been spent. This expenditure represents 3.54% of Nepal’s GDP, underscoring the growing cost of debt management.

In terms of repayments:

• Principal Payments: Rs 158.98 billion.

• Interest Payments: Rs 42.74 billion.

• Total Debt Reduction: The government reduced its debt liability by Rs 171.45 billion in internal debt and Rs 30.27 billion in external debt during this period.

Fiscal Year Targets and Budget Context

The government’s borrowing plan for 2081/82 is part of a broader Rs 1.860 trillion budget aimed at funding development projects, recurrent expenditures, and debt obligations. The borrowing target of Rs 547 billion comprises Rs 330 billion from internal sources and Rs 217.67 billion from external loans. However, a mid-term budget review earlier this year trimmed the budget size by approximately 10%, signaling efforts to curb spending amid fiscal constraints.

Economic Implications

The rise in public debt to 46.91% of GDP, while still below the critical 60% threshold often cited by economists, raises concerns about Nepal’s long-term fiscal sustainability. The heavy reliance on debt to finance the budget, coupled with a significant external debt component vulnerable to currency fluctuations, poses risks. The Rs 66.29 billion increase due to exchange rate changes alone highlights this vulnerability, especially as global interest rates rise and the US dollar strengthens.

On the positive side, the government’s ability to mobilize 61.17% of its borrowing target in eight months demonstrates a robust domestic debt market. However, the slower pace of external debt inflows (30.17% of the target) could indicate challenges in securing foreign loans or grants, potentially affecting infrastructure and development projects reliant on such funding.

Looking Ahead

With four months remaining in the fiscal year, the government faces the dual challenge of meeting its borrowing and spending targets while managing the growing debt burden. The increasing cost of debt servicing—already at Rs 201.72 billion—could strain resources allocated for development, particularly if exchange rates remain unfavorable or global economic conditions tighten further.

Analysts suggest that Nepal may need to enhance revenue generation, reduce non-essential expenditures, and prioritize high-impact projects to maintain fiscal balance. As the dollar’s value continues to influence the debt profile, policymakers will also need to explore strategies to hedge against currency risks and diversify borrowing sources to ensure economic stability in the coming years.