Nepal’s Public Debt Soars to NPR 2.65 Trillion: Rising External Borrowing Threatens Sustainable Development Goals

Nepal's public debt has reached an alarming NPR 2.65 trillion (26 kharba 54 arba), with foreign loans alone accounting for nearly NPR 1.4 trillion (13 kharba 82 arba), raising concerns over the country’s ability to meet its Sustainable Development Goals (SDGs) by 2030. This data, published by Nepal’s Public Debt Management Office as of the end of Jestha (11 months into FY 2081/82), reveals a sharp rise in debt burden — both domestic and external — which now constitutes 43.47% of the country’s GDP.

Out of the total debt, NPR 1.27 trillion is internal debt, while NPR 1.38 trillion is external. The current fiscal year alone has added NPR 220.58 billion in new debt, pushing the nation closer to unsustainable borrowing levels. In the last six years, Nepal’s total public debt has increased by over NPR 1.6 trillion, nearly doubling from NPR 1.048 trillion in FY 2075/76.

Nepal’s public borrowing trend has accelerated sharply:

• FY 2076/77: NPR 1.433 trillion

• FY 2077/78: NPR 1.737 trillion

• FY 2078/79: ~NPR 2 trillion

• FY 2079/80: NPR 2.299 trillion

• Start of FY 2081/82: NPR 2.434 trillion

• Jestha end, FY 2081/82: NPR 2.654 trillion

According to the Public Debt Management Office, over 10% of the national revenue is being spent on interest payments. For the current fiscal year, interest alone will cost NPR 103.12 billion, and principal repayment will require NPR 299.72 billion. This figure surpasses spending on critical sectors like education and health, which experts, including National Planning Commission Vice Chairman Dr. Shivaraj Adhikari, find concerning. “This disproportionate allocation undermines social development efforts and financial stability,” he stated.

The estimated investment needed to achieve SDGs by 2030 is NPR 2.11 trillion, averaging NPR 302.3 billion annually. However, increasing dependence on loans — particularly those with unfavorable terms — raises doubts about financing capacity. Many experts believe that current loan structures ignore local empowerment needs and may place low-income countries like Nepal under long-term financial stress.

For the upcoming FY 2082/83, Finance Minister Bishnu Paudel has proposed a total budget of NPR 1.964 trillion, with plans to raise only NPR 1.315 trillion from revenue. The deficit of NPR 595 billion will be financed through external loans (NPR 233 billion) and domestic loans (NPR 362 billion). This mirrors a pattern of budget formulation dependent on borrowing due to limited domestic revenue mobilization.

The government has consistently used loans to fund development and manage deficits arising from weak revenue collection. Moreover, poor internal resource mobilization at the provincial and local levels is increasing reliance on the federal government, adding further strain on national borrowing needs.

Experts caution that without productive returns from loan-funded projects, the nation risks falling into a debt trap. Structural reforms in the financial system, rational budget planning, and effective project implementation are seen as critical to reversing this trajectory. There's also a strong call to enhance revenue collection, reduce dependency on aid and debt, and ensure that borrowed funds are channeled into high-impact, revenue-generating infrastructure and social programs.

Nepal’s growing debt, especially external debt, is not just a fiscal issue but a development challenge. With more money spent on interest than on public services like health and education, the country risks long-term instability. While borrowing isn’t inherently bad — especially for capital-intensive infrastructure projects — the current trend shows a mismatch between loan inflows and developmental returns. Without structural reforms, better project governance, and robust domestic revenue growth, Nepal’s fiscal health and developmental goals remain vulnerable.