NRB Report 2025/26: Domestic and External Debt Cross Rs. 2.7 Trillion Combined

The Nepal Rastra Bank (NRB), in its Mid-September 2025/26 Macroeconomic Report, has revealed that Nepal’s combined domestic and external debt has surpassed Rs. 2.7 trillion, reflecting a steady rise in government borrowing amid growing fiscal needs and development spending. While the overall debt level remains within a sustainable range, the report highlights the need for improved fiscal discipline and more efficient utilization of borrowed funds.

According to NRB’s latest data, domestic debt stood at Rs. 1.27 trillion, while external debt reached Rs. 1.46 trillionby mid-September 2025/26. Together, the total public debt amounts to approximately Rs. 2.73 trillion, equivalent to about 43.7% of Nepal’s nominal GDP (Rs. 6.1 trillion). This ratio remains moderate by international standards, suggesting that Nepal’s debt position is manageable but tightening, especially as expenditure growth outpaces revenue collection.

The central bank’s report shows that domestic debt/GDP stands at 20.8%, while external debt/GDP accounts for 22.9%. Although the external portion of debt has grown due to increased project financing and concessional loans, it remains largely on favorable terms with low interest rates and long repayment periods. Meanwhile, domestic borrowing has been used primarily to cover fiscal deficits and fund infrastructure and social programs.

NRB data also indicates that government expenditure rose sharply by 31%, while revenue collection fell by 5.3%, widening the fiscal gap and increasing reliance on borrowing. The revenue-to-GDP ratio stands at 19.6%, which is lower than pre-pandemic levels, signaling sluggish tax recovery despite improving economic activity. The imbalance between spending and revenue has led the government to depend more on internal and external financing to sustain its budgetary commitments.

Despite the growing debt, Nepal’s debt sustainability indicators remain favorable due to low interest rates, stable inflation (1.87%), and strong foreign exchange reserves of Rs. 2.88 trillion (USD 20.41 billion). These factors reduce near-term repayment risks and strengthen the government’s capacity to service its obligations. The Balance of Payments (BOP) surplus of Rs. 153.7 billion and current account surplus of Rs. 130.7 billion have further eased external pressure on the currency and foreign liabilities.

Economists, however, caution that the rising debt trend requires careful fiscal management. While Nepal’s debt-to-GDP ratio is still below the 60% threshold considered risky for developing economies, the rapid growth in borrowing — combined with weak revenue performance — could pose challenges in the medium term. NRB recommends that the government focus on enhancing tax compliance, controlling recurrent expenditure, and channeling debt toward productive sectors that yield long-term returns.