Nepal Faces Growing Public Debt Due to Slow Revenue Collection and High Government Spending
Nepal is grappling with a mounting public debt crisis as sluggish revenue collection fails to keep pace with the government's substantial expenditures. The fiscal year 2023/24 saw the public debt increase by Rs 135 billion, rising from Rs 2.299 trillion in mid-July 2023 to Rs 2.434 trillion by mid-July 2024. This debt now represents 42.65% of the country's GDP.
The Public Debt Management Office (PDMO) has revealed that the government's internal debt stands at Rs 1.18 trillion, while external debt has reached Rs 1.253 trillion. During the review period, the government paid Rs 305 billion towards the principal and interest of its public debt.
In the initial weeks of the current fiscal year 2024/25, the government has already raised Rs 31.61 billion in domestic borrowing through the issuance of treasury bills. Furthermore, the cabinet has approved a concessional loan of approximately Rs 33.33 billion from the World Bank for the provincial and local road improvement program.
To address ongoing financial needs, the PDMO issued a notification on Monday to raise an additional Rs 21.1 billion through Treasury bills. This follows the issuance of Treasury bills worth Rs 10.49 billion on July 22.
Concerns are mounting among stakeholders regarding the increasing burden of public debt. Parliamentarians have criticized the government for its rising debt levels, with former PDMO head Bhumi Ram Sharma emphasizing the importance of investing in projects that yield returns. Sharma highlighted the lack of returns from investments in the Pokhara and Bhairahawa-based international airports, cautioning that non-productive investments pose significant risks.
The government's reliance on internal and external loans stems from its inability to meet current expenses through revenue collection alone. For the fiscal year 2024/25, the government has set a total budget of Rs 1.860 trillion, targeting revenue collection of Rs 1.2 trillion and foreign grants of Rs 52.33 billion. To bridge the budget deficit, the government plans to raise Rs 547.67 million through domestic and foreign loans.
Projections for the current fiscal year include acquiring foreign loans of Rs 217 billion and raising domestic debt of Rs 330 billion. This approach has become increasingly necessary as the government struggles to meet revenue targets.
Over the past five years, Nepal's public debt has surged by approximately Rs 1.2 trillion, rising from Rs 1.048 trillion in FY 2018/19 to Rs 2.434 trillion by the end of FY 2023/24. The escalating trend in both internal and external loans underscores the urgent need for more effective financial management to ensure sustainable economic growth and stability.
