Nepal prepares legislation to enable govt raise foreign currency debt for first time
Kathmandu, July 18
The Nepali government has prepared a draft amendment to the Public Debt Management Act that would allow it to issue government debt instruments denominated in foreign currency for the first time.
"The Public Debt Management Office may issue government securities, through auction or other prescribed methods, denominated in either domestic or foreign currency, in a manner that allows them to be purchased by domestic or foreign individuals or entities," the draft bill states.
The proposed provision would enable the Nepali government to raise debt from international capital markets to meet the country's growing financing needs.
"It is aimed at opening the door for raising public debt from the international market," a senior official at the Public Debt Management Office told IANS. "It is an international practice, and we are preparing to follow it."
Nepal has not yet raised public debt from the international market through the issuance of market-based debt instruments. Instead, the country has received the majority of its external loans from multilateral development partners such as the World Bank and the Asian Development Bank (ADB), as well as from bilateral donors.
More than 91 per cent of Nepal's external debt from multilateral lenders is owed to the World Bank and the ADB, while bilateral creditors account for 9.16 per cent of the country's external debt.
Loans from the World Bank and the ADB have been extended on highly concessional terms, with interest rates of up to 1.5 per cent. However, there is a limit to the amount of concessional financing available from these institutions. At the same time, domestic borrowing has been relatively expensive.
As of mid-June 2026, during the fiscal year 2025-26 that ended in mid-July, domestic debt accounted for 46.51 per cent of Nepal's total public debt, while the remaining 53.49 per cent was external debt, according to the Public Debt Management Office.
Although domestic debt is slightly lower than external debt in terms of outstanding stock, the government spends significantly more on servicing domestic borrowings because of higher interest rates and shorter repayment periods.
In the fiscal year 2025-26, the Nepali government allocated NPR 67.45 billion for the repayment of external debt, compared with NPR 343.55 billion for domestic debt servicing.
According to the Public Debt Management Office, Nepal's total public debt stood at around 45 per cent of the country's Gross Domestic Product (GDP) as of mid-June 2026.
— IANS
Reader Comments
The data is striking - NPR 67 billion for external debt servicing vs NPR 343 billion for domestic debt! That's 5 times more for domestic borrowing. No wonder they want to tap international markets. But will foreign investors be willing to lend to Nepal at reasonable rates given its economic challenges? The draft says 'foreign individuals or entities' can purchase these securities - that includes NRIs too. Many Indians with Nepali roots might be interested.
A sensible step but risky. Nepal's debt-to-GDP at 45% is manageable, but opening up to foreign currency debt exposes them to exchange rate fluctuations. The Indian rupee has been relatively stable, but Nepali rupee movements could hurt repayment capability. Also, I wonder if this could lead to dependency on Chinese investments if they offer attractive terms. India should proactively support Nepal's financing needs through investments and bilateral loans to maintain our influence.
Actually surprised they haven't done this earlier. Most developing countries issue foreign currency bonds - India itself has masala bonds and sovereign green bonds. Nepal has strong remittance inflows from migrants working abroad, especially in Gulf countries and Malaysia. That provides a natural hedge. The key will be pricing - if they can issue at 4-5% in dollars while paying 8-9% domestically, it's a win. But they need to be transparent about usage of funds.
This is a double-edged sword. On one hand, cheaper financing for development projects - Nepal desperately needs infrastructure investment. On the other hand, currency depreciation could balloon their debt burden. Remember how Sri Lanka's foreign currency debt became unsustainable? Nepal must learn from that. Also, the 1.5% concessional loans are hard to beat - hope they don't replace concessional debt with expensive commercial borrowing. A balanced approach is key. 🧐
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.