Nepal's public debt grows more than fourfold in a decade
Kathmandu, July 24
Nepal's public debt has increased more than fourfold over the past decade as the country borrowed heavily to cope with the impact of two major crises - the 2015 earthquake and the COVID-19 pandemic.
According to statistics released by the Public Debt Management Office (PDMO), Nepal's public debt reached NPR 2.974 trillion at the end of fiscal year 2025-26, which ended in mid-July, up from NPR 697.68 billion at the end of fiscal year 2016-17, representing a 4.26-fold increase over the decade.
The PDMO said public debt rose by 11.25 per cent year on year in fiscal year 2025-26.
Of the total public debt, external debt accounted for 53.77 per cent, while domestic debt made up the remaining 46.23 per cent.
Nepal borrowed heavily from both domestic and external creditors to finance the reconstruction of infrastructure damaged by the 2015 earthquake, which killed nearly 9,000 people and destroyed public and private infrastructure, including thousands of homes.
As a result, public debt surged by 31.48 per cent in fiscal year 2017-18, when reconstruction activities gathered pace.
Just as the country was recovering from the earthquake, the COVID-19 pandemic struck, forcing Nepal to borrow more to address the public health emergency and the economic losses caused by the pandemic.
Public debt grew by 36.75 per cent in fiscal year 2019-20, according to PDMO records.
Nepal's public debt-to-gross domestic product (GDP) ratio has also risen steadily in recent years.
According to the PDMO, Nepal's debt-to-GDP ratio stood at 45.07 per cent at the end of fiscal year 2025-26, up from 43.79 per cent a year earlier. In comparison, the ratio was just 26.84 per cent in fiscal year 2016-17.
Nepal's debt-to-GDP ratio has not reached the level the country witnessed during the civil war (1996-2006). In the early 2000s, the public debt-to-GDP ratio was over 60 per cent, inviting suggestions from external donors for debt relief measures under the Highly Indebted Poor Country initiative.
Despite the steady increase in public debt, Nepal's debt remains sustainable, and the risk of debt distress is low, according to the International Monetary Fund (IMF).
However, in its latest Article IV consultation report on Nepal, the IMF expressed concern over the growing share of government resources being used to service domestic debt.
"External debt remains relatively modest and highly concessional because of the low interest rates offered by multilateral institutions such as the World Bank and the Asian Development Bank," the IMF said.
However, it noted that treasury bills and development bonds - the main instruments used for domestic borrowing - create repayment obligations that mature much faster than concessional external loans.
According to the PDMO, Nepal spent NPR 386.22 billion on debt servicing, including principal and interest payments, in fiscal year 2025-26. Of that amount, NPR 311.93 billion was spent on servicing domestic debt alone.
In the current fiscal year 2026-27, Nepal plans to raise NPR 657.29 billion through domestic and external borrowing, according to the Ministry of Finance.
The government has also allocated NPR 245.89 billion for the repayment of principal on existing domestic debt.
— IANS
Reader Comments
IMF calling it "sustainable" while debt service is 45% of revenue? 🤔 That's like saying a boat is fine when it's taking on water. Nepal needs to learn from India's experience - we also faced high debt during the 1991 crisis but then focused on exports and fiscal discipline. Our debt-to-GDP is around 80% now but we manage because growth is higher. Nepal must prioritize tax collection and plug leakages. Hope they don't end up like Sri Lanka!
As an economist, I'm surprised the debt-to-GDP is only 45%. But the composition is worrying - domestic debt at high interest rates while external loans are concessional. Nepal should negotiate more grants from India and China rather than market-rate domestic borrowing. The earthquake and COVID were exceptional circumstances, but now they need a fiscal consolidation plan. Otherwise servicing costs will crowd out development spending.
Respectfully, I think the article misses a key point - where did the borrowed money actually go? 🤷♀️ Earthquake reconstruction I understand, but COVID borrowing should have been temporary. I'm skeptical because Nepal's infrastructure quality hasn't improved proportionally. There must be corruption and inefficiency in project implementation. India should offer technical assistance for better public financial management rather than just loans. Hope Nepal's leadership takes this seriously!
As someone from Uttarakhand who often travels to Nepal for business, I've seen the ground reality. Nepal's economy is heavily dependent on remittances and tourism. Borrowing isn't inherently bad if used for productive assets like hydro projects that generate future revenue. But 53% external debt with concessional rates is manageable. The real issue is domestic debt at 9-10% interest - that's like credit card debt for a country! Nepal should focus on formalizing the economy and improving tax compliance. India's GST experience could be useful for them. 🇮🇳🤝🇳🇵
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