With the Nepali rupee continuous weakening against the US dollar, Nepal’s debt liability to external creditors has increased substantially in domestic currency terms. The fluctuation in the foreign exchange rate has resulted in an exchange loss of Rs 43.72 billion during the second quarter of the current fiscal year, according to the Public Debt Management Office (PDMO).
This calculation is based on the exchange rate difference at the beginning of the second quarter on October 17 and the end of the quarter on January 14. PDMO data shows that during the review period, the domestic currency plunged by Rs 1.64 per US dollar.
By the end of the second quarter of the current fiscal year, Nepal’s total external debt reached an equivalent of Rs 1.1 trillion. ‘The exchange losses of nearly Rs 44 billion does not mean that Nepal is losing an equivalent amount this fiscal year,” said a senior PDMO official. “We are not paying the entire debt in a year but we had to pay more for the debt repaid during the second quarter in proportion to the weakening of the exchange rate during the quarter.” During the second quarter, the government spent Rs 10.36 billion in repaying external debt including both principal and interest.
The country will have to spend more to cover the exchange rate losses in the domestic currency provided that the exchange rate of the domestic currency remains weak. During the first quarter of the current fiscal year, fluctuations in the rate of exchange resulted in an exchange loss of Rs 5.52 billion, according to PDMO. At the beginning of the fiscal year on July 16, 2022, the exchange rate was Rs 128.11 to the dollar. By October 17, 2022 (the end of the first quarter), the greenback had risen to Rs 132.07.
As the country’s debt size is on the rise, the weakening of the domestic currency contributes to increasing the liability of the country further.
Nepal’s total debt hit the Rs 2 trillion rupee mark for the first time last fiscal year, 2021/22. According to PDMO, Nepal’s total debt had reached Rs 2.01 trillion, which is equivalent to 41.47 percent of Nepal’s gross domestic product (GDP).
Though Nepal’s current debt level is not alarming, the country’s total debt doubled to Rs 2 trillion from just Rs 1 trillion in FY 2018/19, suggesting a staggering rise in a short period of time.
The country’s total debt reached as high as Rs 2.07 trillion at the end of the second quarter of the current fiscal year. Of the total debt by the end of the second quarter of this fiscal, the share of the external debt stands at 53.24 percent of total debt.
The government’s debt liability has increased at a time when the government has been struggling to collect enough revenue. The government collected revenue amounting to Rs 567.60 billion as of March 11 of the current fiscal which is not enough even to fund the recurrent expenditure of the government. The government’s recurrent expenditure during the same period stood at 598 billion, according to the Financial Comptroller General Office.
In fact, the total revenue collection is negative with the government failing to collect revenue equivalent to the amount it collected last fiscal year. During the same period in the last fiscal year, the government had collected Rs 677 billion in revenue.
As debt falls under the category of compulsory liability, the government must pay the liability of loans even by slashing the budget allocated elsewhere. Through the mid-term review of the budget, the government slashed the budget size by 13.59 percent.
But the debt liability like the liability for salary and pension is not part of budget cuts. “Though the budget allocated for paying internal debt is not enough, the allocated budget for paying external debt is likely to be enough,” the PDMO official said.