Nepal’s total debt reached Rs 2221.678bn in 2022/23, which is equivalent to 41.28 percent of Nepal’s gross domestic product (GDP). According to the Public Debt Management Office (PDMO), the country’s total debt surged by Rs 208.382bn in the last fiscal year. 

Of the total outstanding debt, Rs 1128.329bn is internal debt while Rs 1093.349bn is external debt. In the last fiscal year, internal debt increased by Rs 140.87bn while external debt increased by Rs 67.5bn.

The share of internal debt in the government’s public debt has increased in the last fiscal. In the past, the share of external debt in the government’s total debt used to be higher. However, the share of internal debt has increased since the government failed to get external loans as per the target in the last fiscal. 

The government will be spending more than a quarter of its revenue on repaying domestic and external loans in the current fiscal year. In the budget for the fiscal year 2023/24, the government has announced to spend as much as Rs 330.56bn in loan repayment which accounts for 26.47 percent of total projected revenue. 

As large amounts of internal loans will be matured in the current fiscal year, the government had to allocate a huge amount for repaying the internal loans. A total of Rs 275.78bn has been allocated for repaying domestic debts. In the new budget, as much as Rs 105.38bn has been allocated for repaying the interest on internal and external debts. 

While Nepal’s current debt level is not alarming, the country’s total debt doubled to Rs 2,000bn from just Rs 1,000bn in 2018/19, suggesting a staggering rise in a short period of time. The government started to raise loans on a large scale from internal and external creditors for post-quake reconstruction purposes from 2015/16.

Following a gradual decline in the early 2010s, Nepal’s public debt has risen significantly over the last seven years, especially after the country’s transition to fiscal federalism and the need to rebuild after the earthquake of 2015. The country’s total debt has increased from 25 percent of GDP in 2015/16 to 44 percent in 2020/21, with the largest increase in 2019/20 after the start of the Covid-19 pandemic.

Nepal’s total debt hit the Rs 2,000bn mark for the first time last fiscal year, 2021/22. The country’s total debt reached Rs 2013.296bn in FY 2021/22, which was equivalent to 41.47 percent of Nepal’s gross domestic product (GDP).

With rising debt, Nepali lawmakers agreed to cap the maximum external debt the country can receive from external creditors. According to the newly enacted Public Debt Management Act, external debt is capped at one-third of the previous fiscal year’s GDP.

The government has set a target of raising loans worth Rs 452.75bn in the current fiscal year 2023/24. Of the total debt targeted for 2023/24, Rs 212.65bn is external debt. 

In the last fiscal year, the government had targeted to raise Rs 498.26bn in loans. However, it ended up raising only Rs 358.11bn which was Rs 140.15bn less than the target. While the government managed to raise internal debt as per the target, it failed to meet the target for external debt in FY 2022/23. The government raised Rs 255.99 billion in internal loans in the last fiscal year against the target of Rs 256bn. However, it succeeded in getting only Rs 102.12bn in external loans against the target of Rs 242.26bn in the last fiscal year. 

Dhaniram Sharma, the spokesperson of the Finance Ministry also admitted that the government was not able to receive foreign loans as per the target in the last fiscal. “Since the physical progress of the programs and projects being implemented with foreign loans is not satisfactory, the government failed to receive foreign loans as per expectation,” he said.