Govt spending more on debt repayment than development works

The government has been spending more on debt repayment than on development works in recent years. Data shows that government spending on debt servicing was nearly 60 percent higher than capital spending in the fiscal year 2023/24.

According to the Ministry of Finance, the government spent Rs 191bn on capital expenditure in 2023/24. In contrast, total spending on debt repayment during the fiscal year was Rs 305bn, the Public Debt Management Office (PDMO) said in its annual report for 2023/24.

A senior official at the PDMO stated that the government has been borrowing even to pay interest and repay loans. "The government is raising domestic debt to ensure timely fulfillment of its obligations. The office is increasing domestic borrowing as interest rates are currently low," the official added.

According to the PDMO, public debt has increased by Rs 94.52bn in the first two months of the current fiscal year. The total public debt, which stood at Rs 2,434.09bn in mid-July, expanded to Rs 2,528.62bn by mid-September.

The size of the public debt is equivalent to 44.32 percent of the country's Gross Domestic Product (GDP).

Domestic debt, which was Rs 1,180.90bn at the beginning of the fiscal year (mid-July), increased to Rs 1,235.90bn by mid-September. The ratio of domestic debt to GDP is 21.66 percent.

During this period, the government repaid around Rs 35bn in domestic debt.

Meanwhile, the government managed to reduce external debt by approximately Rs 10bn. It repaid Rs 14.05bn in interest and principal on foreign debt during the first two months of the. The government, however, mobilized another Rs 4.67bn in external debt during the review period.

The ratio of external debt to GDP stands at 22.66 percent.

Data shows that domestic debt has been rising since 2015, when the country was hit by devastating earthquakes. The government needed funds to finance post-quake reconstruction and rehabilitation works which it raised through public debt. It also used public debt to stimulate the economy during the COVID-19 pandemic. As a result of this increased government spending, the total domestic debt-to-GDP ratio, which was 25.65 percent in 2015, has now reached 42.67 percent, according to the PDMO.

In the budget for the fiscal year 2024/25, the government set a target of raising Rs 547bn in public debt. It has already raised Rs 104.5bn which is 18.66 percent of the target.