Nepal’s total public debt stood at 45.05 percent of its Gross Domestic Product (GDP) as of mid-September, according to the latest report from the Public Debt Management Office (PDMO).
The total outstanding liability saw a slight dip in the first two months of fiscal year 2026/27, falling to Rs 2,973.05bn from Rs 2,981.7bn at the start of the fiscal year in mid-July. External debt accounted for the larger portion of this debt stock at 54.19 percent, with domestic obligations making up the remaining 45.81 percent.
The total debt contracted despite a foreign exchange loss of Rs 436.3m recorded during the two-month period.
The government has been setting aside substantial resources to service this accumulated debt. The PDMO report shows debt servicing costs over the first two months of the fiscal year reached Rs 85.01bn which is equivalent to 1.29 percent of GDP. Of the total amount spent so far, domestic debt servicing claimed Rs 76.79bn, which included Rs 63.54bn in principal repayments and Rs 13.25bn in interest. By contrast, foreign debt servicing totaled Rs 8.21bn, consisting of Rs 6.59bn in principal repayments and Rs 1.61bn in interest. Combined interest payments alone amounted to Rs 14.87bn, or 0.23 percent of the country’s GDP.
The public debt-to-GDP ratio has been rising steadily over the past decade as the government turns to borrowing to bridge its budget gap. Such ratio, which stood at 26.84 percent in 2016/17, climbed to 30.26 percent across both 2017/18 and 2018/19, before rising to 38.05 percent in 2019/20, 40.73 percent in 2020/21, 41.05 percent in 2021/22, 42.77 percent in 2022/23, 42.68 percent in 2023/24, 43.79 percent in 2024/25 and reaching 45.18 percent in 2025/26.
This persistent growth in debt-to-GDP ratio is largely due to growing fiscal imbalances where public expenditure outpaces domestic revenue collection. The sharp jump starting in 2019/20 was triggered by Covid-19 pandemic relief spending combined with contraction in economic activity, which slowed GDP growth relative to new borrowing. Furthermore, the government relies heavily on debt financing to fund capital expenditure and infrastructure development. The compounding effect of debt servicing itself, where an increasing portion of new borrowing goes toward settling principal and higher-interest domestic obligations, further elevates the debt burden every year.
While Nepal’s debt-to-GDP ratio remains within the 50-55 percent sustainability threshold generally accepted by the International Monetary Fund (IMF) for developing nations, economists say the rapid pace of accumulation is alarming. The total debt stock has nearly doubled since 2015/16, when it stood at just 25 percent of GDP.
The liability is beginning to affect vital development spending. The government has allocated Rs 417.88bn allocated for debt servicing in the current fiscal year. In comparison, it has set aside Rs 431.1bn for capital expenditure in 2026/27. This shows more taxpayer money is being diverted from health, education and infrastructure to simply service government debts. Furthermore, external debt is increasingly vulnerable to currency risks as depreciation of the Nepali rupee adds billions to the debt liability even without fresh borrowing.
The government has set a target to raise Rs 658.28bn in public debt in the current fiscal year. By mid-September, it had raised Rs 61.05bn, achieving 9.28 percent of the annual target. Domestic borrowing accounted for Rs 50bn, reaching 12.20 percent of its annual domestic target, of the new borrowing, while external borrowing stood at Rs 11.05bn, or 4.45 percent of its annual foreign borrowing goal.
