In recent years, the government has been spending more on repaying public debt, including principal and interest, than on development activities in the country. With the continuous rise in public debt, government statistics show that the expenditure on debt repayment has surpassed development spending due to the growing obligation of financial liabilities.
According to the Ministry of Finance, the government spent Rs 191 billion on capital expenditure in the last fiscal year (FY 2023/24). In the same year, Rs 305 billion was spent on repaying public debt, as highlighted in the annual report of the Public Debt Management Office.
The government is also borrowing to repay loans. Fearing the inability to meet its financial obligations on time, the government has been raising internal debt to arrange funds, a senior official from the office said.
"Even by raising internal debt at a lower interest rate, the repayment of public debt continues," the official told New Business Age.
According to the office, public debt has been rising sharply. In just the first two months of the current fiscal year (FY 2024/25), Rs 94.52 billion in government debt has been added. At the start of the current fiscal year, the country’s public debt stood at Rs 2434 billion, which has now surpassed Rs 2528 billion by the end of Bhadra (mid-September). The total public debt currently amounts to 44.32% of the country’s Gross Domestic Product (GDP).
At the start of the current fiscal year, internal debt was Rs 1180 billion, which has now surpassed Rs 1235 billion by the end of Bhadra . Based on GDP, the internal debt ratio is 21.66%. During these two months, the government raised Rs 90 billion in internal debt while repaying Rs 35 billion in loans. By mid-September, the outstanding external debt amounted to Rs 1292 billion, compared to Rs 1253 billion at the start of the fiscal year. In the last two months, the government has spent Rs 14.05 billion on external debt repayment while adding Rs 4.67 billion in new external loans. External debt, in comparison to GDP, stands at 22.66%.
After the devastating earthquakes in 2015, the government had to take large amounts of internal and external loans for the reconstruction of damaged infrastructure. Since then, the public debt has surged significantly. The government also had to spend to control the COVID-19 pandemic and revive the weakened economy. For these reasons, the government has relied heavily on borrowing.
As a result, public debt, which was 25.65% of GDP in FY 2014/15, increased to 42.67% in FY 2023/24, according to the Public Debt Management Office. For the current fiscal year, the government has set a target to raise Rs 547 billion in public debt, and by the end of mid-September, Rs 104.05 billion has already been raised, accounting for 18.66% of the annual target. The government has allocated Rs 402 billion for debt repayment in the current fiscal year.
By mid-September, Rs 47.71 billion had already been spent on debt servicing, which represents 11.84% of the budget allocated under the heading in the current fiscal year. Meanwhile, the government’s spending on development activities during this period appears disappointing. As of mid-September, the government has only spent Rs 14.89 billion on capital expenditure in the current fiscal year. This clearly shows that more government spending is directed towards debt repayment than development.
Economist Keshav Acharya believes that borrowing public debt is not inherently bad, but it must be used properly. In Nepal, the government does not utilise borrowed funds effectively. “The government must ensure that the loans are used appropriately in the right sectors,” said economist Acharya.