Nepal’s public debt is mounting alarmingly, with the government spending nearly Rs 362.59 billion in the last Fiscal Year 2024/25 solely on repaying the principal and interest of domestic and foreign loans. This staggering figure is more than the entire national development budget, which stood at Rs 352.35 billion. The country now faces a perilous situation where debt servicing consumes a large portion of its resources, leaving insufficient funds for productive development work. Financial challenges are intensifying further amid rising interest rates, notably from major development partners like the World Bank, which recently doubled its lending rate to Nepal—from 0.75% to 1.5%. This increase, reflecting Nepal’s improved economic status, is set to inflate the costs of many ongoing development projects heavily reliant on such financing. Consequently, the portion of the national budget earmarked for interest payments will only grow, placing further strain on the national economy.
Revenue growth in Nepal remains inadequate to cover even recurrent expenditures, compelling the government to borrow increasingly just to service existing debts. National Planning Commission Vice Chair Dr. Shivraj Adhikari warns that higher foreign loan interest rates will push up the investment costs of infrastructure projects, many of which suffer costly delays. “If we fail to complete projects on time, development costs will rise further,” he cautioned. Despite these challenges, government efforts at all levels appear focused on constructing grand buildings and towering structures with questionable economic returns. Numerous large convention halls, for example, remain underutilised, while immediate needs—such as income-generating industries, healthcare facilities and schools—remain unmet. The country urgently requires loans to be directed toward sectors that stimulate economic growth and employment, not towards pride projects that do little to enhance productivity. Nepal’s transition from a least developed to a developing country is set to cause the loss of concessional loan facilities, forcing the government to accept costlier loans. Multilateral lenders have shortened loan tenures as well—requiring repayments within 30 years instead of 40—further increasing the repayment burden.
Take prudent measures to curb public debt
The country’s foreign debt now accounts for over half (52.49%) of the total public debt, reaching Rs 1,401 billion. With this growing debt, Nepal’s economic growth and productivity must accelerate accordingly. Investments must prioritise projects that generate tangible returns, are completed on schedule and connect infrastructure to the broader economy. Widespread delays and rampant corruption in development projects exacerbate the situation, leading to inefficient use of borrowed funds. Taking loans simply to repay previous loans or fund lavish spending threatens to push Nepal onto a dangerous path of a debt trap—jeopardising future generations’ welfare. The government must urgently find ways to reduce recurrent expenditure, restrain unnecessary borrowing and channel resources exclusively into productive sectors that promote sustainable economic growth. Without disciplined fiscal management and prioritisation of income-generating investments, Nepal risks burdening itself with unmanageable debt while sacrificing its developmental goals.
