The report, presented by the government to the Federal Parliament, paints a sobering picture of public financial management, highlighting an escalating debt burden, shrinking capital expenditure, and an ongoing economic slump.
According to the survey, the government spent an alarming 26.2% of its total federal expenditure on loan principal and interest repayments up to mid-March of the current fiscal year. This debt servicing figure now significantly outpaces total government spending on infrastructure and development.
The crisis is visible across all three tiers of government, where combined capital expenditure has shrunk to just 28% of total spending, heavily squeezed by soaring current expenditures and financial system obligations.
Total Debt Crosses Rs 2.87 Trillion
The country’s total public debt surged to Rs 2,878.30 billion by mid-March. This accumulation has pushed Nepal’s debt-to-GDP ratio up to 43.6%, compared to 43.2% during the same period last year.
The survey notes that a sluggish domestic revenue growth rate, combined with expanding federal expenditure responsibilities, has forced the government to rely increasingly on loans for resource management. Consequently, loan repayment costs spiked by 20.4% in the current fiscal year, consuming Rs 242.83 billion.
External Debt Risks and Exchange Rate Vulnerability
The structural composition of Nepal's public debt has also shifted heavily toward foreign liabilities. External debt now accounts for 53.2% of the total debt stock, up from 49.2% last year, while internal debt dropped to 46.8%. Multilateral debt comprises the lion's share of foreign liabilities at 90.68%.
Economists warn that this growing reliance on foreign loans exposes Nepal to significant exchange rate risks, as currency fluctuations could spontaneously inflate the country's repayment liabilities in local terms.
Capital Formation Collapses Amid Market Slump
As billions of rupees pour into debt servicing, investment in country-building infrastructure has withered. The Economic Survey projects weak capital spending across local, provincial, and federal levels for the remainder of the fiscal year.
This lack of public development spending, paired with sluggish credit flow, has severely dampened market activity. The public sector’s share of total fixed investment is projected to crash from 42.3% last year to just 26.5% this year, confirming that the broader economic slowdown persists.
Economists Warn of a 'Non-Productive Debt Cycle'
Financial experts are sounding alarms over how borrowed funds are being utilized, pointing out that loans are failing to generate economic returns or foster capital formation.
"Loans should ideally be mobilized to build infrastructure that yields economic returns," an economist noted. "Instead, revenue is struggling to cover current expenses, and we are trapped using borrowed funds to pay off interest and run general administrative costs."
The 2082/83 Economic Survey serves as an urgent wake-up call, signaling that the government must pivot away from populist spending programs. Experts urge the administration to adopt strict fiscal consolidation strategies, rein in mounting arrears, and aggressively manage the national debt burden to restore economic stability.
