According to the latest annual report from the Public Debt Management Office (PDMO), national liabilities now equal 45.07% of the GDP, with the total debt growing by Rs 300.86 billion over the past fiscal year alone (up from Rs 2,674.04 billion in mid-July of the previous year).
Consequently, every Nepali now carries a debt burden approaching Rs 100,000, with over 5.85% of national GDP swallowed by interest and principal payments.
Key Drivers Behind the Mounting Crisis
| Challenge |
Impact |
Key Data Point |
| Borrowing to Pay Old Debt |
The vast majority of new loans go straight to debt servicing rather than development. |
70.07% of new loans (Rs 313.31 billion) went to pay old principal. |
| Exchange Rate Losses |
Appreciation of the US dollar raised liabilities without providing extra capital. |
Added Rs 167 billion (55.51% of the annual debt increase). |
| Heavy Domestic Borrowing |
High reliance on internal borrowing risks crowding out private investment. |
99.08% of the domestic debt target was met vs. 37.88% of foreign targets. |
| Looming Interest Expenses |
Massive annual outflow required just to cover servicing fees and interest. |
Rs 73.82 billion spent solely on interest payments. |
Over-Reliance on High-Cost Internal Debt
While foreign donors offer concessional (low-interest) loans, Nepal managed to mobilize only 37.88% (Rs 88.50 billion) of its targeted Rs 233.66 billion in external borrowing. The government missed out on these funds primarily because sluggish development progress prevented the execution of capital expenditure budgets required by donor agencies.
To make up for the deficit, the government hit 99.08% of its domestic borrowing goal. Because domestic loans carry significantly higher interest rates than concessional foreign aid, this strategy squeezes local credit markets and increases the risk of shrinking private sector growth.
A Vicious Cycle of Repayment
In the past fiscal year, total new loans raised stood at Rs 447.16 billion in which Rs 313.31 billion spend on principal repayment while net mobilized for actual spending stood at Rs 133.85 billion.
Combined with Rs 73.82 billion spent strictly on interest, Nepal spent a total of Rs 386.22 billion on overall debt service.
Economists warn that as long as borrowed funds go toward servicing old debts rather than capital investments that generate future revenue, the strengthening US dollar and high domestic borrowing costs could push the country toward a deeper economic crisis.
