Data covering the first two months of the current fiscal year 2083/84 reveals that while capital expenditure remains sluggish, government expenditure on principal and interest repayments has skyrocketed.
Slumping Development and Soaring Borrowing
The government has allocated a capital budget of Rs 352.20 billion for the fiscal year. However, only 2.08 percent—amounting to Rs 7.66 billion—has been utilized for development works as of mid-September.
In sharp contrast, the government mobilized Rs 61.05 billion in new public debt during the same two-month period, fulfilling roughly 9.28 percent of its annual borrowing target of Rs 658.28 billion. Domestic borrowing accounts for the lion's share of this intake at 81.89 percent (Rs 50 billion), while external loans comprise Rs 11.05 billion. Economists warn that relying heavily on expensive domestic debt while capital spending stalls risks adding state liabilities without boosting productivity.
Debt Servicing Dwarfs Capital Outlay
The most alarming trend highlighted in the report is the rapid outflow of funds toward debt servicing. In just two months, the government spent a staggering Rs 85.01 billion on principal and interest payments—over 11 times the amount spent on actual capital expenditure during the same window.
Out of this total debt-service expenditure:
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Principal Repayments: Reached Rs 70.13 billion, which included Rs 63.54 billion for internal and Rs 6.59 billion for external loans.
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Interest Payments: Totaled Rs 14.87 billion, comprising Rs 13.25 billion in internal interest and Rs 1.61 billion in external interest.
Altogether, internal loan repayments alone consumed Rs 76.79 billion of state coffers in two months, illustrating that a significant portion of daily government revenue is being funneled into old obligations rather than infrastructure development.
Total Debt Reaches Rs 2.973 Trillion
With continuous borrowing, Nepal’s total public debt liability climbed to Rs 2,973.05 billion (approximately Rs 2.97 trillion) by mid-September 2083, accounting for roughly 45.05 percent of the country's Gross Domestic Product (GDP).
External debt stands at Rs 1,611.18 billion (54.19 percent of total debt / 24.41 percent of GDP), while internal debt rests at Rs 1,361.87 billion (45.81 percent of total debt / 20.63 percent of GDP).
Growing Fears of a 'Vicious Cycle'
Financial experts note that the current trajectory is pulling the economy toward a dangerous debt trap. The trend of raising fresh internal loans merely to settle the principal and interest of older internal obligations—evidenced by raising Rs 50 billion in internal debt while paying off Rs 63.54 billion over the same period—points to deep revenue constraints.
Without targeted redirection of public debt into high-yield infrastructure and productive sectors, analysts caution that debt servicing could consume over half of the national budget in coming years, severely threatening long-term economic stability and growth.
