KATHMANDU: The government’s repeated introduction of deficit budgets without adequate resource planning has left Nepali citizens grappling with an escalating debt burden.
This trend, deep-rooted since Nepal’s first annual budget in 1951, is raising serious concerns about fiscal responsibility and its implications for the nation’s economy.
Nepal’s government has consistently introduced budgets exceeding its financial capacity, relying heavily on borrowing to fill the gap.
This practice burdens citizens, as the principal and interest of public debt are ultimately paid through taxes. The inability to meet revenue and grant targets, coupled with inefficient utilization of loans, has exacerbated this debt dependency.
Economists warn that the government’s tendency to introduce ambitious budgets without ensuring sufficient resources is creating a debt trap. Citizens are indirectly forced to shoulder the financial burden as the government raises taxes to service the loans.
The current fiscal year’s budget, totaling Rs 1.86 trillion, represents a 6 percent increase from the previous year. However, nearly 30 percent of the budget—Rs 547.67 billion—remains unfunded. The government plans to cover this deficit by borrowing Rs 217.67 billion from foreign sources and Rs 330 billion domestically.
By November 2024, the government had borrowed Rs 192.29 billion, comprising Rs 164 billion in domestic loans and Rs 28.29 billion in external loans.
This leaves the government needing to borrow 64.85 percent of the annual public debt target within the next seven months, a daunting task given its current fiscal track record.
Adding to the citizens’ woes, the depreciation of the Nepali rupee has resulted in significant losses. In just five months, the government incurred an additional Rs 10.57 billion in costs for servicing public debt due to currency devaluation. These costs are likely to be recovered through increased taxes on goods and services, further burdening ordinary Nepalis.
Public debt has risen sharply under the current government, which includes the Nepali Congress and the CPN (UML). Since the start of the fiscal year, the debt burden has grown by Rs 58.31 billion, reaching Rs 2.49 trillion by November 2024.
This figure represents 43.69 percent of Nepal’s GDP, with internal debt accounting for Rs 1.22 trillion and external debt totaling Rs 1.27 trillion.
While the debt-to-GDP ratio remains within permissible limits according to international standards, experts caution that Nepal is heading toward an imbalance if current borrowing trends continue.
Economists have criticized the government’s failure to expand revenue sources and effectively utilize borrowed funds. Despite laws like the Public Debt Management Act, 2022, and accompanying regulations, public debt has not been channeled effectively into productive sectors.
Dr Govinda Nepal, an economist, highlights that loans taken during crises, such as the Covid pandemic, were mismanaged. Businesses benefiting from low-interest loans often defaulted, creating a cyclical debt problem.
Similarly, Dr Chandramani Adhikari warns that Nepal’s current borrowing practices, combined with its limited capacity for revenue generation, pose long-term economic risks. He emphasizes the importance of aligning borrowing with productive investments to ensure sustainable growth.
Nepal Rastra Bank’s Executive Director, Guru Prasad Paudel, has also flagged concerns about the high borrowing levels in the private sector, which currently account for 92 percent of GDP—among the highest in South Asia.
Without linking such credit to productive activities, Nepal risks compounding its financial challenges.
Nepal’s reliance on deficit budgets and excessive borrowing without sufficient economic returns is creating a precarious situation for its citizens.
While public debt remains within acceptable limits, the misuse of borrowed funds, combined with a weak fiscal foundation, highlights the need for urgent reforms.
Experts advocate for prudent fiscal management, effective resource mobilization, and strategic investment in productive sectors to break the cycle of debt and ensure sustainable economic growth.
