Nepal's financial landscape has taken a significant turn as the country's public debt liability surged by a staggering Rs 41.11 billion in a single month. This increase, recorded between mid-July and mid-August 2024, has pushed Nepal’s total debt liability to an unprecedented Rs 2.472 trillion, sparking concerns about the sustainability of the nation's fiscal health.

A Closer Look at the Numbers

The Public Debt Management Office (PDMO) reported that during this period, the government secured loans amounting to Rs 43.59 billion. A substantial portion of this, Rs 40 billion, was raised through domestic borrowing, while the remaining Rs 3.59 billion came from external sources.

Interestingly, the government's repayments during this time were also significant. A total of Rs 19.27 billion was settled, with Rs 17 billion allocated to internal loan liabilities and Rs 2.27 billion dedicated to external borrowing. Despite these repayments, the overall debt burden increased, driven in part by the rising value of the US dollar, which added an additional Rs 16.79 billion to the government's financial liabilities due to the weakening of the Nepali currency.

Nepal's Growing Debt Burden

As of the end of the fiscal year 2023/24, Nepal's total public debt stood at Rs 2.431 trillion. This figure comprises Rs 1.250 trillion in external loans and Rs 1.180 trillion in internal loans. With the latest increase, the debt burden now represents 43.34% of Nepal's Gross Domestic Product (GDP), with external loans alone accounting for 22.24%.

This situation is particularly alarming when viewed in the context of Nepal's recent fiscal history. The nation's debt burden has effectively doubled over the past five years. In FY 2018/19, the cumulative internal and external debts were recorded at Rs 1.048 trillion. By the end of FY 2023/24, this figure had ballooned to Rs 2.4344 trillion.

The Impact of Currency Fluctuations

One of the critical factors contributing to the increased debt burden is the fluctuation in currency exchange rates. The depreciation of the Nepali rupee against the US dollar has exacerbated the financial obligations of the government, adding Rs 16.79 billion to the debt. This highlights the vulnerability of Nepal’s economy to global currency dynamics, particularly as a nation reliant on external loans.

Government's Stance and Future Outlook

While the growing debt burden raises red flags for economists and financial analysts, the government maintains that the current level of debt is within manageable limits. Finance Minister Bishnu Prasad Paudel, addressing the House of Representatives, acknowledged the rising debt but emphasized the importance of utilizing borrowings for projects with high rates of return. He urged caution in mobilizing further loans, highlighting the need for prudent financial management.

For the current fiscal year, the government has set an ambitious target to raise Rs 547 billion in debt, comprising Rs 330 billion in domestic debt and Rs 217 billion in external debt. However, with slow revenue collection and rising administrative costs, the challenge of balancing fiscal discipline with developmental aspirations remains a pressing concern.

Conclusion

Nepal’s escalating debt scenario is a reflection of broader economic challenges, including slow revenue generation, rising expenditure, and external economic pressures. As the debt burden continues to grow, it will be crucial for the government to adopt a strategic approach to borrowing, focusing on projects that can generate significant returns and contribute to long-term economic stability. The recent increase in public debt serves as a reminder of the delicate balance that must be maintained to ensure the financial health of the nation.