Nepal’s Rs. 2.52 Trillion Debt Crisis: Government is Borrowing to Pay Bills, Not Fund Growth

Picture this: You’re running a household, and your monthly income isn’t enough to cover even the basics like food, rent, and utilities. To make ends meet, you borrow money—again and again. Soon, you owe so much that you’re taking out new loans just to pay off the old ones. Sounds stressful, right? Well, welcome to Nepal’s current financial dilemma.

What’s Happening?

Nepal’s government has a revenue problem. By mid-December, it collected NPR 371 billion—but just paying salaries, pensions, and keeping the lights on at government offices gobbled up NPR 337 billion.

Now, toss in the costs of capital projects (roads, bridges, you name it), and spending shoots up to NPR 527 billion. That’s a massive gap! And how does Nepal fill it? Borrowing. Lots of it.

Breaking Down the Borrowing

Here’s the situation: Nepal’s total public debt is a jaw-dropping NPR 2.52 trillion—about 44.14% of GDP. Here’s how that splits:

• Internal Debt: NPR 1.25 trillion (21.95% of GDP), borrowed from local banks and financial institutions.
• External Debt: NPR 1.26 trillion (22.19% of GDP), borrowed from international bigshots like the World Bank and IMF.

For every NPR 100 Nepal earns, NPR 44 goes toward debt. Think about it—nearly half of the country’s economic output is owed to someone else.

The Unpaid Contractor Crisis

Nepal’s debt isn’t just a number—it’s creating real problems. Case in point: the government owes contractors NPR 45 billion but has only paid NPR 15 billion. 

Here’s why this is a problem:

• Strangled Businesses: Contractors are drowning in debt, unable to pay their loans and facing blacklisting.
• Rising Costs: Soaring prices of construction materials are making their struggles even worse.

The government blames mismatched records, but repeated promises to settle dues remain unfulfilled, leaving major infrastructure projects—and the contractors behind them—stuck in limbo.

This is a vivid example of how unchecked debt ripples through the economy, affecting businesses and, ultimately, all of us.

Why Public Debt Management Matters

Now, borrowing isn’t always bad. If you’re taking a loan to build a highway or a hydropower plant, it’s an investment. But Nepal’s borrowing is mostly to keep the government running day-to-day. That’s like using a credit card to buy groceries!

And it’s creating a domino effect:

1. Shrinking Capital Investments: Less money is left for long-term projects like schools and hospitals. Future growth? On hold.
2. Debt Payments Going Through the Roof: In just four months, Nepal spent NPR 108.14 billion on debt repayments—over half of what it borrowed in that time.

Revenue Woes: The Elephant in the Room

Nepal used to collect revenue equal to 24–25% of its GDP. Today? That’s down to 12–13%. Why?

• Slow Economic Growth: When businesses and incomes don’t grow, tax collections shrink.
• Weak Tax Policies: Loopholes and inefficiencies are like open windows in a heated room—revenue just escapes.
• Sluggish Exports: Nepal’s goods aren’t flying off international shelves, meaning lower customs duties.

How Did We Get Here?

Nepal wasn’t always in this much debt. But here’s what changed:

• Disasters: The 2015 earthquake and COVID-19 pandemic forced heavy borrowing for rebuilding and relief.
• Big-Ticket Programs: Initiatives like the Prime Minister Employment Program and social security schemes added hefty bills.
• Federalism: More administrative layers mean more costs, but no matching increase in revenue.

Is There a Silver Lining?

A chunk of Nepal’s external debt comes with low-interest rates and generous repayment terms. And Nepal’s BB- credit rating keeps international borrowing rates reasonable.

But let’s not sugarcoat it. Borrowing to fund daily expenses instead of productive projects is like patching a leaky boat without fixing the holes. Eventually, you’ll sink.

What Needs to Change?

Here’s how Nepal can turn things around:

1. Reform Tax Policies: No more loopholes—Nepal needs a tax system that works and collects what’s due.
2. Focus on Productive Borrowing: Loans should fund growth-generating projects, not just keep the government afloat.
3. Cut Wasteful Spending: If programs don’t deliver real value, it’s time to trim the fat.

Conclusion: A Wake-Up Call

Nepal’s borrowing habits are a mirror reflecting bigger issues—sluggish growth, poor revenue collection, and misplaced spending priorities. The question is simple but urgent: Are we borrowing to survive or thrive? Because if we keep going down this path, we might just end up paying a hefty price—not just in money but in lost opportunities for generations to come.

What do you think should be done to reverse this financial dilemma? Let’s have a chat in the comments!

Read more about Nepal’s growing Public Debt Crisis