Public Debt in Nepal: Utilization and Sustainability

Abstract

This study analyzed the public debt of Nepal. The objectives of the study are to measure the resource gap in government financing, to examine the utilization of public debt and to analyze the debt sustainability in Nepal. The analysis was based on the data from fiscal year 2013/14 to 2022/23 and adopted a descriptive approach. Over the past decade, Nepal has experienced a persistent and widening resource gap, primarily due to government expenditure outpacing revenue growth. This gap has increasingly been financed through both internal and external borrowing, raising concerns about the sustainability of public debt in the long run. The analysis shows a continuous rise in both forms of debt. Economic affairs, particularly sectors such as transportation and agriculture, is consistently receiving the largest share of loan-financed spending, reflecting the country’s growth-oriented priorities. Moreover, an assessment of Nepal’s external debt sustainability indicators between 2019 and 2022 indicates that the country currently possesses a strong debt-carrying capacity and remains at low risk of external debt distress. However, sustaining this favorable outlook will depend on strengthening export performance and maintaining prudent external borrowing practices.