Interplay Between Foreign Debt and Human Rights: A Special Reference to Nepal

Abstract

Foreign debt is an obligation (including monetary obligations) created under a contractual agreement and owed by a state to a non‑resident lender. In situations of extreme debt burden, basic rights‑fulfilling resources are diverted toward debt repayment. As a result, human rights issues are brought to the forefront. The Government of Nepal has allocated a relatively larger budget for foreign debt servicing than for the health and industrial sectors for the fiscal year 2025/26. This article employs a doctrinal research methodology and qualitative analysis, relying on primary legal instruments and secondary literature to determine Nepal's stance. This paper assesses the repercussions resulting from the disparity in budget allocation in Nepal. The paper finds that careful and strategic measures need to be followed to prevent an excessive debt‑to‑GDP ratio, especially after Nepal obtained its first sovereign credit risk rating (BB‑ from Fitch) in November 2024, as the authorities have been signaling their increasing openness to foreign capital inflows. The article also identifies repayment conditionality's and structural adjustment programs as major constraints on national policy space. Therefore, this research advocates for debt sustainability, upholding a rights‑based approach through proper debt assessment of Nepal in line with established policies. This study highlights Nepal's concerns relating to human rights issue in relation to debt servicing.