The budget allocates significant funds to service the debt


The government plans to disburse 15% of its projected total revenue to domestic and foreign creditors in the next fiscal year 2022-23, with 186.6 billion rupees allocated for loan repayments.

The government expects to earn Rs 1.24 trillion in revenue in the next fiscal year.

Officials say government accountability should increase.

Many internal loans are maturing in the next fiscal year, interest payable is increasing due to ongoing cash shortages and debt to external creditors is also increasing due to the depreciation of the Nepalese Rupee against the US Dollar. .

“When debt service exceeds 5% of revenue, we have to be careful,” said Nara Bahadur Thapa, former executive director of Nepal Rastra Bank, who has expertise in debt management.

He said a large debt service liability would reduce the government’s ability to fund other important sectors like education, health and development activities.

Even though the country’s debt was growing at a slow pace until the 2015-2016 fiscal year, it jumped with the country’s large borrowing needed for post-earthquake reconstruction.

According to the International Monetary Fund, Nepal has witnessed a gradual decline in debt to GDP ratio from 35% in FY 2011-2012 to 25% in FY 2016-2017, which is a sign of improved economic health. But after the country’s transition to fiscal federalism, Nepal’s public debt has increased over the past few years, with the ratio reaching 42.2% in the 2019-20 financial year.

The substantial increase in debt in the 2019-20 financial year is due to the impact of the Covid-19 pandemic and responses to it, according to the IMF.

According to the Economic Survey 2021-22, Nepal’s debt-to-GDP ratio fell slightly to 38% in mid-March.

Even from the perspective of total size, government debt has increased significantly, with outstanding debt reaching Rs 1.72 trillion in the second half of the current fiscal year from Rs 544.91 billion in the fiscal year 2014-15, according to the second quarterly public debt report issued by the Office of Public Debt Management.

Along with the increase in debt, the allowance to be made for debt service is also on the rise. In addition, rising interest rates and the devaluation of the rupee have also added to the burden, according to Hira Neupane, information officer at the Office of Public Debt Management.

“In fact, we had to transfer the allocated budget from one heading to another to adjust the rising cost of debt servicing,” he said.

According to Neupane, the interest rate on Treasury bills has reached 8-9% from around 3-4% as the banking sector faces a shortage of liquidity.

“A large portion of development bonds are also coming due in the next fiscal year, which has forced the government to increase the budget allocation for debt servicing,” he said.

For example, the government has allocated 59.79 billion rupees for principal repayment of development bonds maturing in the next fiscal year, against a revised scheduled principal repayment of 17.1 billion rupees, according to the Ministry of Finance.

According to the ministry, the government alone has allocated Rs 54.14 billion for loan interest payments for the next financial year.

Up to 43.73 billion rupees was allocated for interest payments on domestic loans, while 10.41 billion rupees was allocated for interest payments on external loans.

Even Finance Minister Janardan Sharma has acknowledged that rising debt service costs have forced the government to increase the size of the recurrent budget for the next fiscal year.

Responding to questions raised by lawmakers in parliament, Minister Sharma said, “Compared to the current financial year, more funds will be required for the repayment of the principal of internal loans in the next financial year. Internal debts are due in the next fiscal year and the government is to pay up to Rs 50 billion in principal repayment.


Comments are closed.