Nepal's public debt has surged more than fourfold over the past decade, reaching NPR 2.974 trillion at the end of fiscal year 2025-26, up from NPR 697.68 billion in 2016-17 — a 4.26-fold increase driven largely by borrowing to rebuild after the 2015 earthquake and to weather the COVID-19 pandemic, according to data released by the Public Debt Management Office (PDMO).

Key Debt Figures

The PDMO reported that public debt grew by 11.25 per cent year on year in fiscal year 2025-26. Of the total outstanding debt, external debt accounted for 53.77 per cent, while domestic debt made up the remaining 46.23 per cent.

Nepal's debt-to-GDP ratio stood at 45.07 per cent at the end of fiscal year 2025-26, up from 43.79 per cent a year earlier. In fiscal year 2016-17, the ratio was just 26.84 per cent.

How Two Crises Drove Borrowing

The sharpest spikes in debt accumulation correspond directly to Nepal's two most disruptive crises of the past decade. The 2015 earthquake, which killed nearly 9,000 people and destroyed thousands of homes and public infrastructure, triggered a reconstruction drive that pushed public debt up by 31.48 per cent in fiscal year 2017-18 alone.

Just as reconstruction momentum was building, the COVID-19 pandemic forced a second wave of heavy borrowing to address the public health emergency and cushion economic losses. Public debt grew by 36.75 per cent in fiscal year 2019-20, according to PDMO records.

IMF Assessment: Sustainable, but Domestic Debt a Concern

Despite the steady accumulation, Nepal's debt is assessed as sustainable and the risk of debt distress remains low, according to the International Monetary Fund (IMF). The IMF noted that external debt remains 'relatively modest and highly concessional' owing to low interest rates offered by multilateral lenders such as the World Bank and the Asian Development Bank (ADB).

However, the IMF's latest Article IV consultation report on Nepal flagged a growing concern: treasury bills and development bonds — the primary instruments for domestic borrowing — carry repayment obligations that mature far faster than concessional external loans, placing pressure on government resources in the near term.

Debt Servicing and the Road Ahead

Nepal spent NPR 386.22 billion on debt servicing — covering both principal and interest payments — in fiscal year 2025-26. Of that total, NPR 311.93 billion went toward servicing domestic debt alone, underscoring the IMF's concern about the composition of the debt burden.

For fiscal year 2026-27, the Ministry of Finance plans to raise NPR 657.29 billion through fresh domestic and external borrowing. The government has also earmarked NPR 245.89 billion specifically for the repayment of principal on existing domestic debt.

Notably, Nepal's current debt-to-GDP ratio remains well below the levels recorded during the civil war period (1996–2006), when the ratio exceeded 60 per cent and prompted suggestions from external donors for debt relief under the Highly Indebted Poor Country (HIPC) initiative. Whether the current trajectory stays below that threshold will depend heavily on the pace of economic growth and the government's ability to contain new borrowing.