National Debt

By – Anmol Purbey

Time and again people talk about how much national loan is on every Nepalese citizen’s head. The total government debt has reached NPR 2,011.95 billion as of July 16, 2022. Out of this amount, external debt is NPR 1025.84 billion and internal debt comprises NPR 986.10 billion. The total outstanding debt of the Government of Nepal for the 4th quarter of F/Y 2078/79 has increased by 8.65 percent during the period. According to the data from the Public Debt Management Office, every Nepalese citizen has a national loan amounting to NPR 67,065. 

According to the International Monetary Fund, Nepal witnessed a gradual decline in the Debt to GDP ratio from 35 percent in the fiscal year 2011/12 to 25 percent in the fiscal year 2016-17, in a sign of improving economic health. But after the country’s transition to federalism, Nepal’s public debt rose over the last several years, with the ratio reaching 42.2 percent in the fiscal year 2019/20. Currently, Nepal seems to be in a relatively comfortable position as experts say debt reaching up to 60% of GDP would not represent any sort of danger to the country.

People have this preconceived notion that all debts are bad, which is not true. Taking on debt can be beneficial, as it gives a country the capital it needs to build the infrastructure it needs in order to boost its economy. Having said that, it does not mean the government should continuously take on new debt without using it efficiently, which is the case currently in our nation. Infrastructure development is one of the prominent uses of Nepal’s foreign debt. Although this looks like a positive aspect, most of such developments are delayed, resulting in accumulating debt yielding no benefits. But to be able to repay the loans in the long term, we have to invest the debt money in productive sectors, that too without the delays so the interest does not keep piling up. All the nation’s national pride projects are excellent examples of these delays. ‘Upper Trishuli 3A – Kathmandu 220kV Transmission Line and 132kV Line Bay Extension Works Project’, which was supposed to be completed in 2013 has already been extended five times. Another example would be ‘Dunduwa Irrigation Project’, which was supposed to be completed in 2019 and still no signs of getting completed in the near future. Although we are in a comfortable position currently but if these delays keep ongoing like this, the debt will keep piling up and the burden will keep on increasing. It will not be long for the economy to come into a precarious situation. Policymakers and governments should also pay attention to the timely construction of such projects. The government should compare the economic benefits between the costs and investments as well.

The loans have to be paid eventually and will be ultimately paid by using the taxpayers’ money. Shifting responsibilities from one generation to another goes on and on, which keeps piling up the amount and the interest. And during repayment, the burden on future taxpayers rises. 

Debt is not the single factor in the bankruptcy of a nation; there is the role of policy making too, which determines the use of such debt in either productive or non-productive sectors. It should only invest in those projects from which it can derive economic benefit in the long run. Otherwise, it will be similar to funding white elephant projects like the Hambantota port of Sri Lanka, which keeps increasing the country’s liability deriving no profit from it to repay those loans. 

Instead of choosing loans as Official Development Assistance, which burdens the public, why not focus on an alternative that creates opportunities for the public and also addresses the concern related to investments within the country? This win-win situation can be achieved via foreign Direct Investment (FDI) which is much more sustainable too. FDI plays a vital role in developing countries fostering national economic growth as it creates employment opportunities, raises the level of domestic wages, speeds up economic growth, and improves the distribution of income.