Nepal’s public debt has increased more than fourfold over the past decade, largely due to heavy borrowing undertaken to address the aftermath of the 2015 earthquake and the COVID-19 pandemic.
According to Nepal’s Public Debt Management Office (PDMO), the country’s total public debt reached NPR 2.974 trillion at the end of the 2025–26 fiscal year (mid-July 2026), compared to NPR 697.68 billion at the end of 2016–17, marking a 4.26-fold increase over ten years. Public debt also rose by 11.25 per cent year-on-year during 2025–26.
Of the total outstanding debt, 53.77 per cent comprised external borrowings, while 46.23 per cent came from domestic sources.
A major reason for the sharp increase was the extensive borrowing required to rebuild infrastructure damaged by the devastating 2015 earthquake, which claimed nearly 9,000 lives and destroyed thousands of homes and public facilities. As reconstruction accelerated, public debt surged by 31.48 per cent in the 2017–18 fiscal year.
Before the country could fully recover, the COVID-19 pandemic forced the government to borrow even more to finance healthcare measures and support the economy. Consequently, public debt expanded by 36.75 per cent during 2019–20, according to PDMO data.
Nepal’s debt-to-GDP ratio has also risen steadily. It stood at 45.07 per cent at the end of 2025–26, up from 43.79 per cent a year earlier and 26.84 per cent in 2016–17.
Despite this increase, Nepal’s debt burden remains below the levels recorded during the 1996–2006 civil war, when the debt-to-GDP ratio exceeded 60 per cent, prompting international discussions on debt relief under the Highly Indebted Poor Country (HIPC) initiative.
The International Monetary Fund (IMF) has assessed Nepal’s public debt as sustainable, with a low risk of debt distress. However, in its latest Article IV Consultation Report, the IMF expressed concern over the growing share of government resources being used to service domestic debt.
While Nepal’s external debt remains relatively affordable due to concessional loans from institutions such as the World Bank and the Asian Development Bank (ADB), domestic borrowing through treasury bills and development bonds poses a greater challenge because these instruments carry shorter repayment periods and mature much faster than concessional external loans.