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Nepal’s new government has now completed its first 100 days in office, a symbolic honeymoon period during which administrations are often granted political goodwill, public patience, and the benefit of the doubt. As ministers highlight achievements and celebrate delivery milestones, a more sobering question deserves attention: What fiscal reality lies beneath the government’s early performance narrative?
Among all measures of economic stewardship, few are as consequential as public debt. It shapes not only today’s budgetary decisions but also tomorrow’s development opportunities. The way governments borrow, spend, and manage public resources influences infrastructure development, service delivery, economic resilience, and long-term growth. Now that the honeymoon period has ended, the real test is not how much the government has borrowed during its first 100 days; it is whether it has demonstrated a credible commitment to ensuring that borrowed resources are used efficiently, productively, and transparently.
Equally important, governments must meet existing debt obligations as previous loans mature and principal repayments fall due. Fiscal sustainability therefore depends not only on using borrowed resources effectively, but also on generating sufficient economic growth to strengthen public finances and preserve the capacity to repay debt without compromising future development priorities.
A fiscal reality the new government inherited
Nepal’s new government did not begin its tenure with a clean fiscal slate. It inherited an economy marked by persistent fiscal deficits, rising debt servicing obligations, slowing revenue growth, and mounting demands for development spending. The state must continue financing public administration, social services, infrastructure, and the expanding responsibilities of federalism, even as public expectations increasingly outpace its capacity to generate revenue.
As a result, borrowing has become an essential instrument for bridging the gap between government expenditure and available resources. This fiscal pressure is reflected in the sharp rise in public debt, which increased from approximately Rs. 1.05 trillion in FY2018/19 to nearly Rs. 2.67 trillion in FY2024/25, while the public debt to GDP ratio rose from 30.3 per cent to 43.7 per cent. Over the same period, the annual fiscal deficit expanded from Rs. 180.5 billion to more than Rs. 404 billion, underscoring the government’s growing reliance on debt-financed spending.
These trends are not the product of a single administration; they reflect a long-term fiscal trajectory shaped by structural deficits, expanding expenditure commitments, and limited domestic resource mobilisation. Although government revenues have increased in nominal terms, they have not kept pace with expenditure growth, making borrowing an increasingly important source of fiscal financing.
At the same time, annual debt servicing costs have risen from around Rs 123 billion to more than Rs 320 billion, consuming a larger share of public resources and reducing fiscal flexibility. Yet debt itself is not the problem. Governments routinely borrow to finance reconstruction, infrastructure development, institutional reform, and long-term growth. The real challenge for Nepal is whether borrowed resources are being converted into productive assets that generate economic returns, strengthen competitiveness, and expand future repayment capacity. As debt obligations rise, expenditure quality becomes just as important as debt sustainability.
Has the honeymoon changed the fiscal pattern?
From a public debt accountability perspective, the government’s first 100 days, or political honeymoon period, should not be judged by how much debt it borrowed or repaid. Fiscal outcomes take years to emerge. The more meaningful question is whether the government has demonstrated a credible commitment to improving public financial management, strengthening project execution, directing resources toward productive sectors, and reducing low-return spending.
The first indication lies in the FY2026/27 budget. At Rs 2.124 trillion, it reflects both Nepal’s development ambitions and its fiscal constraints. Domestic revenue remains the principal source of financing, while a significant share of expenditure continues to be directed towards recurrent commitments and financial management obligations. Notably, Rs 422.64 billion, nearly one-fifth of total spending, has been allocated to financial management, including debt repayment and government lending. The government also expects to repay nearly Rs 246 billion in domestic debt principal during the fiscal year, highlighting that fiscal management is not only about financing new priorities but also about meeting obligations accumulated in the past.
Despite its emphasis on fiscal discipline, governance reform, and improved state performance, the government remains constrained by Nepal’s long-standing fiscal structure. Persistent deficits, rising debt obligations, and limited domestic resource mobilisation mean that borrowing will continue to play a central role in public finance, regardless of which party holds power. The real issue is therefore not whether Nepal borrows, but whether borrowed resources are transformed into productive economic returns.
So far, the evidence points to continuity rather than change. Recurrent expenditure, administrative costs, transfers, operational commitments, and debt servicing continue to absorb a large share of public resources, while capital spending remains constrained by familiar implementation bottlenecks. This is not a verdict on the current administration, nor is there sufficient evidence to suggest that borrowing has become less productive. But neither have clear evidence of a decisive break from Nepal’s established fiscal pattern. After 100 days, the challenge remains exactly what it was on day one: ensuring that every borrowed rupee creates productive assets, accelerates economic growth, and strengthens the country’s future capacity to repay its debts.
The debt question that matters
Public debt accountability is ultimately measured not by how much a government borrows, but by what that borrowing delivers. Debt can be a powerful driver of development when it finances productive assets such as highways that reduce transport costs, hydropower projects that generate export earnings, irrigation systems that boost agricultural productivity, digital infrastructure that enhances competitiveness, and investments in education and healthcare that strengthen human capital.
When borrowing is used well, it expands productive capacity, supports future growth, and strengthens a country’s ability to meet its repayment obligations. Nepal’s internal public debt has increased from Rs 453 billion in FY2018/19 to approximately Rs 1.27 trillion in FY2024/25, while external public debt has risen from Rs 595 billion to more than Rs 1.40 trillion. Yet the economic implications of these two forms of borrowing differ. Internal debt largely represents a transfer of resources within the domestic economy, though excessive borrowing can crowd out private investment and place pressure on future taxation. External debt carries a more direct burden because interest and principal repayments require foreign exchange, making debt sustainability increasingly dependent on export performance, remittances, tourism earnings, and other external income sources.
The true burden of public debt therefore does not arise from the accumulation of liabilities alone. It arises when borrowed resources fail to generate future income, improve productivity, strengthen competitiveness, and expand repayment capacity. Annual debt servicing expenditure has already risen from around Rs 123 billion in FY2018/19 to more than Rs 320 billion in FY2024/25, consuming an increasing share of public resources. Every rupee devoted to servicing debt is a rupee unavailable for development priorities.
When borrowing is absorbed by delayed projects, cost overruns, weak implementation, administrative expansion, or recurrent consumption, debt creates obligations without corresponding economic returns. This is why public debt accountability should be judged through four fundamental questions: Who is providing the financing? What is the money being used for? Can the economy grow faster than the debt it accumulates? And what assets will future generations inherit in return? The answers reveal far more about fiscal responsibility than the headline size of the debt stock.
The next 100 days will tell the story
The first 100 days, the government’s political honeymoon period, are rarely enough to reshape an economy or reverse years of fiscal strain. The administration has signalled a longer reform horizon, prioritising good governance, zero tolerance for corruption, stronger adherence to the rule of law, restoring investor confidence, attracting foreign direct investment, and securing Nepal’s removal from the FATF grey list. These are important commitments.
While they do not automatically improve fiscal outcomes, they help create the institutional environment necessary for sustainable growth, stronger revenue performance, and more effective public spending. For now, they remain signals of intent. The real test will be whether they translate into measurable reforms, improved implementation capacity, and greater confidence in public institutions.
Ultimately, the success of Nepal’s debt strategy will depend not on how much the government borrows, but on what that borrowing delivers. Every borrowed rupee invested in efficient transport networks, hydropower, irrigation, digital infrastructure, and other productive sectors can expand the economy’s productive capacity and strengthen long-term fiscal resilience. Every rupee lost to delays, weak execution, corruption, poor planning, or low-return spending does the opposite.
Public debt remains sustainable when economic growth consistently outpaces debt accumulation and when borrowed resources generate returns sufficient to support future repayment obligations. After 100 days, the most meaningful measure of the government’s performance is not the size of its debt stock, but whether it is creating the conditions for borrowed resources to generate lasting economic value. The honeymoon may be over, but the real test of fiscal stewardship is only beginning.
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