FM Dr. Mahat projects public debt to reach Rs. 437 bn next year
Kathmandu, Feb. 9
The outstanding domestic debt (ODD)
of Nepal is at 20.91 per cent of the Gross Domestic Product (GDP) of the
country in 2022, which is above any other South Asian peers except for Bhutan.
A study conducted by Chandra
Ghimire and Prajol Joshi for the Management Association of Nepal (MAN) reported
that the total outstanding domestic loan of Nepal by the end of the Fiscal Year
2022/23 was Rs. 1125.18 billion which is 81.66 per cent of the annual budget of
that year.
The size of the GDP of Nepal last
year was Rs. 5381.33 billion.
Presenting the findings of the
reports at the conference, Ghimire, who is also a former Commerce Secretary of
the Government of Nepal, said that the fast-growing size of domestic debt in
the fiscal deficit gives an impression that fiscal discipline has become an
issue of deep concern.
"Fiscal resources are scarce
and, if not employed prudent approaches in their allocation, in addition to
wasting the resources, it may risk the economy of inflation and interest
rates," he said.
According to the study, the big
and fast shift from external debt to domestic debt while utilising the public
debt by the government is the manifestation of its choice to an easier option
given the fact that the domestic debt is relatively easier to mobilise with the
least conditions or covenants to fulfil.
It maintained that the
government's capacity of mobilising resources from external sources is waning
away day by day. "For these reasons, decision-makers should be opting for
domestic debt over the public debt," read the report.
Speaking at the programme, Finance
Minister Dr. Prakash Sharan Mahat, said that although Nepal was in a comfortable
position, but growing use of public debt is a matter of concern.
According to him, the size of
debt began to grow during the Maoist insurgency as the size of security
agencies increased and was further fueled by the COVID-19 pandemic. During those
periods, revenue collection was poor and the government faced resource crises.
"In terms of social security,
we are above any other South Asian country except Sri Lanka. The Constitution
of the country has opened a very large scope for social security," he said.
FM Dr. Mahat said that reducing
capital expenditure is a matter of worry while government debt servicing
liability would reach Rs. 437 billion in the next Fiscal Year 2024/25 and Rs.
500 billion in FY 2025/26.
It will have a serious impact on
capital expenditure and its size would be reduced in response, he said.
However, proper use of loans and assurance of return will have a positive
impact on the economy.
However, on the contrary, better
budget mobilisation will increase the size of public debt as well as the
government need to mobilise more resources to finance development projects and
other social initiatives.
Dr. Yubaraj Khatiwada, former Finance Minister, said that internal
loan increase was also fueled by factors like blockade, COVID-19 and economic
recession in the post-COVID scenario. Decreased revenue is the root cause of
increased public debt, he added, suggesting recurrent expenditure and social
security must not be financed by the loans.
"Attracting Foreign
Direct Investment at a significant size could be a solution toward reducing the
size of the loan," said Dr. Khatiwada, "We have fiscal space. The
average loan size of a developing country is around 60 per cent while Nepal has
just 42 per cent against the GDP."
Likewise, Bhuwan Dahal, former
President of Nepal Banker Association (NBA), said that the banks and financial
institutions lack funds to provide debt to the government as they have already
mobilised a significant size of funds to the public sector.
The banks have to recover the
outstanding credit from the government to provide further loan support, he
said.
Economist Keshav Acharya said
that there was no clear explanation of the reason behind the increasing size of
domestic loans and their utilisation and contribution to the national economy.
"This is worrisome. Actual
capital formation of the development expenditure is going down," he said.
Delay in fulfilling the
requirement for the disbursement of the development projects implemented in
cooperation with the development partners has also caused the growth in public
debt, said Acharya.
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