KATHMANDU: The government is poised to raise a significant amount of internal debt in the first quarter of the current fiscal year. According to the Public Debt Management Office (PDMO), the government plans to achieve this by adhering to a debt collection target announced in the budget.

While details about the timing and amount of external loans remain unclear, PDMO has already established a schedule for internal borrowings. The government’s budget for the year outlines a plan to raise Rs 330 billion in domestic debt. Accordingly, PDMO aims to collect Rs 115 billion in the first quarter, which represents 40 percent of the total debt.

In the first quarter of the previous fiscal year, the government raised approximately Rs 80 billion in internal debt. Within two weeks of the start of the current fiscal year (FY 2024/25), PDMO has already published notices for issuing treasury bills totaling Rs 31.61 billion. On July 29, a notice was published for issuing treasury bills of Rs 21.10 billion. Prior to that, on July 22, the office issued treasury bills of Rs 10.49 billion.

Government officials explain that raising a substantial amount of debt early in the fiscal year is necessary due to the pressure for payment of interests of public debt. The reserves to meet these obligations are currently insufficient, and delaying internal borrowing could result in higher interest rates.

Dilaram Giri, information officer at PDMO, told New Business Age, “Due to the obligation to repay a large amount of debt, the loan has to be taken early. Interest rates may become more expensive later, increasing the cost of borrowing.” Currently, ample liquidity in banks and financial institutions has resulted in lower interest rates. These institutions primarily purchase government-issued treasury bills and development bonds.

Of late, public debt in Nepal has been rising rapidly. Government figures show significant increases in expenses. PDMO data indicates that the country will need to pay over Rs 1714 billion in the next nine years, with more than Rs 559 billion due in the current year alone. In FY 2023/24, public debt increased by Rs 115 billion, rising from Rs 2299 billion in July of the previous year to Rs 2434 billion by mid-July 2024. This public debt now represents 42.65 percent of the GDP, reflecting a Rs 135 billion increase over the past year.

PDMO records show that internal debt owed by the government has reached Rs 1180 billion, while external debt stands at Rs 1253 billion. The government paid Rs 353.7 billion in public debt interest last year.

Experts caution that accumulating a large amount of debt early in the fiscal year could have adverse effects. Gopinath Mainali, former secretary of the Government of Nepal, argues that while raising and mobilizing internal debt can be beneficial, excessive accumulation could be detrimental. He noted, “If the raised debt is capitalized and injected into the market, it may not pose a problem. However, if liquidity is withdrawn from the market by reducing capital expenditure and relying heavily on internal loans, it could strain the liquidity of banks and financial institutions, making it difficult for the private sector to obtain loans.”