Nepal Debt Servicing: Principal and Interest Payments, Year by Year

Debt servicing is the money the Government of Nepal actually pays out each year to service its public debt. It has two components: principal repayment (returning the original borrowed amount as loans and bonds mature) and interest payment (the cost of holding the debt). This is a distinct metric from the headline debt stock — the total outstanding public debt — because a country can carry a large debt while paying relatively little to service it, or a smaller debt that is expensive to service. Analysts and budget-watchers therefore follow servicing on its own, especially around budget day (Jestha, late May) when the finance minister presents the coming year's financing plan.

In Nepal the servicing figure is compiled by the Public Debt Management Office (PDMO) under the Ministry of Finance (MoF), which took over debt operations from Nepal Rastra Bank (NRB) after the Public Debt Management Act, 2079 came into force on 22 Kartik 2079 (8 November 2022). The Financial Comptroller General Office (FCGO) records the actual cash outflows in the Consolidated Financial Statements, and NRB continues to handle domestic-debt issuance and auctions. Because these bodies report on slightly different bases, published servicing totals for a given year can differ by a few billion rupees.

Servicing is split two ways that matter for policy. First, principal versus interest: principal repayment simply rolls the debt over and does not by itself shrink the stock unless financed from revenue, whereas interest is a pure economic cost. Second, internal (domestic) versus external servicing: domestic debt is raised inside Nepal in rupees, mostly through Treasury bills and development bonds, while external debt is owed to multilateral and bilateral lenders in foreign currency. The two behave very differently on cost and currency risk, as the sections below explain.

Nepal's annual debt servicing has climbed steeply over the past five fiscal years. In FY 2077/78 (2020/21) the government paid roughly Rs 95 billion in total — about Rs 65.36 billion on domestic loans (Rs 36.9 billion principal, Rs 28.46 billion interest) and about Rs 29.43 billion on external loans (Rs 23.26 billion principal, Rs 6.17 billion interest). Servicing then rose to about Rs 117–122 billion in FY 2078/79 (2021/22), of which the PDMO reported Rs 72.80 billion as principal and Rs 44.61 billion as interest.

The sharpest jump came in FY 2079/80 (2022/23), when total servicing leapt to about Rs 222.74 billion — a rise of roughly 83% in a single year. Interest alone that year was about Rs 72.78 billion, with domestic-debt interest (about Rs 64.51 billion) dwarfing external-debt interest (around Rs 8.27 billion). The surge was driven largely by high domestic interest rates: the average rate on internal debt reached about 10% amid tight banking-sector liquidity, before easing to roughly 3–4% in FY 2080/81 (2023/24) as liquidity loosened.

In FY 2081/82 (2024/25) the government spent about Rs 362.59 billion on debt servicing — 90.01% of the Rs 402.85 billion it had allocated — equal to roughly 5.94% of GDP. Of that, about Rs 304.19 billion went to domestic debt (principal and interest) and about Rs 58.40 billion to external debt. The multi-year arc is striking: servicing has gone from under Rs 100 billion to well over Rs 360 billion in four years, far outpacing revenue growth. Figures are indicative and vary slightly across PDMO, FCGO and MoF reporting.

Within the servicing bill, principal repayment has become the larger share as short-tenor domestic instruments mature and must be repaid or rolled over. In FY 2021/22, for example, principal (Rs 72.80 billion) exceeded interest (Rs 44.61 billion). By the first nine months of FY 2082/83 (2025/26), of Rs 258.44 billion serviced, Rs 204 billion was principal repayment and only Rs 54.27 billion was interest — a ratio that reflects a heavy calendar of maturing Treasury bills and development bonds.

A large principal bill is not the same as debt reduction. Much of Nepal's domestic principal repayment is effectively rolled over by fresh borrowing in the same year, so the debt stock keeps rising even as the government pays out hundreds of billions. Commentators have flagged this rollover dynamic — new loans raised largely to repay maturing ones — as a sign that borrowing is increasingly financing debt service rather than new capital projects.

Interest is the metric that captures the true carrying cost. Nepal's interest burden is concentrated on domestic debt: internal borrowing has repeatedly cost around 8–10% at peak, whereas most external debt is concessional, carrying very long maturities and interest rates often well below 1–2%. That is why, even though external debt is a comparable slice of the total stock, it accounts for a small fraction of the interest paid each year.

Nepal services far more on its domestic (internal) debt than on its external debt, even though the two stocks are of similar size. In FY 2024/25 domestic servicing was about Rs 304.19 billion against just Rs 58.40 billion external — roughly a five-to-one gap. The same pattern held in the first nine months of FY 2025/26: about Rs 209.38 billion domestic versus Rs 49.06 billion external. The imbalance is a direct consequence of domestic debt being shorter-dated and much more expensive to carry.

External debt, by contrast, is dominated by concessional loans from multilateral lenders such as the World Bank's International Development Association (IDA) and the Asian Development Bank (ADB), and bilateral partners. These loans typically run for 20–40 years with grace periods and near-zero to low interest, so annual external servicing stays modest relative to the stock. The main risk on the external side is currency: because the loans are in foreign currency, rupee depreciation can inflate both the outstanding value and the servicing cost — exchange-rate losses have added over Rs 100 billion to the reported debt stock in recent years.

The policy implication is clear. Nepal's servicing pressure is overwhelmingly a domestic-debt problem, tied to how much the Treasury borrows at home and at what interest rate. When domestic rates fell in FY 2023/24, interest costs eased even as the stock grew; when rates spike or borrowing accelerates, the servicing bill balloons quickly.

Because servicing is a fixed, mandatory claim on the treasury, its size relative to revenue and to the budget is the number that best captures the fiscal squeeze. In FY 2024/25, principal and interest payments together consumed on the order of 24% of total federal spending and roughly 35% of total federal revenue — meaning more than one rupee in three collected went straight to servicing debt. For FY 2023/24, the budgeted domestic-loan servicing of about Rs 275.78 billion alone equalled about 26.47% of projected revenue.

The term 'debt service ratio' is used loosely in Nepali reporting. In its narrow, textbook sense it means external debt service as a share of exports of goods and services — a solvency indicator that remains low for Nepal thanks to concessional external terms. In everyday budget commentary, however, 'debt service ratio' usually refers to total servicing as a share of revenue or of the budget, which is the pressure point that has climbed most sharply. Readers should note which definition a given source is using.

Whichever measure is used, the trend is upward. Servicing has grown from a manageable slice of the budget a decade ago to a mandatory obligation now rivalling or exceeding the entire capital (development) budget in some years. In FY 2023/24 the Rs 330.55 billion servicing allocation actually exceeded the Rs 302 billion set aside for capital spending — a milestone that underscored how debt costs are crowding out development investment.

Debt servicing appears in the budget under financing and mandatory (obligatory) expenditure rather than under a line ministry, because it is a legal claim that must be paid before discretionary spending. Each year the MoF allocates separate amounts for principal repayment of internal and external loans and for interest. Actual servicing often lands below the allocation — in FY 2024/25 the government spent 90.01% of what it had budgeted — because some maturities are refinanced rather than fully repaid from revenue.

For FY 2081/82 (2024/25) the allocation for servicing and related financial obligations was about Rs 402.85 billion within a Rs 1,860.30 billion federal budget. For FY 2082/83 (2025/26) the budget of about Rs 1,964–1,965 billion set aside roughly Rs 375–410 billion for debt servicing and financial provisions, with internal-debt repayment budgeted around Rs 343.55 billion and external around Rs 67.18 billion. These mandatory liabilities have been growing faster than revenue, forcing the finance ministry to warn of tighter ceilings for other spending.

The nine-month actuals for FY 2025/26 illustrate the pace: by mid-March 2026 the government had already serviced about Rs 258.44 billion — roughly 63% of the annual budgeted amount and about 4.23% of GDP for the period — with principal repayment (Rs 204 billion) heavily front-loaded. Investors and analysts watch these interim PDMO releases and the FCGO consolidated statements to gauge whether the full-year servicing bill will again set a record.