Utilise Public Debt Properly

Amidst a deficit in revenue generation and increasing government expenditures annually, Nepal has seen a considerable upsurge in amounts of public debt over the years. The successive governments in the country seem to have received more public debt to meet the nation’s development needs and ambitions. Much of public debt has been taken to carry out mega infrastructure and other development projects. Many developed as well as developing nations are found taking public debt as an essential source of income for them to move development projects ahead. As nations, especially developing ones, have to deal with numerous development challenges and obstacles, they are bound to borrow loans from within the country and outside. 

Surge

As per the Public Debt Management Office, Nepal’s public debt has increased to Rs. 2518 billion 50 million in mid-November from Rs. 2434 billion 90 million in mid-July. During the first four months of the current fiscal year (2024-25), the nation’s public debt surged by Rs. 83 billion 950 million. This figure indicates that the country’s total public debt has surpassed 44 per cent of the gross domestic product (GDP). Of the total public debt, the internal debt liability stands at Rs 1252 billion 161.8 million while the external debt liability amounts to Rs. 1265 billion 897.2. The Office mentions that the internal debt accounts for 21.95 per cent while the external debt covers 22.19 per cent.      

Because Nepal has failed to meet the annual target of revenue collection over the past five years, the country has been in dire need of public debt as a vital source of income in order to implement numerous development projects. The incumbent government has set a target of mobilising a public loan of Rs. 547 billion in the current fiscal year. Of the total amount, Rs 165.72 billion has been raised in the first quarter alone. The total public loan mobilised as of now makes up 30.30 per cent of the annual target.  The country requires setting aside a huge amount of money for the repayment of the principal and interest of the public loan every year. 

The government had earmarked a total of Rs. 402 billion for reimbursement of the principal and interest of public debt for the current fiscal year. It has paid Rs. 108.14 billion as the principal and interest of loans until November 15. With a gradual increase in the amount of public loans, the country will have to allocate additional amounts for this purpose in the years to come.  There is no any boundary for nations when it comes to acquiring public debt as far as they are utilised effectively, ensuring good returns. Public debt may be instrumental in accelerating the process of development, especially creation of vital infrastructures such as highways and airports. 

As nations use public debts to finance their expenditures in order to improve the living standard of their people, such loans hold a lot of importance. But there is a possibility for these debts to be a heavy burden for nations if such debts keep increasing rapidly in no time. Several developing countries have faced serious problems owing to a haphazard increase in public debt and its misuse. Some of them have also fallen in debt trap. According to the UN Trade and Development (UNCTAD), in 2023, global public debt reached a record high of US$ 97 trillion. However, public debt in developing countries has reached less than one-third of the total (US$ 29 trillion) since 2010. During that period, public debt has grown twice as fast as in developed economies.

However, public debt in Nepal does not appear to have been as effective as it should have been because of time and cost overruns of development projects. It is sad to note that projects are hardly found completed within the budget. With rising current expenditures, federal, provincial and local governments do not have adequate capital budget. There is also a low capital spending trend. Various unexpected issues, including obstructions from the locals and changes in designs during construction, also get emerged, hindering smooth project implementation. 

Time and cost overrun

Contractors are often found not carrying out their responsibilities on time. This also leads to an increase in the cost of development projects. For example, construction of the 72.5-km long fast track road project (expressway) connecting Kathmandu with Nijgadh of Bara district has been delayed by several years due to compensation-related and other problems. Being implemented by the Nepali Army, the project’s cost has already overrun by more than 100 per cent to Rs. 213 billion. The cost will go up further as much work still remains to be carried out. The quality of development works is often questionable. Some bridges and other structures have collapsed before completion. Thus, the nation incurs a huge loss.  

There is no doubt that public loans are essential for developed as well as developing nations to fulfill national needs. But the responsible authorities must ensure that the public loans are utilised appropriately and the projects being run on loans are yielding desired results. It is also essential to enhance the capacity of the government agencies, bureaucrats and political parties to make a proper estimation of any development project. 

(The author is a former deputy executive editor of this daily.)