In the past 10 years, the government has spent 11 trillion 97 billion 71 crore rupees on the payment of principal and interest (debt service) of public debt. The government has paid 3 trillion 2 billion 95 crores (20.30 percent) in principal and interest of external loans and 8 trillion 94 billion 76 crores (74.70 percent) for principal and interest of internal loans in the financial year 2071/72 to 2080/81.

Economist and public finance expert Baburam Subedi says that although the growth rate of public debt started to increase from the financial year 2071/72, it is rising at a high rate after 2077. Why is the public debt going like this?  Brief conversation with Subedi 

The government's debt has reached 26 trillion 22 billion by last May. In the last 10 years, it took about 12 trillion in loan principal and interest payments. How did you see it?

Although the growth rate of public debt started to increase from the financial year 2071/72, it has been rising at a high rate since 2077. It has two dimensions. Especially after covid, the rate of revenue collection has been very low. In the past, the government stopped the import of some essential commodities citing pressure on foreign exchange reserves. At that time, the affected revenue collection has not yet picked up speed. There have been signs of improvement in this financial year, but revenue has not been collected as per the potential. The situation where the need for development will increase but the revenue collection cannot increase accordingly has had an impact on the public debt. There is no need to panic if revenue collection increases when public investment increases. 

For the past three years, the government has had to allocate more annual budget for financial management than the development expenditure. What is its sign? 

The funds earmarked under the heading of financial arrangements are used to repay loan principals and invest in public institutions. Interest payments on loans are included in the current account. Therefore, if the public debt liability increases, the interest expense will also increase, thus putting pressure on the current account. It should be seen how much of the money allocated in the financial system has been used for the investment of public institutions and how much has been used for debt repayment. It is better if that amount is used for the capital expenditure of the public institution. The situation of low investment in the capital sector but high expenditure on capital and interest is a matter of concern.

The principal-interest payments are not so much in the case of external loans. Since its interest rate is usually low, the liability is also low. Comparatively, since the interest rate of internal loans is expensive, a lot of money is spent on interest payments.

 As of last May, public debt is about 43 percent of GDP. Recently, this ratio is increasing. How do you see it? 

In the past, very good financial discipline had to be practiced to keep the size of the debt from increasing. But due to the earthquake of 2072, the covid epidemic and others, the debt increased to a high size. If the public investment has been in the productive sector, there is no need to worry that the ratio of GDP has reached this level. However, if the liability of the state increases due to the use of loans in unproductive areas, it should be corrected in time. 

There are many questions about the use of public debt. Are loans being used in unproductive areas? 

Till four years ago, 77 percent of the total external debt was invested in the financial sector. This 'trend' continues even now. What percentage of domestic credit has been utilized in the productive sector has not been analysed. Regarding the economic sector, how much percentage is spent in the real productive sector (yielding) and how much is leaked is determined by the state of governance. Now questions about the use of public debt are not raised in every sector. There may be some leaks. But it is not yet possible to say how many percent went to the productive and non-productive sectors.