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.
Former Secretary of the Government of Nepal, Kewal Bhandari In countries like Nepal, which are striving for social and economic development, such public debt cannot be called a problem . A conversation with former secretary Bhandari regarding Nepal's public debt
Is it a problem that the government's public debt exceeds the annual budget?
Public debt is not a problem in countries that are trying to develop socially and economically. It is not otherwise that there is general interest in it, and that questions arise. In general, there is no theoretical basis to explain why per capita debt has reached this level. The state has to raise foreign and domestic debt without reaching internal resources. Looking at the quality of service development, spending needs, etc., the current debt should not be considered too much.
What does the financial management allocation of the annual budget more than the development expenditure indicate?
In recent years, there has been a distinct change in the structure of public expenditure. Current expenditure is rising and our efforts to curb it are futile. We need transformative change in the overall state of public finance management. Despite the best efforts of the state and the private sector, our capital expenditure has been low for many years. As the loan has already been taken, it should be paid according to the schedule. Internal debt is slightly higher. Internal loans are taken for a short period of time and the interest rate is high. Therefore all internal debt is not repaid. For some time, the Treasury bill is being rotated through renewal and rescheduling.
There is a certain grace period towards foreign loans. Then the payment should be made according to the schedule. We have not implemented hedging to protect the public debt from fluctuations in foreign currency exchange rates. Therefore, we are repaying the loan taken when the exchange rate of the US dollar was 35/40, now at the exchange rate of 135/140 rupees. This has also increased the debt liability.
How much should public debt be compared to GDP?
The limits of public debt in developing countries are somewhat more acceptable. Attention should be paid to the services of common citizens and many facilities of socio-economic development. Some developing countries have a debt to GDP ratio of up to 75 percent. In emerging economies, such debt is around 45-50 percent of GDP. We have 43 percent public debt is not that difficult situation.
Is there a question that public debt is being spent in unproductive areas?
Not only the public debt, but also resources including internal revenue should not be spent indiscriminately. Accountability of foreign debt should be given not only in the country but also in the parliament of foreign countries. Therefore, there is no question of spending the loan in unproductive areas. But our sensitivity to overall expenditure is very weak. Apart from the
project, it should be seen whether the programs run by foreign aid are also running effectively. Preparation of a multilateral development assistance project takes a year or two. It also takes four/five months for the contract. We also hire national and international expert consultants. But the work cannot be completed on time and the cost increases. In this way, because we could not pay attention to the preparation, did our expenses go to unproductive areas? From the point of view of public finance management, whether it is debt or revenue income, it should be spent in the productive sector.
What is the reason why we are not able to get external loans as per the target? To get
assistance, the first step is to study the needs. The project documents. A contract is then negotiated. Loan compliance, payment schedule, terms etc. These works sometimes take three/four years. Internal debt rises quickly as it is fixed from the annual budget. In some cases, foreign aid that is under discussion is also included in the budget. But that help will not come if the negotiations are not successful or the conditions are not acceptable. On the other hand, the faster the concerned ministry initiates the process, the faster the loan will be received.
