KATHMANDU, JULY 7 Nepal's outstanding public debt increased to Rs 2.96 trillion in the first 11 months of fiscal year 2025/26, accounting for 44.9 percent of the country's Gross Domestic Product (GDP), the Nepal Rastra Bank (NRB) has said. The central bank's Macroeconomic Report (July 2026) states that total public debt has risen by around 48 percent over the past four years, from about Rs 2.01 trillion in 2021/22 to Rs 2.96 trillion during the review period. External debt increased from 20.6 percent to 24 percent of GDP, while internal debt remained broadly stable at around 20-21 percent of GDP. Despite the increase, a joint debt sustainability analysis by the World Bank and the International Monetary Fund (IMF) continues to classify Nepal as facing a low risk of debt distress. However, the report notes that Nepal's composite indicator score has gradually weakened in recent years, signalling growing vulnerabilities. The NRB said the more pressing concern is the inefficient utilisation of borrowed funds, noting that only about one-third of the capital budget had been spent during the review period. As a result, a significant share of borrowing is being used to finance recurrent expenditure and debt servicing rather than productive investment. According to the report, rising public debt has been driven by persistent budget deficits, post-earthquake reconstruction, the costs of federalism, expanding social security obligations, declining foreign grants, and the depreciation of the Nepali rupee against the US dollar. Looking ahead, the NRB says the government's Rs 2.12 trillion budget for fiscal year 2026/27 aims to stimulate growth through higher capital spending and tax reforms. However, it cautions that the success of the strategy will depend on faster budget execution, prudent debt management and effective implementation of structural reforms.