Nepal's public debt reaches 45% of GDP just as a Rs 723bn flood bill arrives

Nepal entered the current fiscal year owing more than it ever has. Public debt rose 11.25% in 2025/26 to Rs 2.974 trillion, about $19.2bn, according to the Public Debt Management Office, as reported by Xinhua in The Peninsula. That is 45.07% of GDP, up from 43.79% a year earlier. In 2016/17 the debt stood at Rs 697.68bn, or 26.84% of GDP, so it has grown more than fourfold in a decade, IANS reported.

Two crises explain most of the climb. Borrowing surged by 31.48% in 2017/18 as reconstruction after the 2015 earthquake gathered pace, and by 36.75% in 2019/20 when the pandemic struck, according to the debt office's records cited by IANS. A third shock has now arrived.

The cost of the flood

A government rapid damage and needs assessment, prepared by the National Planning Commission and the disaster management authority, estimates that recovery from the 26 August Bhotekoshi flood will need Rs 723.31bn, Onlinekhabar reported. That is roughly $4.7bn, and close to 11% of the Rs 6.6 trillion economy estimated by the National Statistics Office. Infrastructure accounts for Rs 473.57bn of it, and energy alone for Rs 390.62bn. The assessment put the physical damage at Rs 274.48bn, with Rs 8.74bn needed for relief and short-term reconstruction over the first six months.

That may not be the final figure. Officials expect a fuller post-disaster needs assessment to put losses about 30% higher, The Kathmandu Post reported, in a story carried by Asia News Network. The assessment is meant to form the basis of a donor conference.

So far the outside money is modest. The Finance Secretary, Ghanshyam Upadhyay, told a parliamentary committee that the Asian Development Bank had provided a $5m grant and China $2m, and that $8.5m had come through a World Bank catastrophe drawdown facility, with another $150m on standby, Ratopati reported. About Rs 12bn had been collected in the prime minister's relief funds.

Grants preferred, loans likely

The government says it would rather not borrow. "Given the way the loan portion is ballooning compared to our GDP," grants would make things easier, Foreign Minister Shisir Khanal told The Kathmandu Post. Finance Minister Swarnim Wagle told the paper that grants were always preferred but could not meet all of Nepal's needs, and a former planning commission vice-chairman, Govinda Raj Pokharel, said soft loans would be needed.

The lenders are relaxed about solvency. The IMF considers Nepal's debt sustainable and the risk of debt distress low, and the ADB repeated that judgement in its September outlook while forecasting that the deficit would widen to 4.7% of GDP this year as reconstruction spending rises. The ADB estimated that debt-servicing costs eased to 5.9% of GDP in 2025/26 from 6.3%.

The pressure point is at home. External debt, 53.77% of the total, is mostly cheap and long-dated multilateral lending. Domestic borrowing through treasury bills and development bonds matures much faster, a concern the IMF raised in its latest Article IV report, IANS reported. Of the Rs 386.22bn Nepal spent servicing its debt in 2025/26, Rs 311.93bn went on domestic debt.

The current year's borrowing plan was drawn up before the flood. The government aims to raise Rs 658bn, Rs 410bn at home and Rs 248bn abroad, and had raised Rs 61bn by mid-September, ShareSansar reported from debt office data. It has budgeted Rs 417bn for repayments and interest, of which Rs 85bn had already been paid.

What to watch: the final post-disaster needs assessment and the donor conference that follows, whether the government revises its borrowing plan in the mid-year budget review, and how much of the reconstruction bill is met by grants rather than domestic bonds.