AN ANALYTICAL STUDY ON PUBLIC DEBT AND ITS IMPACT ON NEPALESE ECONOMY
AN ANALYTICAL STUDY ON PUBLIC DEBT AND ITS IMPACT ON NEPALESE ECONOMY

Summary/Abstract: This study aims to find out the pattern and composition of public debt, and its impact on Gross Domestic Product (GDP) growth of Nepal. This study is based on secondary sources of information and the data are collected from relevant archives. The collected data and information have been analyzed through descriptive as well as analytical research methods. Public borrowing has become a common practice for developing and even developed countries in order to meet the internal re-source crisis and development budget. Nepal had formally started borrowing from 1960s and gov-ernment owed more from the external sources in the beginning, but the foreign assistance has been decreasing in recent periods. Public debt cannot be so fruitful in terms of GDP growth, and this statement is supported by the fact that the average growth rate remains almost constant at 4.5 percent, but the average inflation rate is at 5.9 percent in the 40 years of study period. The amount of public debt has been increasing due to poor mobilization of internal resources and growth in unproductive recurrent expenses, especially due to the implementation of federalism of Nepal. The interest and principal of public debt especially in context of foreign debt, has been growing year over year, so the burden of public debt has also been growing. In Nepalese context, the public debt to GDP ratio is 30.02 percent, so judging from that, public debt does not seem to be a serious problem as of now, because the alarming threshold specified by World Bank is at 77 percent. But, the growing trend of public borrowing may be a challenging problem for any nation in a long run, so the heavy dependence of national economy upon public debt, especially on foreign loan, ought to be minimized.

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