Public Debt and Economic Growth in Nepal

Abstract

Public debt is an instrument of financing budget deficit. One important macroeconomic problem of Nepalese economy is prevailing research gap. Due to the such situation, with the increase in size of government budget, the size of public debt is also increasing. This study is based on descriptive analysis. For this purpose, the period of 1997/98-2019/20 data is considered. This paper examines the relationship between public debt and economic growth in Nepal. The trend of government expenditure has increased rapidly than government revenue because of limited resource of the revenue. So, the government borrowed from external and internal sources. The condition of the external debt is increased, due to the poor mobilization of internal resources, export- import gap, revenue -expenditure gap, large amount of fiscal deficit. So there has been excessive flow of foreign loans to bridge up these gaps. In this study found that government borrowing has increased mostly on the unproductive sectors. The paper suggests that government should invest taking loan in productive sector. The empirical results confirms that internal, external and total debt has not caused negative impacts on GDP growth of Nepal. However, country must focus on the improving the balance of payment.

Keywords: Public debt, Real GDP, Resource gap