Impact of public debt on inflation in Nepal

Abstract

The study aimed to analyze the source and composition of public debt and examine its impact on inflation in the Nepalese economy. The study was complete under the descriptive and analytical research design base on secondary nature of study, collected from the published sources, from the year 1990/91 to 2021/22. For the data organization excel and Eviews-12 SV software. Analyzed through the trend analysis, correlation, regression line and t-test etc. where consumer price index (CPI) was dependent variable, Public debt, GDP and M2 are independent variables. The trend of internal debt was at increasing because of initial phase there are large number of donor countries provided grant to developing countries that means no any provision for the return grant amount. But, certain time after most country’s lending as loan to the developing countries. So the countries like Nepal, then the countries taking the internal loan from the various internal sources. The main sources internal debt is Treasury bill, development bond, national saving bond, citizen saving bond, special bond and foreign employment saving bond. The inflation in the economy also at increases, debt increases, gross domestic product increases, even the consumer price index as combination too increases .CPI is a major indicators to find out the inflation portraiture of the country and economics. We found that CPI and public debt are somewhat connected, with a moderate positive level of 0.57. This means when one goes up, the other tends to go up moderately. The connection between CPI and GDP is very strong, with a high positive correlation of 0.99.Similarly, the link between CPI and money supply (M2) is also strong, with a high positive correlation of 0.94. This suggests that when CPI rises, M2 tends to increase significantly as well. The constant coefficient in regression equation is -24.83.The R-square value is 0.9885, indicating that 98.85% of CPI values can be explain by the independent variables. The adjusted R- squares values in our study find out 0.9873.This suggest that 98.73% of the variation in CPI is explain by the independent variables. Keywords: Inflation, public debt, gross domestic product, broad money supply and consumer price index.