Structure and Trend of Public Debt in Nepal

Abstract

The main purpose of this thesis is to analyze the structure and trend of public debt in Nepal along with to examine the impact of public debt on GDP. For this analysis three independents variables i.e internal debt, external debt and total debt and dependent variable GDP have been considered. The data for the time frame ranges from FY 1990/91 to 2014/15 are considered. This relationship has been analyzed by the help of SPSS tools. In this analysis of explanatory variables, there exists direct and positive relationship between total public debt and GDP. Moreover, the study found that the internal debt is stronger than external debt for economic development.

Economic development is the main goal of underdeveloped countries but the lack of financial resources it cannot be achieved easily. To minimize the deficiency of financial resources public debt can play an important role. So, developing countries like Nepal need internal as well as external borrowing to support the budgetary deficits. Underdeveloped country has low rate of saving investment, income and low living standard due to the low per capita income and poverty, dualistic economy, unutilized natural resources, lack of capital etc. Resource gap is a burning problem of the underdeveloped economy due to the lack of capital. Public debt is only one solution to fill the lack of capital. In the research period, it was found that government borrowing has been increased unlikely and financed mostly on the unproductive sector including uncertainties, high expenditures and hence the government always has the lack of resources and then borrows the new loan to pay previous ones. That’s why; the public debt and interest are increasing rapidly, but addressing capacity for redemption the debt is not increasing in the same pace. From the study period F.Y. 1990/91 to 2014/15, it is concluded that the average annual growth rate of GDP and revenues are extremely low as compared with that of debt and its servicing obligation. Because of investment in unproductive borrowed funds, other things remaining the same, there are the symptoms of progressively going towards the debt trap soon. Hence fiscal deficit is increasing in any way and the public debt has played a vital role in socio-economic development of the country.