The interest rate on loans provided to Nepal by its two biggest creditors—Japan and the International Development Association (IDA) of the World Bank—has nearly doubled recently, putting the government under pressure.
Until now, the World Bank was offering loans at an interest rate of just 0.75%, but it has now raised the rate to 1.5% for new projects. Similarly, Japan, which previously provided loans at rates as low as 0.2%, has increased its interest rate by 1.3% to 1.9%.
Though the timing of both lenders increasing rates appears to be a coincidence, it has raised concerns that there may be underlying strategic or economic reasons behind the decision.
Foreign debt and rising burden
As per the Public Debt Management Office, Nepal’s total debt stood at Rs. 2.654 trillion by the end of Jestha, 2082 BS. Out of this, foreign loans amount to Rs. 1.382 trillion. Notably, almost half of that—around Rs. 670 billion—has been borrowed from the World Bank’s IDA program, making up 48.55% of Nepal’s total foreign debt.
Government officials raise concerns
Officials from the Ministry of Finance admit the rising interest rate has become a new challenge. “We can no longer say we’ll easily pay off such low-interest loans,” one official said. In the past, cheap loans encouraged reckless borrowing. “Now, we’re being forced to borrow with more caution and planning,” he added.
Still, some see this as an opportunity for Nepal. If future loans are taken with more scrutiny and proper planning, the new rates could help prevent the country from falling deeper into a debt trap. However, if borrowing continues recklessly, experts warn Nepal could face a serious financial crisis in the future.
- World Bank interest rate: increased from 0.75% to 1.5% for new projects
- Japan’s interest rate: raised by 1.3%–1.9%, previously around 0.2%
- Foreign debt share: Rs. 1.382 trillion (out of Rs. 2.654 trillion total debt)
- IDA loans: Rs. 670 billion (48.55% of total foreign debt)
- Government stance: cautious borrowing now necessary to avoid future crisis
With loan interest rates no longer as favorable, Nepal’s government must rethink its borrowing practices. While the new rates create financial pressure, they also offer a chance to instill discipline in public debt management. The coming years will reveal whether Nepal adapts wisely or continues down a risky path.
