-Mr. Ram Chandra Rupakheti
Generally, public debt is the debt that the government has raised from internal and external sources which is a major method of government financing. The aim of external borrowing is that the fund should be utilized properly in the productive sectors so that the country’s economy boosts up with the enhancing investment, with a good position exchange rate and controlled inflation. The relationship between external debt and economic growth is long-term in nature.
Emerging developing countries like Nigeria, Brazil, and South Africa are taking a huge amount of external debt to boost their economy. Some of the countries like Srilanka are facing a debt crisis anable to pay back the debt. There was a crowding-out effect on private investment due to external borrowing by the government to make it easily available. Some of the researchers found that external debt at a high-interest rate may create a crisis in the economy. Another reason for the deadlock of the economy from the external debt is the mis-utilization of the fund and improper planning and corruption. In this context, the adverse effect of foreign debt may occur in the economy. The impact of public debt on private investment in the context of the Srilankan perspective resulted in a long-term impact. The results show there was the crowding out effect of external debt on private investment in the long run indicating that the government has spurred the fund to private sectors. One study revealed that external debt did not show a positive long-term effect on the economic growth of India. The negative impact of external borrowing on economic growth has been significantly found in Oman. However, there was a positive significant relationship between gross fixed capital and economic growth.
External debt of Nepal from the last five years shows the portion is increasing trend as it stands at 21.75 percent of GDP in the fiscal year 2020/2021. There may be the possibility of the adverse effect of foreign debts on performance.
The last five years show that the portion of external debt is increasing trend. In fiscal years 2015/16, it was 14.91 percent of National Income which was a 13.25 percent change on previous fiscal years which was Rs. 388.76 billion. The figure increased to Rs. 928 billion in fiscal years 2020/2021 which was 21.75 percent. It has been estimated that this figure will be Rs 985 billion by mid-July.
In the context of Nepal, a study found that the relationship between external borrowing and economic growth results in an increased burden with the significance in the size and magnitude of such debt. The effect of external debt on economic growth is negative. Another study concludes if external debt increases by one unit, GDP growth decreases by 0.61 units. Similarly, increasing the internal debt by one unit increases the GDP growth by 1.05 percent. Therefore, policy makers should increase the portion of the internal debt which is effective in the context of Nepalese public financing. The external debt should be discouraged which may reduce the GDP growth. Government should rethink the policy while the formulation of the budget so that easy sources of external borrowing with a low-interest rate. Nepalese sources of finance should be expanded while preparing the budget with proper plans, policy, and implementation strategy so that proper utilization of public funds should be emphasized. Corruption should be taken with Zero tolerance. The government should focus on the reforms widely so that contingent liabilities should be mitigated for the investment promotion in treasury bonds, pension funds, and institutional funding.
