The government has recently defended its rising debt levels, asserting that its borrowing strategy under the 2025-2026 National Budget is sustainable and fiscally responsible. In a parliamentary reply, Deputy Prime Minister and Finance Minister Professor Biman Prasad highlighted that despite an increase in nominal debt, the cost of borrowing is decreasing due to highly concessional loans and strong confidence from development partners.
Prasad explained that some loans come with favorable terms, such as 40-year maturities and interest rates below 1%, which collectively mitigate long-term fiscal pressure. He emphasized that while the total debt is projected to rise, the weighted average borrowing cost remains approximately 5%, and concessional external loans now make up about $1.4 billion, representing nearly 38 percent of the external debt portfolio.
Addressing claims from Opposition MP Premila Kumar, who suggested that debt would increase by $3 billion by the end of the financial year, Prasad provided reassurances. He clarified that the Coalition Government inherited a debt of $9.5 billion in December 2022, and by the end of July 2025, total debt is expected to rise to $10.8 billion, which translates to an increase of $1.3 billion. By the end of July 2026, the debt may rise to $11.7 billion, which is a projected increase of $2.2 billion over three budgets. In contrast, during the previous government’s term, debt escalated from $2.8 billion in 2006 to $9.5 billion in 2022, an increase of $6.7 billion.
Prasad dismissed the notion of attributing the previous debt spike solely to the COVID-19 pandemic, instead linking it to what he termed a “long pattern of fiscal mismanagement.” He reassured that the government’s focused fiscal policies aim to manage debt levels responsibly, emphasizing that sustainable economic growth is crucial to ameliorate the country’s fiscal position.
In light of the rising debt, Prasad emphasized the importance of long-term stability and responsibility in managing the national finances, and he reiterated that a proper balance of fiscal policies would help to foster economic recovery and growth.
The government’s approach aims not only to address immediate fiscal challenges but also to lay the groundwork for a more robust economic future, thereby encouraging investor confidence and ensuring that essential public services can be adequately funded.
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