KATHMANDU: The National Natural Resources and Fiscal Commission (NNRFC) has recommended borrowing ceilings for the federal, provincial, and local governments for the upcoming fiscal year 2025/26.
According to the Commission’s recommendation, the federal government may mobilize internal loans of up to five percent of the country’s estimated gross domestic product (GDP).
Similarly, provincial and local governments may borrow up to 12 percent of their total revenue, including revenue generated internally and received through fiscal transfers.
“The federal government may raise internal debt not exceeding five percent of the projected GDP after analyzing the nation’s macroeconomic indicators, revenue and expenditure forecasts, and market conditions,” the Commission stated in its report.
The Commission emphasized that internal borrowing should be limited to capital-generating sectors and projects with long-term economic benefits.
It recommended prioritizing loans for projects with a strong internal rate of return or positive net present value, in alignment with national policies and plans. Priority should be given to national pride projects, transformative initiatives, and those outlined in the medium-term expenditure framework.
Borrowing Conditions for Provinces and Local Levels
Provinces and local governments must complete the necessary legal and procedural steps before mobilizing internal debt.
The NNRFC has cautioned provincial governments against listing internal loans as a funding source in their budgets without federal approval—a practice previously observed in some provinces.
According to the recommendation, provinces may raise internal debt up to 12 percent of the total revenue received from internal sources and revenue sharing with the federal government, provided they fulfill the structural and procedural requirements.
Local governments are also allowed to raise loans up to 12 percent of the combined revenue received from federal and provincial governments, along with their own internal revenue.
Capital-Focused Borrowing Only
The NNRFC stressed that internal debt must not be used to finance current or administrative expenditures.
“Borrowed funds should be allocated strictly to projects that create employment, yield long-term benefits, and contribute to capital formation,” the Commission stated.
It further advised that investment should target profit-oriented projects with internal returns higher than the cost of capital investment.
In line with Clause 14 of the Intergovernmental Fiscal Management Act, 2074, the Commission reiterated that provinces and local governments must include internal borrowing as a budgetary source only after receiving formal approval from the federal government.
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