Finance Commission Recommends Internal Borrowing Limits for All Three Tiers of Government
Kathmandu: The National Natural Resources and Fiscal Commission (NNRFC) has recommended the internal borrowing limits for the federal, provincial, and local governments for the upcoming fiscal year 2082/83 (2025/26).
According to the Commission:
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The federal government will be allowed to raise internal debt up to 5% of the projected national GDP.
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Provincial and local governments may borrow up to 12% of their combined internal revenue and intergovernmental fiscal transfers.
The Commission emphasized that internal borrowing must be invested only in capital-generating projects—such as national pride projects, transformative infrastructure, and other priority programs that yield measurable economic returns. Borrowing for administrative or operational expenses is strictly discouraged.
Key Highlights:
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Only productive investments: The internal debt must support long-term benefits like job creation, income growth, infrastructure development, and capital formation.
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Proper approval required: Provinces and local levels must follow due legal processes, including securing approval from the federal government, before listing internal debt as a budget source.
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No current utilization despite budget mentions: Though some provinces like Gandaki have included internal borrowing as a revenue source for multiple fiscal years, no province has actually raised or used such loans yet, according to the Public Debt Management Office.
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Legal provision in place: Article 251 of the Constitution of Nepal (2015) and Section 14 of the Intergovernmental Fiscal Arrangement Act, 2017 authorize the Commission to recommend borrowing limits, while only the federal government may secure external loans.
Context:
Since federalism was implemented, provinces and local governments have gained broader economic and fiscal autonomy—including the ability to formulate plans, prepare budgets, and conduct audits. However, the actual mobilization of internal borrowing remains untested.
While provinces like Bagmati and Sudurpashchim have shown more readiness, overall capacity gaps and procedural delays have prevented actual implementation of internal loan mechanisms.