Kathmandu — Nepal’s growing dependence on external loans for development has raised new concerns as major lenders increase interest rates and tighten concessional terms.
For years, Nepal enjoyed low‑cost loans because its economic growth and job creation remained weak. The International Monetary Fund recently said Nepal’s external debt remained in a “comfortable” range. That status gave the government room to borrow more for infrastructure and speed up development.
That window is now narrowing.
A key reason Nepal’s external debt carried low risk was the combination of cheap interest rates and long repayment periods. Those terms are changing. The World Bank has raised Nepal’s loan rate from 0.75 percent to 1.5 percent. It also cut the maturity period from 40 years to 30 years. The World Bank and the Asian Development Bank (ADB) together account for about 80 percent of Nepal’s development financing.
The World Bank increased the rate after Nepal’s per‑capita income stayed above the cutoff level for three straight years. Nepal had been receiving IDA‑only loans, which go to the poorest countries with per‑capita income below USD 1,435. After crossing the threshold for three years, Nepal now moves into the IDA‑blend category.
Under this category, Nepal will receive a mix of concessional and more expensive loans. Nepal will also gain access to IBRD loans, which signal economic stability to foreign investors but come with higher market‑linked costs.
Japan, Nepal’s largest bilateral development partner, has also raised its loan rate to 1.9 percent. Japan has financed Nepal’s infrastructure for decades, making the sudden increase notable.
Other multilateral lenders have also kept their rates high.
A second trend is adding pressure. Even the concessional funds that support low‑income countries are under strain. The World Bank and ADB raise these funds through donor contributions and their own capital. These funds are replenished every three years. Donor enthusiasm has weakened. Contributions remained flat in the 2021 and 2025 replenishment rounds for the World Bank, while ADB saw only marginal growth.
Wealthy member countries have not shown interest in increasing their contributions. The African Development Bank recently reported that the United States made no contribution in its latest round.
Finance Ministry officials say these patterns suggest Nepal may struggle to secure even higher‑rate loans in the future as global concessional financing tightens.
