Government’s Rs 1.5 Trillion Loan Stuck in Banks, Interest Payments Exceed Rs 7 Billion

Kathmandu — A staggering Rs 1.5 trillion transferred by the Government of Nepal to local levels under an interest-bearing cash scheme has remained unutilized and stuck in the banking system, according to the 62nd report released by the Office of the Auditor General.

The Ministry of Finance transferred the amount to local bodies by the end of the fiscal year 2080/81 under a cash program intended to boost local development. However, due to the lack of proper mobilization at the local level, the funds have remained idle in bank accounts, leading to a significant financial burden on the federal government.

According to the report, the Ministry of Finance has already paid over Rs 7.866 billion in interest on this unspent amount. The funds were raised by the government at an interest rate of 5.27 percent.

The Auditor General’s report has highlighted that the Ministry of Finance failed to prepare a formal Cash Plan as mandated by Rule 29 of the Financial Performance and Fiscal Responsibility Regulations, 2077. This regulation requires the ministry to analyze national cash needs and formulate a plan in coordination with various government agencies.

“The ministry was not found to have formulated a cash plan in accordance with the provisions of the regulations,” the report states.

In the fiscal year 2080/81 alone, the Government of Nepal borrowed Rs 131.271 billion from foreign sources and Rs 234.423 billion domestically. From this, a total of Rs 37.44 billion was allocated to provincial and local levels.

Despite the significant financial outflow, provincial and local governments have failed to utilize the allocated funds effectively. As of the end of fiscal year 2080/81, Rs 149.267 billion remains parked in the provincial consolidated funds and related accounts. This includes Rs 69.827 billion under the provincial consolidated fund and Rs 79.433 billion under local-level accounts.

The report underscores the inefficiency of transferring borrowed funds without a clear spending strategy, cautioning that such actions contribute to growing financial liabilities. It recommends that the Ministry of Finance urgently prepare a comprehensive cash plan and ensure the timely mobilization of funds at the provincial and local levels to avoid further fiscal strain.

As the federal government continues to bear interest costs on unspent development funds, experts warn that failure to address this planning gap could deepen Nepal’s financial challenges in the years ahead.