Government has defended its rising debt levels, saying the country’s borrowing strategy under the 2025-2026 National Budget is not only sustainable but also fiscally prudent.
Delivering his right of reply in Parliament yesterday, Deputy Prime Minister and Finance Minister Professor Biman Prasad said that while debt was increasing in nominal terms, the cost of borrowing was falling due to highly concessional loans and strong development partner confidence.
He said some loans offered 40-year maturities, 10-year grace periods, and interest rates below 1 per cent, easing long-term fiscal pressure.
“Even though we are taking on more debt, we are bringing down the cost of debt as well,” Prof Prasad said.
“The external debt is being accessed at extremely concessional terms, like 40-year maturity including 10-year grace period, a low interest rate of below 1 per cent.
“Even in the domestic market, our cost of borrowing has kept at record levels.
“Our total weighted average borrowing cost is around 5 per cent, and concessional external loans now account for approximately $1.4billion, nearly 38 per cent of the total external debt portfolio.”
Prof Prasad dismissed claims by Opposition MP Premila Kumar that debt under the Coalition Government would grow by $3b by the end of this financial year.
“The Coalition Government inherited a debt of $9.5b in December 2022. As of end of July 2025, debt is projected to increase to $10.8b, so that is an increase of $1.3b.
“With this year’s projected deficit, debt is projected to increase to $11.7b at the end of July 2026.
“This is a total projected increase of $2.2b over three budget.
“However, under the previous government, debt increased from $2.8b in 2006 to $9.5b in 2022 and this is an increase of $6.7b during their term.”
Prof Prasad said the COVID-19 pandemic should not be used to justify the previous debt spike, pointing instead to what he described as a “long pattern of fiscal mismanagement”.
