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Nepal: Joint IMF/World Bank Debt Sustainability Analysis

Author(s):
International Monetary Fund
Published Date:
June 2008
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A. Recent Debt Developments

1. Nepal’s public debt stock is estimated at 47 percent of GDP in 2007 (in nominal terms). Public external debt is estimated at US$3.2 billion (33 percent of GDP) of which about US$3 billion was owed to multilateral institutions, mostly IDA and the AsDB. Bilateral debt stock is estimated at about US$270 million, with Japan as the largest creditor accounting for more than half of the bilateral debt. After remaining fairly constant at around 50 percent of GDP since 1995, the external debt stock dropped by about 17 percent during 2004-2007 as a result of relatively low external loan disbursements and the appreciation of the Nepalese rupee. The domestic debt stock accounts for around 14 percent of GDP and constitutes an increasing share of total public debt.

B. Assumptions

2. Baseline projections of public and publicly guaranteed (PPG) debt are based on the following key assumptions:

  • Real sector: Real GDP growth is projected to rise gradually from 3.8 percent in 2007/08 as the peace process takes hold and stabilize at 5½ percent after 2010/11, in line with growth rates observed in the 1990s—a period of relative stability—and supported by structural reforms and sound macroeconomic policies. In the longer term, Nepal’s vast untapped hydropower potential is expected to contribute significantly to growth. The exchange rate is projected to depreciate against the dollar, in line with projected movements in the Indian rupee to which the Nepalese rupee is pegged. Inflation is assumed to decline from around 6.5 percent in 2007/08 to an average of about 5 percent in the medium term in line with projected inflation developments in India and as supply bottlenecks are gradually alleviated.

  • Fiscal sector: The revenue-to-GDP ratio is projected at 13½ percent in 2007/08 and projected to average 14.3 percent in 2014-28 owing to gradual improvements in revenue mobilization. The expenditure-to-GDP ratio is projected around 19½ percent in 2007/08 and assumed to be maintained at this level thereafter.1 Official grants are assumed to average 3 percent of GDP in 2007/08–2012/13 as donors are expected to support the peace process; from 2013/14 onwards official grants are projected to decline as a share of GDP.

  • External sector: Exports of goods and services are projected to grow at an average of about 8 percent over the projection period, supported by tourism and growth in partner countries. Imports of goods and services (in dollar terms) are expected to grow by an average of 11 percent in the medium term, fuelled by remittances and in line with economic activity. Import growth during 2013/14-2027/28 is assumed to average 6.6 percent. The current account balance is projected to deteriorate from a surplus of 0.9 percent of GDP in 2007/08 to a moderate deficit of 1.6 percent of GDP by 2027/28 driven by the development needs, with remittances declining gradually as a share of GDP. New financing is assumed to rise from about US$200 million in 2007/08 to US$450 million by 2012/13; from 2013/14 onwards official disbursements are expected to gradually decline as a share of GDP. The grant element of new borrowing is assumed to gradually decline during the projection period, with an average of 46 percent.

C. Baseline

PPG External Debt

3. A key feature of the LIC–DSA framework is that it compares debt burden indicators to indicative policy-based thresholds. The thresholds are based on the empirical finding that low-income countries with stronger policies and institutions tend to have a higher debt carrying capacity. Nepal is classified as a medium performer based on its three year average CPIA score during 2004-06. At end-2007, Nepal’s NPV of public debt-to-exports ratio is estimated at 148 percent (the relevant policy based indicative threshold is 150 percent). The ratio is projected to fall to 87 percent by 2027/28. Other indicators remain below the policy-based indicative thresholds throughout the projection period.2

4. In the baseline scenario, debt burden ratios are projected to fall between 2007/08 and 2027/28 (Table 1). The NPV of external public debt-to-GDP is projected to decline from 20 percent to around 12 percent; the NPV of external public debt-to-exports is projected to fall from 148 percent to 87 percent; and the external public debt service-to-exports ratio is projected to decline from 9 percent to 6 percent.3

Table 1.Nepal: External Debt Sustainability Framework, Baseline Scenario, 2008-2028 1/(In percent of GDP, unless otherwise indicated)
ActualHistorical Average 6/Standard Deviation 6/Projections
200620072008200920102011201220132008-13 Average201820282014-28 Average
External debt (nominal) 1/37.935.529.128.727.827.026.626.524.620.7
o/w public and publicly guaranteed (PPG)35.333.026.926.425.424.624.224.122.118.0
Change in external debt-7.1-2.5-6.3-0.4-1.0-0.8-0.4-0.1-0.6-0.3
Identified net debt-creating flows-9.9-5.4-1.9-2.5-2.0-1.8-1.1-0.7-0.40.3
Non-interest current account deficit-2.5-0.9-3.41.4-0.9-1.3-0.7-0.50.20.81.12.21.6
Deficit in balance of goods and services18.118.418.720.620.720.621.021.120.117.9
Exports13.613.212.112.312.112.112.212.112.113.3
Imports31.731.630.832.832.732.733.333.332.231.2
Net current transfers (negative = inflow)-19.5-17.9-15.73.1-18.4-20.7-20.2-19.8-19.6-19.2-18.1-15.2-17.0
o/w official-1.6-2.0-1.9-3.3-3.2-3.1-3.0-3.0-1.9-0.9
Other current account flows (negative = net inflow)-1.1-1.3-1.2-1.2-1.2-1.2-1.2-1.2-0.9-0.6
Net FDI (negative = inflow)0.1-0.10.00.1-0.1-0.2-0.2-0.2-0.3-0.3-0.5-0.9–0.6
Endogenous debt dynamics 2/-7.4-4.5-0.9-1.0-1.1-1.2-1.1-1.1-1.0-0.9
Contribution from nominal interest rate0.30.30.30.20.20.20.20.20.30.2
Contribution from real GDP growth-1.0-0.8-1.1-1.3-1.3-1.4-1.4-1.4-1.3-1.1
Contribution from price and exchange rate changes-6.7-4.0
Residual (3-4) 3/2.82.9-4.42.11.01.10.80.5-0.2-0.6
o/w exceptional financing-0.3-0.3-0.2-0.2-0.2-0.2-0.2-0.2-0.10.0
NPV of external debt 4/22.119.419.318.818.318.118.016.914.3
In percent of exports167.3160.4157.6155.6151.8148.4148.5139.9107.6
NPV of PPG external debt19.617.117.016.416.015.715.614.511.6
In percent of exports148.5141.7138.5136.1132.1128.8128.7119.687.4
In percent of government revenues163.0127.1129.9120.1113.3107.8103.399.978.6
Debt service-to-exports ratio (in percent)13.810.810.410.110.09.69.38.98.26.5
PPG debt service-to-exports ratio (in percent)13.810.89.29.19.08.68.37.97.25.5
PPG debt service-to-revenue ratio (in percent)17.211.98.28.58.07.46.96.46.05.0
Total gross financing need (billions of U.S. dollars)0.20.30.30.20.30.40.50.71.02.2
Non-interest current account deficit that stabilizes debt ratio4.61.65.40.90.30.30.60.91.72.5
Key macroeconomic assumptions
Real GDP growth (in percent)2.82.53.61.73.84.55.05.55.55.55.05.55.55.5
GDP deflator in US dollar terms (change in percent)17.511.74.07.214.21.23.53.02.12.14.31.61.11.4
Effective interest rate (percent) 5/0.90.90.90.10.80.90.90.90.91.00.91.11.11.1
Growth of exports of G&S (US dollar terms, in percent)2.010.80.612.48.97.26.98.98.87.18.07.68.07.6
Growth of imports of G&S (US dollar terms, in percent)17.513.95.914.415.812.78.48.59.67.710.46.36.56.5
Grant element of new public sector borrowing (in percent)47.046.846.746.646.546.446.745.945.045.7
Memorandum items:
Nominal GDP (billions of US dollars)8.910.212.112.813.915.116.317.625.148.3
Source: Staff simulations.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that NPV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the NPV of new debt).

Source: Staff simulations.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that NPV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the NPV of new debt).

Table 2.Nepal: Sensitivity Analyses for Key Indicators of Public and Publicly Guaranteed External Debt, 2008-28(In percent)
Projections
20082009201020112012201320182028
NPV of debt-to-GDP ratio
Baseline1717161616161412
A. Alternative Scenarios
A1. Key variables at their historical averages in 2009-28 1/1716141311900
A2. New public sector loans on less favorable terms in 2009-28 2/1718171818181919
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2009-101717171717171512
B2. Export value growth at historical average minus one standard deviation in 2009-10 3/1718201919191713
B3. US dollar GDP deflator at historical average minus one standard deviation in 2009-101718181818171613
B4. Net non-debt creating flows at historical average minus one standard deviation in 2009-10 4/1722252424242114
B5. Combination of B1-B4 using one-half standard deviation shocks1722292827272316
B6. One-time 30 percent nominal depreciation relative to the baseline in 2009 5/1724232322222117
NPV of debt-to-exports ratio
Baseline14213813613212912912087
A. Alternative Scenarios
A1. Key variables at their historical averages in 2009-28 1/142129117104877200
A2. New public sector loans on less favorable terms in 2009-28 2/142143145145146151159143
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2009-1014213813613212912912087
B2. Export value growth at historical average minus one standard deviation in 2009-10 3/142184251243236235213144
B3. US dollar GDP deflator at historical average minus one standard deviation in 2009-1014213813613212912912087
B4. Net non-debt creating flows at historical average minus one standard deviation in 2009-10 4/142176209202196194171106
B5. Combination of B1-B4 using one-half standard deviation shocks142204291281272269236145
B6. One-time 30 percent nominal depreciation relative to the baseline in 2009 5/14213813613212912912087
NPV of debt-to-revenue ratio
Baseline12713012011310810310079
A. Alternative Scenarios
A1. Key variables at their historical averages in 2009-28 1/12712110389735800
A2. New public sector loans on less favorable terms in 2009-28 2/127134128125122121133129
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2009-1012713312712011410910683
B2. Export value growth at historical average minus one standard deviation in 2009-10 3/12714014613813012411786
B3. US dollar GDP deflator at historical average minus one standard deviation in 2009-1012713613412612011511188
B4. Net non-debt creating flows at historical average minus one standard deviation in 2009-10 4/12716618517316415514396
B5. Combination of B1-B4 using one-half standard deviation shocks127170210197186176161106
B6. One-time 30 percent nominal depreciation relative to the baseline in 2009 5/127185171161153147142112
Source: Staff projections and simulations.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. Owing to the debt dynamics based on the historical period, the NPV of debt turns negative and is therefore set to zero.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Source: Staff projections and simulations.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. Owing to the debt dynamics based on the historical period, the NPV of debt turns negative and is therefore set to zero.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Table 3.Nepal: Public Sector Debt Sustainability Framework, Baseline Scenario, 2005-2028(In percent of GDP, unless otherwise indicated)
ActualEstimateProjections
Historical Average 5/Standard Deviation 5/2008-13 Average2014-28 Average
2006200720082009201020112012201320182028
Public sector debt1/56.746.744.644.343.041.740.338.833.632.5
o/w foreign-currency denominated35.333.026.926.425.424.624.023.621.717.7
Change in public sector debt-2.8-10.0-2.1-0.3-1.3-1.3-1.5-1.5-0.70.1
Identified debt-creating flows-6.7-8.5-0.2-0.6-1.7-1.9-2.1-2.3-0.20.6
Primary deficit0.70.51.51.52.61.41.00.70.50.11.11.41.91.5
Revenue and grants13.114.316.116.416.817.217.618.016.816.4
of which: grants2.12.32.73.33.13.13.13.12.61.9
Primary (noninterest) expenditure13.814.818.817.817.817.918.018.118.218.3
Automatic debt dynamics-7.4-9.0-2.9-2.0-2.7-2.6-2.6-2.5-1.6-1.3
Contribution from interest rate/growth differential-4.0-2.3-1.7-2.0-2.1-2.2-2.1-2.0-1.5-1.3
of which: contribution from average real interest rate-2.4-0.90.00.00.00.10.10.10.30.4
of which: contribution from real GDP growth-1.6-1.4-1.7-1.9-2.1-2.2-2.2-2.1-1.8-1.7
Contribution from real exchange rate depreciation-3.4-6.7-1.20.0-0.6-0.5-0.5-0.5
Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)0.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes3.9-1.5-1.90.30.40.60.60.80.50.5
NPV of public sector debt43.933.334.934.934.133.132.030.826.326.4
o/w foreign-currency denominated22.619.617.117.016.416.015.715.614.511.6
o/w external22.619.617.117.016.416.015.715.614.511.6
NPV of contingent liabilities (not included in public sector debt)
Gross financing need 2/3.93.75.44.13.73.32.92.53.53.9
NPV of public sector debt-to-revenue and grants ratio (in percent)335.0233.3216.2213.3202.8192.1182.1171.3156.6161.0
NPV of public sector debt-to-revenue ratio (in percent)398.8277.5258.7266.9249.0234.6221.4207.3185.3182.2
o/w external 3/204.7163.0127.1129.9120.1113.3108.8105.3101.980.1
Debt service-to-revenue and grants ratio (in percent) 4/24.122.317.516.516.015.314.113.312.312.2
Debt service-to-revenue ratio (in percent) 4/28.726.520.920.619.718.617.116.114.613.9
Primary deficit that stabilizes the debt-to-GDP ratio3.510.54.71.72.32.01.91.62.01.8
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)2.82.53.31.93.84.55.05.55.55.55.05.55.55.5
Average nominal interest rate on forex debt (in percent)1.01.11.00.11.11.31.21.21.21.21.21.00.91.0
Average real interest rate on domestic currency debt (in percent)-11.5-4.6-0.74.60.0-0.6-0.20.20.20.20.02.83.02.6
Real exchange rate depreciation (in percent, + indicates depreciation)-8.2-19.5-2.69.7-3.7
Inflation rate (GDP deflator, in percent)17.98.66.44.56.56.05.55.05.05.05.53.53.03.3
Growth of real primary spending (deflated by GDP deflator, in percent)-7.08.43.38.533.2-1.05.36.16.25.99.35.75.55.6
Sources: Country authorities; and Fund staff estimates and projections.

Public and publicly guaranteed debt.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: Country authorities; and Fund staff estimates and projections.

Public and publicly guaranteed debt.

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Nepal: Indicative External Debt Burden Indicators
Indicative

Thresholds
Nepal:

2006/07
Nepal:

projected

average

2007/08-2027/28
NPV of debt, in percent of
Exports150148116
GDP402215
Revenue250163114
Debt Service, in percent of
Exports20117
Revenues30126

Total Public Debt

5. Domestic debt accounts for about 30 percent of total public debt at end-2007. For the baseline scenario, the NPV of public debt-to-GDP ratio declines from 35 percent at end 2007/08 to 26 percent by 2027/28 (Table 4, Figure 2). Over the same period, the NPV of public debt to-revenue ratio falls from 216 percent to 157 percent, and the public debt service-to revenue ratio decreases from 17 percent to 12 percent.

Figure 1.Nepal: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2008-2028

Source: Staff projections and simulations.

1/ Owing to the debt dynamics resulting from using historical averages, which cause the NPV of debt to become negative in part of the projection period, the debt indicators associated with a negative NPV of debt are set to zero.

Figure 2.Nepal: Indicators of Public Debt Under Alternative Scenarios, 2008-2028 1/

Source: Staff projections and simulations.

1/ Most extreme stress test is test that yields highest ratio in 2018.

2/ Revenue including grants.

Table 4.Nepal: Sensitivity Analysis for Key Indicators of Public Debt 2008-2028
Projections
20082009201020112012201320182028
NPV of Debt-to-GDP Ratio
Baseline3535343332312626
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages3535353536363534
A2. Primary balance is unchanged from 20083536363738383944
A3. Permanently lower GDP growth 1/3535343333323038
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2009-20103536373737363541
B2. Primary balance is at historical average minus one standard deviations in 2009-20103536373635332828
B3. Combination of B1-B2 using one half standard deviation shocks3536373634332725
B4. One-time 30 percent real depreciation in 20093542413937363028
B5. 10 percent of GDP increase in other debt-creating flows in 20093544434140383331
NPV of Debt-to-Revenue Ratio2/
Baseline216213203192182171157161
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages214213207204202200202197
A2. Primary balance is unchanged from 2008215218216214214214232266
A3. Permanently lower GDP growth 1/215212203193185176175230
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2009-2010215219218212206198205250
B2. Primary balance is at historical average minus one standard deviations in 2009-2010215220220208197185169168
B3. Combination of B1-B2 using one half standard deviation shocks215219219206194182161154
B4. One-time 30 percent real depreciation in 2009215258242227213199176170
B5. 10 percent of GDP increase in other debt-creating flows in 2009215268253239226213195189
Debt Service-to-Revenue Ratio2/
Baseline1716161514131212
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages1717171717171616
A2. Primary balance is unchanged from 20081716181919202026
A3. Permanently lower GDP growth 1/1717161615141520
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2009-20101717181817171723
B2. Primary balance is at historical average minus one standard deviations in 2009-20101716192016151314
B3. Combination of B1-B2 using one half standard deviation shocks1717181916141312
B4. One-time 30 percent real depreciation in 20091717171615141314
B5. 10 percent of GDP increase in other debt-creating flows in 20091716352318161517
Sources: Country authorities; and Fund staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (i.e., the length of the projection period).

Revenues are defined inclusive of grants.

Sources: Country authorities; and Fund staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (i.e., the length of the projection period).

Revenues are defined inclusive of grants.

D. Sensitivity Analysis

6. Stress tests and alternative scenarios suggest vulnerability to shocks.

  • Total public debt: A shock modeled as real GDP growth at historical average minus one standard deviations in 2009-10 results in the NPV of debt-to-GDP ratio increasing from 35 percent in 2008 to 41 percent in 2028; the NPV of Debt-to-Revenues-and-Grants ratio increases from 215 to 250 percent; and the debt service to revenue ratio increases from 17 to 23 percent. This scenario illustrates the importance of the peace dividend as reflected in stronger real GDP growth. Alternative scenarios reveal vulnerabilities from maintaining the 2008 fiscal stance (primary balance), which could result in the NPV of debt-to-GDP ratio increasing from 35 in 2008 to 44 percent in 2028.

  • External debt: Bound tests indicate that the NPV of debt-to-export ratio is sensitive to shocks. Following a combined, half-standard deviation shock to export growth, GDP deflator, and net non-debt creating flows, the NPV of debt-to-exports ratio increases significantly, peaking at near 300 percent in 2010, and stays above the threshold for most of the projection period. Other bound tests (e.g. shocks to exports and non-debt creating flows) also cause the NPV of debt-to-exports to break the thresholds. These results are partly driven by Nepal’s volatile export performance in the past decade. Shocks to other debt indicators such as the NPV of debt-to-GDP and debt service-to-revenue, result in trajectories below threshold values.

E. Staff Assessment

7. Based on the LIC-DSA, staffs conclude that Nepal’s external debt dynamics are subject to a moderate risk of distress. Since the last DSA in 2007, the initial net present value of debt has improved due to the appreciation of the Nepalese rupee and lower than projected loan disbursements in the interim. In contrast to the previous DSA, the baseline scenario does not indicate a protracted breach of debt thresholds. In view of this, Nepal’s external debt dynamics are assessed to be subject to a moderate risk of debt distress. This said, bound tests reflecting shocks to export growth and non-debt creating flows could result in protracted breach of the debt thresholds. The sensitivity analyses underscore the need to implement sound macroeconomic policies and reforms, including through raising the real GDP growth rate and achieving higher export growth. Stronger and more stable growth in exports contributing to higher GDP growth, combined with foreign financing at favorable terms—preferably through grants—would help Nepal make progress toward achieving its MDG targets while containing risks to debt sustainability.

The projected increase in the fiscal spending in 2007/08 is driven mainly by pre-election and election spending, higher costs associated with clearing Nepal Oil Corporation’s arrears, and increased donor flows.

The baseline projections expect the current account, which has been historically a surplus in Nepal, to unwind gradually into a deficit, as spending and higher growth result in more imports of goods and services and the surge in remittances stabilizes. The average current account deficit over the projection period 2008-28 is a little over 1 percent of GDP relative to the historical average of a surplus current account of 3.4 percent. The results of the historical scenario, where the current account surplus of 3.4 percent of GDP continues into the projection period, suggests negative borrowing and thereby steady declines in debt. In view of this, debt is constrained to zero in 2018.

Given the high concessionality of external debt, the debt service-to-exports ratio is low, and at levels similar or lower than to most HIPCs after full HIPC debt relief. The ratio reflects debt service on existing debt and debt service on projected disbursements.

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