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Early this year, the Nepali rupee slid to its weakest level in its history against the dollar, with Nepal’s central bank fixing the exchange rate at Rs150.24 per US dollar. The currency depreciated largely due to the weakening of Indian rupee, to which Nepal’s currency is pegged. The sharp slide came as global uncertainty rose once again due to escalating tensions in West Asia and the Middle East. Investors worldwide began shifting money toward safer assets, which strengthened the US dollar.
The appreciation of the US dollar significantly increased Nepal’s debt liabilities at a time when the himalayan nation is grappling with a rapidly rising public debt burden. By the close of the 2025/26 fiscal year, Nepal’s public debt had breached 2.9 trillion rupees, culminating in a grim milestone: the government spent more servicing old loans than it invested in the infrastructure, clinics, and schools vital to the nation’s future. Nepal did not make a reckless bet. It simply exists within the confines of a global financial architecture it did not design and cannot readily escape.
Across the developing world, a sovereign debt architecture built for the mid-twentieth century is straining under obligations that have quadrupled in some nations within a decade. Developing countries are not chiefly failing to manage their debts. They are struggling to survive a system whose rules, terms and institutions were built by creditors, for creditors, and have never been substantially rewritten. Correcting that requires structural reform, not charity, not forgiveness dispensed as an act of mercy, but a genuine rebalancing of power between borrower and lender.
The governance structures of the World Bank and the International Monetary Fund date to 1944, and they still hand a small cluster of wealthy nations more collective voting power than the entire Global South, which represents 85 per cent of the world’s population and nearly 39 per cent of global GDP. It means the institutions that decide who counts as “creditworthy” are, in practice, accountable mainly to the world’s richest capitals, and Nepal, like most of its neighbors, negotiates its loans from inside a room it had little hand in designing. Private creditors compound the imbalance further still: commercial banks and bondholders now hold more than half the external public debt of many developing nations, and they can lean on Western courts and drawn-out litigation to enforce terms that a more balanced negotiating table might never have produced in the first place.
Some skeptics will object that nations agreed to their loan terms and must honor them. But the terms themselves are the problem. Developing nations routinely pay two to ten times the interest that wealthy governments pay to borrow, a premium justified by risk models that treat entire regions as inherently unreliable regardless of their actual conduct. Nepal’s debt has swollen not chiefly from profligacy but from a decade defined by a devastating earthquake, a pandemic, and now a currency in free fall, precisely the sort of shocks a fairer lending system would be built to absorb rather than penalize.
The clearest proof of what is broken is what happens when disaster strikes. In 2022, floods displaced some 33 million people in Pakistan, yet the government continued servicing its foreign debt out of fear of default even as it pleaded for money to rebuild. Nepal is living a quieter version of the same story: according to its Public Debt Management Office, the country spent 5.85 percent of GDP on debt service last fiscal year, and the budget set aside for repaying old loans exceeded what was budgeted for new capital investment. A system fortified with genuine crisis provisions like automatic, pre-agreed pauses on repayment when earthquakes, floods, or pandemics strike would fundamentally reshape international finance. By embedding these safeguards into loan agreements from the outset, rather than scrambling to negotiate them in the panic of an unfolding disaster, vulnerable nations would gain a vital buffer. Such a mechanism ensures sovereign states can prioritize immediate humanitarian relief for their citizens over debt service to external creditors, all while preserving the long-term fiscal stability that lenders require to remain whole.
A fairer share of the gains from new technology could help fund exactly that. A modest one-percent solidarity levy on the revenues of the world’s largest artificial intelligence companies, an industry projected to grow more than twentyfold within a decade, would ask nothing from the treasuries of wealthy nations and everything from an industry that depends on the same stable global order it profits from.
None of this requires absolving governments that borrow carelessly, and none of it asks creditors to abandon a legitimate expectation of repayment. What it requires is more modest and more achievable: a borrowers’ forum where developing nations can negotiate with something closer to the leverage creditors already enjoy as a matter of course.
Real reform also demands repayment terms that bend when disaster strikes instead of compounding it, and an honest reckoning with how the current system was built, and for whom. Sovereign debt is usually discussed in the bloodless language of interest rates and amortization schedules.
But in Kathmandu this year, it meant fewer rupees for clinics and classrooms because a currency slipped on a trading floor thousands of miles away. That is not mismanagement. That is a system working exactly as it was designed to and it is long past time to design it differently.
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