Nepal’s risk of external debt distressremains low. Under the revised IMF/World Bank DebtSustainability Analysis Framework for Low Income Countries(LIC-DSF), all debt and debt service ratios are projected toremain below relevant indicative threshold values. Followinga prolonged decline, to 25 percent of GDP in mid-2015, thesum of external and domestic public debt rose to 30 percentof GDP in mid-2018. A further rise in total public debt isprojected, to about 35 percent of GDP in the medium term andabout 48 percent of GDP in the long term, owing tocontinuing fiscal and current account deficits, as theauthorities implement fiscal federalism and aim to put theeconomy on a higher growth path. Stress tests suggest thatdebt burden indicators are vulnerable to growth/exportsshocks and natural disasters. This underscores theimportance of implementing sound macro-economic policies.Efforts to improve the business climate and competitivenessthrough high-quality public investment and structuralreforms would support growth and expand foreign exchangeincome streams.