NRB to raise domestic debt of Rs 52.75 billion

KATHMANDU:

Nepal Rastra Bank (NRB) will start raising debt from the domestic market on behalf of the government beginning next week to mobilise financial resources required for reconstruction works in the aftermath of the devastating earthquake of April 25.

Government is intending to raise Rs 52.75 billion from domestic market within July 9 by floating securities like Treasury Bills, development bonds, citizens saving bonds and foreign employment bonds.

NRB, the central monetary authority and the government’s financial advisor, is raising the debt based on the Cabinet’s decision of Tuesday and green signal extended by the Ministry of Finance today.

Although the government had announced its decision to raise debt of Rs 52.75 billion from the domestic market while launching the fiscal policy of this financial year, it had later started having second thoughts about it after funds started sitting idle in coffers due to slow public spending.

But everything changed after the earthquake, and a series of aftershocks, devastated various parts of the country, including Kathmandu Valley.

Even though the bill that the government is likely to foot due to the devastation caused by the earthquake is yet to be known, it is estimated to stand at over Rs 500 billion.

To finance reconstruction, the government has already taken a decision to establish 200-billion-rupee National Reconstruction Fund, in which the government would contribute Rs 20 billion.

This shows the country’s funding needs are huge at the moment. Yet, what is also true is that the government may not be able to use the entire Rs 52.75 billion in debt collected from the domestic market within this fiscal because less than two months are left for the ongoing financial year to end and the government still has not been able to make use of around Rs 80 billion lying idle in its coffers.

“We know we have treasury surplus. So, if we can’t make use of entire debt raised from the market this fiscal, we’ll use it next year when reconstruction works will take place at full swing,” Finance Minister Ram Sharan Mahat told The Himalayan Times yesterday.

The NRB has decided to kick off the debt-raising process on May 26, with the opening of sales of Citizens Saving Bonds worth Rs 2.5 billion. This instrument, with a maturity period of five years, is targeted at households. It guarantees returns of eight per cent per annum. This instrument was last issued in May 2012.

Then on May 28, NRB will auction development bonds worth Rs five billion. NRB intends to sell development bonds of Rs 35 billion till July 2.

Eighty per cent of these bonds, with a maturity period of five to 15 years, will be sold to banks and financial institutions, and rest to non-banking institutions and public. The returns on these securities will be fixed through auction.

NRB will also float foreign employment bonds worth Rs 250 million on June 21. The bonds, with a maturity period of five years, will guarantee returns of nine per cent per annum. These securities are targeted towards overseas migrant workers and non-resident Nepalis.

Among others, Treasury Bills worth Rs 15 billion with a maturity period of 91 days and 182 days will also be auctioned between June 22 and July 6.

In this manner, NRB intends to raise debt of around Rs 43 billion from banks and financial institutions and the rest — Rs 9.75 billion — from non-banking institutions, general public, overseas migrant workers and non-resident Nepalis.

As of last fiscal, the government’s outstanding domestic debt stood at Rs 226.10 billion, shows the Economic Survey 2013-14.

Source THT