Govt to bring National Debt Policy

KATHMANDU, MAY 02 -

The government is preparing to introduce the ‘National Debt Policy’ to determine the criteria for taking domestic and foreign loans.

The Finance Ministry is currently drafting the policy which is expected to work as an integrated policy for both domestic and foreign loans. Although the country has long been taking loans for budget deficit financing, it does not have an integrated policy on debt so far. “The policy will determine the criteria that on what condition the loans are to be taken,” said Baikuntha Aryal, joint secretary at the finance ministry.

In the absence of clear criteria, Nepal has been taking loans which has increasingly in debt ed the country, according to the ministry officials. “Although we had a surplus treasury last fiscal year, we raised all the set internal loans,” said Aryal.

This shows the country lacks a clear standard for projecting how much debt it needs, according to Aryal. “The policy will give the much-needed tool for correct projection of loans required for the country,” he said.

In recent years, Nepal has been failing to spend the capital budget well, while revenue collection has been relatively good. It is particularly due to the lack of timely budget presentation. The policy will determine whether to raise internal loans when there is good revenue collection and poor expenditure,” said another ministry official.

The government’s failure to spend has resulted in savings of Rs 57 billion in the government’s treasury as of mid-April this fiscal.

A ministry official involved in drafting the policy said the policy will determine to what extent the debt can be taken compared to the Gross Domestic Product (GDP) and in what situation.

Nepal’s public debt stands at 33 percent of the GDP, according to a recent International Monetary Fund (IMF) report. The country’s debt liability is Rs 523.20 billion as of last fiscal year, according to 50th annual report of Office of Auditor General. Of the total debt liability, Rs 309.28 billion is foreign debt and Rs 213.92 billion is domestic debt .

“This policy will also set clear criteria for financing to public enterprises,” said Aryal. Particularly, the government relends foreign aid to public enterprises like Nepal Electricity Authority for development of various projects.

A study carried out by the Centre for Empowerment Innovation and Development for the Financial Comptroller General Office in 2012 has said legal provisions and executive procedures on public debt management are more in scattered form.

The report has hinted a number of shortcomings in the existing the legal provision regarding public debt . “Domestic and external borrowings are administered in isolation through separate Acts and Regulations,” it states. “Legal framework is intended to fix the upper limits of borrowing only.”

The Loan and Guarantee Act looks after foreign loans while Public Debt Act governs domestic loans. The report says the Loan and Guarantee Act has not made any provision for institutional responsibility in undertaking external loan operations. For external loan mobilisation, there is foreign aid policy 2012 in place, which the report says lacks clarity on foreign exchange risk management strategies.

The report has suggested having clarity in the Policy and Strategies, stating that public debt strategies can become “dangerously vulnerable” when faced with unforeseen events such as deteriorating private sector balance. It has also suggested an integrated legal framework, institutional capacity strengthening, right management to keep debt at a reasonable limit and ensuring better utilization of debt to increase the country’s debt repayment capacity. “One of the bases of national debt policy is the study report prepared by the FCGO,” said Aryal.

Source: The Kathmandu Post