Govt to issue more dev bonds than T-bills
KATHMANDU, SEP 20 -
In a sharp departure from the past, the government will raise more than 50 percent of the internal loans through development bonds this fiscal year. Earlier, the government used to raise the loans mainly through treasury bills (T-bills).
As per the provision in the budget, the government will raise internal loans worth Rs 44 billion this fiscal year. The government raises domestic debt to finance the deficit of finance after collecting resources from revenue and foreign aid.
Based on the recommendation of the Open Market Operation Committee headed by the deputy governor of the Nepal Rastra Bank (NRB), the government on Thursday decided to issue more development bonds to raise internal loans.
Finance Ministry Joint Secretary Nawaraj Bhandari said that the government approved the committee’s proposal with an aim of developing the country’s bond market.
This is the first time the government is issuing more development bonds than treasury bills. Currently, development bonds account for 25 percent (Rs 51.61 billion) of the total domestic debt of Rs 207 billion raised by the government, according to NRB.
Development bonds are the debt instruments issued by the government to raise the internal loans, which banks and financial institutions, non-bank financial institutions and individuals can purchase.
The government’s move has come after Deloitte India, a consultant that studied Nepal’s bond market, suggested issuance of more bonds in its initial recommendation. “Bonds are beneficial for the government as they allow the government to repay the debt in the long run and if they are sold when interest rate is low, it will be more beneficial for the government,’ said NRB Deputy Governor Gopal Prasad Kafle.
The government, however, will issue T-bills worth Rs 14 billion—31.81 percent of the targeted domestic borrowing, according to Bhandari. The rest will be generated through National Saving Certificates and Foreign Employment Bond, according to the ministry. Currently, total outstanding treasury bills in the market are worth Rs 136.46 billion—65.92 percent of total domestic debt.
Besides the issuance of more development bonds this year, the government is for the first time allowing the market to determine the interest rate of bonds. So far, investors of development bonds were forced to purchase bonds at premium rates. “The government will not fix the interest rate this time, but will ask interested investors to quote interest rates,’ said an NRB official.
The official said the interest rate offered by investors will be arranged on ascending order and the maximum rate maintained while matching the demand and total borrowing will be considered as benchmark interest rate of the market.
“The same interest rate will be maintained while selling the bonds this year,” the official said.
He said the rate maintained would work as the bond market interest rate. “This will also help the private sector and International Finance Corporation and Asian Development Bank—which are willing to issue local currency bonds—assess the potential interest rate of the market,” he said.
Source: The Kathmandu Post
