No need for govt bonds this year

KATHMANDU, JUNE 23:

Low public expenditure in current fiscal year has removed the need to issue any government bonds.

With less than a month remaining for the fiscal year to end and public expenditure remaining at less than half the earmarked amount, the government does not need to raise funds to finance its spending. Though the full budget announced back in April had planned to issue debt instruments worth Rs 38 billion to finance budget deficit, there is no need of the said amount at present.

“Due to low expenditure, the need for additional funding is not felt by the government to raise more funds through internal borrowing,” informed an official at the Finance Ministry. Last year, government had issued bonds worth Rs 37.41 billion to bridge gap between government revenue and expenditure. However, the delay in budget announcement, which finally took place in the ninth month, further slowed down government spending.

This year, by the 10th month, the government was able to spend only Rs 216.68 billion — a little more than half the earmarked amount of Rs 404.8 billion. Moreover, the state of capital expenditure is more pathetic with only about Rs 22 billion being spent of the estimated Rs 66 billion. “Moreover, by not issuing bonds, the government will also save a sum in internal debt servicing as there will not be any need to pay interests,” the official pointed out. Likewise, low spending has also affected mount of borrowing from foreign sources. So far, government has taken loans worth Rs 7.2 billion while estimated external borrowing stood at Rs 25.8 billion.

Internal debt not only bridges fiscal deficit, it is also an important tool used by the monetary policy to influence the interest rate in the financial market. The coupon rates of debt instruments such as treasury bills and development bonds are used by the central bank to guide the interest rate through Open Market Operations.

The central bank absorbs excess liquidity by buying government securities from banks. In case of tight liquidity situation, the central bank releases securities by selling them to banks. Moreover, the rate at which these securities are traded also guides the overall interest rate. “In the absence of fresh debt instruments, Nepal Rastra Bank (NRB) can roll over the treasury bills that have matured and send it back so that liquidity management is not affected,” said director at NRB’s Public Debt Management Department Dr Gopal Bhatta.

Last year, NRB had issued treasury bills worth Rs 16 billion, development bonds worth Rs 14 billion, national savings bond worth Rs five billion, citizen saving bond worth Rs 1.4 billion, and foreign employment bond worth Rs one billion.

Source: THT