The government plans to issue development bonds worth Rs 3 billion on Nov 14 to raise internal loans despite having a large amount of unspent cash in its coffers.
The government was sitting on Rs 34 billion as of the end of the first quarter of this fiscal year, and its failure to spend the development budget has resulted in more cash piling up in its vaults.
This year, the development bonds are being issued within the first four months of the fiscal year although in the past they used to be issued in the latter months. Chief of the budget division at the Finance Ministry Baikuntha Aryal said that the bonds were being issued as per the schedule for raising internal loans.
The government has targeted to raise a total of Rs 44 billion in internal loans this year, and for the first time, it is issuing more bonds than treasury bills. It has planned to issue different types of bonds worth Rs 30 billion and treasury bills worth Rs 14 billion.
Aryal said that the government aimed to issue small amounts of development bonds at certain intervals so that people would subscribe to all the bonds. The plan would also test the market and help develop the bond market, he added.
“Issuing bonds towards the latter period of the fiscal year has resulted in under-subscription, and the public remained unaware about bonds due to their infrequent issuance,” he added.
For the first time, the government will allow the market to determine the interest rate of the bonds. So far, investors in development bonds have been forced to purchase them at premium rates.
According to an official of Nepal Rastra Bank (NRB), bonds worth Rs 2.1 billion (70 percent of the total) would be issued for competitive bidding while the rest worth Rs 900 million would be sold without competition.
The official said the interest rates quoted by potential investors would be arranged in ascending order, and the maximum rate calculated while matching the demand and total borrowing will be considered as the market’s benchmark interest rate.
“The same interest rate will be set for bidders who take part in competitive bidding and for the bonds that will be sold without competition,” said the NRB official.
According to a central bank official, the general public and commercial banks, development banks, finance companies, Employees’ Provident Fund, Citizens Investment Trust and insurance companies can participate in the bidding.
The move to let the market fix the interest rate is expected to help create an average interest rate for the bond market. The way things are presently, nobody has a clue about the bond market interest rate due to the tradition of the government fixing it. The new arrangement is also expected to help the private sector and International Finance Corporation and the Asian Development Bank - which are willing to issue local currency bonds - assess the potential interest rate of the market.
source: the kathmandu post,11 Nov 2013
LINK
The government was sitting on Rs 34 billion as of the end of the first quarter of this fiscal year, and its failure to spend the development budget has resulted in more cash piling up in its vaults.
This year, the development bonds are being issued within the first four months of the fiscal year although in the past they used to be issued in the latter months. Chief of the budget division at the Finance Ministry Baikuntha Aryal said that the bonds were being issued as per the schedule for raising internal loans.
The government has targeted to raise a total of Rs 44 billion in internal loans this year, and for the first time, it is issuing more bonds than treasury bills. It has planned to issue different types of bonds worth Rs 30 billion and treasury bills worth Rs 14 billion.
Aryal said that the government aimed to issue small amounts of development bonds at certain intervals so that people would subscribe to all the bonds. The plan would also test the market and help develop the bond market, he added.
“Issuing bonds towards the latter period of the fiscal year has resulted in under-subscription, and the public remained unaware about bonds due to their infrequent issuance,” he added.
For the first time, the government will allow the market to determine the interest rate of the bonds. So far, investors in development bonds have been forced to purchase them at premium rates.
According to an official of Nepal Rastra Bank (NRB), bonds worth Rs 2.1 billion (70 percent of the total) would be issued for competitive bidding while the rest worth Rs 900 million would be sold without competition.
The official said the interest rates quoted by potential investors would be arranged in ascending order, and the maximum rate calculated while matching the demand and total borrowing will be considered as the market’s benchmark interest rate.
“The same interest rate will be set for bidders who take part in competitive bidding and for the bonds that will be sold without competition,” said the NRB official.
According to a central bank official, the general public and commercial banks, development banks, finance companies, Employees’ Provident Fund, Citizens Investment Trust and insurance companies can participate in the bidding.
The move to let the market fix the interest rate is expected to help create an average interest rate for the bond market. The way things are presently, nobody has a clue about the bond market interest rate due to the tradition of the government fixing it. The new arrangement is also expected to help the private sector and International Finance Corporation and the Asian Development Bank - which are willing to issue local currency bonds - assess the potential interest rate of the market.
source: the kathmandu post,11 Nov 2013
LINK
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