September 29: Nepal Rastra Bank has published its annual schedule to raise billion of rupees as internal debt due to excessive liquidity in banks and financial institutions. The central bank will be raising Rs 225 billion internal debt for the government in the current fiscal year.

Internal debt is raised to support the government’s annual budget. In order to manage this, Nepal Rastra Bank is going to raise the amount every 4 months through the issuance of treasury bills, development bonds, citizen savings bonds and foreign employment saving bonds till the end of next year. The highest amount of the internal debt will be raised during the third quarter of FY 2077/78.

The central bank will be raising Rs 57 billion in the first quarter, Rs 58 billion in the second quarter and Rs 112 billion in the third quarter. The central bank used to publish schedules for raising the internal debt in a quarterly basis. However, the loan will be raised every four months in the current fiscal year.

The central bank’s National Debt Management Department has set a target to raise Rs 70 billion in the first four months by issuing treasury bills with maturity ranging from 28 days to 364 days. This is 31.1 percent of the total target. Similarly, there is a target of raising Rs 150 billion through the issuance of development bonds with a maturity of 5 to 10 years. This is 66.7 percent of the total internal debt. Similarly, Rs 4 billion will be raised through 5-year citizen bonds. This is 1.8 percent of the total target.

Foreign employment savings bonds will be issued with a target of raising Rs 1 billion through it. It is 0.4 percent of the total internal debt target. Citizen savings bonds and foreign employment savings bonds have not been included in the first four months.

The government has announced that it aims to raise an internal debt of Rs 225 billion for the budget of FY 2077/78. The target was Rs 150 billion in the last fiscal year.

Banks have not been able to give out loans as they had estimated due to the coronavirus pandemic. As a result, there is a liquidity of more than Rs 200 billion in the market. The central bank has also recently issued deposit collection tool and Treasury bills to manage the liquidity.

The central bank issued a tender notice for selling 9-year development bonds worth Rs 20 billion through September 27. Similarly, it announced tender bids for selling Treasury bills worth Rs 3.10 billion on September 28. Bankers are hoping that these tools will help in managing the excess liquidity to some extent.

According to the provisions of Nepal Rastra Bank Act, 2058 and Nation Debt Act, 2059, the central bank raises the internal debt on behalf of the government.

Every year, a letter is written to the central bank by the Ministry of Finance requesting the bank to raise the amount of internal debt as specified in the annual budget. NRB Spokesperson Dr Gunakar Bhatt explains that after receiving the letter, the Open Market Operations Committee of the National Debt Management Department prepares an annual internal debt collection schedule, specifying the amount to be collected by the respective tools.

According to him, the internal debt will be raised as per the date fixed for bidding or issuance in the schedule. However, the committee said that the Open Market Operations Committee has the right to make necessary changes to it. The schedule has been made public after the Ministry of Finance approved upon the recommendation of the committee.

Under the management of the internal debt, the money accumulated through the issuance and auctions of government bonds are deposited in the internal debt account of the Government of Nepal. The principal and interest amount is paid to the bondholders on the date of maturity of the bond. Activities such as keeping records of issued bonds, preparing and distributing bond certificates, transfer of bonds as required, etc. are also done. The Government of Nepal is fully responsible for all government bonds along with the management of the secondary market for these bonds.