NRB issuing development bonds worth Rs 6 billion

Published On: October 19, 2017 04:30 AM NPT By: Republica  | @RepublicaNepal

BFIs, insurance companies, as well as citizens, can purchase the seven-year bond.

KATHMANDU, Oct 19: Nepal Rastra Bank (NRB) has issued seven-year development bond worth Rs 6 billion. 

The development bond, named 'Development Bond 2081 Ka', can be subscribed by bank and financial institutions (BFIs), non-financial institutions, insurance companies as well as Nepali citizens, according to the central bank. It will mature on October 23, 2021.

The central bank is issuing the 'Development Bond 2081 Ka' in the second quarter of Fiscal Year 2017/18 in line with the internal debt issuance calendar prepared by its Public Debt Department.

Rates quoted by subscribers through bidding will determine the coupon rates, or the yield, of the development bond. The central bank will pay interest on the bond two times a year.
According to a notice published by the NRB, interested buyers can apply for the bonds until October 22 and the bonds will be issued on October 23.  

Under development bonds, the central bank issues securities on receipt of debt and pays interest biannually. While the BFIs can count bonds for statutory liquidity ratio purpose, individuals and other institutions can borrow money by pledging it as collateral. They can also sell the bonds to market-makers.  Likewise, these bolds are also tradeable in the secondary market.

The bonds issued by the NRB, on behalf of the government, are said to be risk-free investment instruments. 

The development bond is part of the domestic debt that the government plans to mobilize for deficit financing of its budget. Treasury bills, development bonds, citizen saving bonds, national saving bonds and foreign employment bonds are the instruments that the NRB uses to raise internal debt for the government.   

The central bank is raising money inside the country in line with the government's plan of collecting Rs 145 billion in the current fiscal year for deficit financing as mentioned in the budget for the new fiscal year. Unveiling the budget in July this year, the government said that it will spend a total of Rs 1,278 billion in Fiscal Year 2017/18. It also announced to make internal borrowing of Rs 145 billion for financing budget deficit after realizing that the targeted revenue and foreign grants would be insufficient to finance its spending plans.

Huge portion of internal debt is scheduled to be issued in the second quarter, according to the debt issuance calendar of the NRB. While 42.49 percent of the internal debt will be raised in the second quarter, the remaining 14.41 percent debt instruments will be issued in the third quarter and 3.41 percent in the last quarter. 

The central bank has already raised 39.68 percent of the debt in the first quarter. 

The development bonds with the maturity period ranging from five years to 15 years account for the highest amount of debt. A total of Rs 72 billion, or 49.66 percent of the total debt, will be raised through development bonds, according to the calendar. Similarly, NRB plans to raise Rs 66 billion, or 45.52 percent of the total domestic debt, through Treasury Bills which can be subscribed only by BFIs. 

Likewise, the NRB is scheduled to issue five-year citizens saving bonds worth Rs 6 billion, while Nepalis working abroad can make investment in foreign employment saving bonds worth Rs 1 billion.

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