Print Edition - 2015-07-11  |  MONEY

Govt not raising internal debt as planned

- PRITHVI MAN SHRESTHA, Kathmandu

Jul 10, 2015-Despite the need for huge resources for post-earthquake reconstruction activities, the government did not raise all of the planned internal loan in the current fiscal year.

Despite receiving the loans at a historically low price, the government just raised Rs42.52 billion this fiscal against the budgetary provision of raising Rs52 billion. This is the third year in a row that the government did not collect domestic debt as planned. The government received loans at just 2.65 percent through the issuance of 15-year development bonds, which is an all-time low rate, according to the Nepal Rastra Bank (NRB), which raises internal debt on behalf of the government.

“Not raising internal loans this time means the government sought to contract the economy rather than expand it,” said Keshav Acharya, an economist. “The government could not be a responsible actor to help the banking sector manage excess liquidity too.” Banking system currently has Rs110 billion in excess liquidity. At a time when private sector investment has been floundering following the earthquake, government expenditures will be key to boosting the economy.

As a result, the government’s domestic debt has been decreasing since fiscal year 2011-12. Total internal loan in the fiscal 2011-12 stood at Rs209 billion which has now come down to Rs196.78 billion. Due to the repayment of more money than what was raised, net domestic borrowing this year has been negative by Rs5.03 billion. International institutions like International Monetary Fund also consider domestic debt up to 2 percent of the gross domestic product a good sign for the economy while it is negative in the case of Nepal.  According to Acharya, raising domestic debt at the moment is cheaper than taking foreign aid as the government can use such debt wherever it likes without any conditions.

“We have to purchase the goods of certain countries and hire contractor of certain countries while implementing projects with foreign grants. This is not the case with domestic debt,” said Acharya.

Currently, banks and financial institutions, non-banking financial institutions such as Employees’ Provident Fund and Citizen Investment Trust and Rural Electrification Fund also have huge resources, which can be used for national development, according to experts.

A senior NRB official said that not raising domestic debt meant that the government did not want to create demand from its side in the economy and boost economic activities. “Given the huge resources needed for reconstruction, it was the perfect time for raising internal loans when it was receiving it at such a cheap rate,” said the official.

Published: 11-07-2015 09:43

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