The Nepal Rastra Bank (NRB) has recommended that the government channel funds raised through sales of foreign employment savings bonds to specific infrastructure projects.

The central bank, on behalf of the government, has been floating foreign employment savings bonds since July 2010 to inculcate savings habit among Nepalis working abroad and pool resources for country’s development.

These bonds—which came with a fixed annual return of 9 percent in the last fiscal year—are exclusively sold to overseas migrant workers, non-resident Nepalis, or those who returned home from foreign employment destinations less than four months ago.

Although other types of bonds issued by the government are generally oversubscribed, demand for foreign employment savings bonds has remained very low, indicating inability of the government to generate awareness about these instruments among Nepalis working or residing abroad.

“To attract investors, the government must channel funds raised from sales of bonds towards hydroelectric or other specific projects. This way Nepalis working abroad can take pride in development projects they have funded. So, a policy intervention is necessary,” says NRB’s latest report titled ‘Savings and Investment Pattern of Remittance Beneficiaries’. Over the years, many nations across the globe have started floating these instruments to pool financial resources from the diaspora community to support home country’s development process. These funds have played a crucial role in bridging the resource deficit at a time when flow of official development assistance and foreign direct investment has started going down. Israel, for instance, which floated diaspora bonds for the first time in the world in 1951, today builds various physical infrastructure projects from funds pooled through sales of these instruments.

India too has been issuing five-year Indian Development Bond since 1991 targeting non-resident Indians.

While many of these countries have been successful in raising quite a big chunk of amount through these bonds, Nepal has not been able to do so. One of the reasons for lack of interest in these instruments, which carry zero risk and can be used as collateral to obtain loans, is comparatively low returns. Although these instruments provided annual return of nine percent in the last fiscal year, yields on other assets, such as stocks and real estate, were much higher.

Also, continuous weakening of the Nepali rupee has emerged as a deterrent. The rupee has depreciated by over 3 percent per year for the last one decade. Since the instruments do not come with mechanism to absorb this loss, overseas Nepalis, who make investment in convertible currency, stand to lose money.

Moreover, the bonds are not available throughout the year.

The NRB has acknowledged that foreign employment savings bonds will not attract investors, unless these problems are addressed.

At the same time, the government must “reach out to targeted households and disseminate information on significance of these instruments in the country’s development process”, says the NRB report, adding, “The government should also provide information on how the fund pooled through sales of these bonds is being used and the projects that are absorbing their investment. These measures can help establish and deepen trust between the government and investors, and promote sales of these bonds.”