Kathmandu, January 11
If things go according to plan, the Ministry of Finance (MoF) will take over Nepal Rastra Bank (NRB)’s responsibility of raising domestic debt in the next two years.
The policy shift is underway, as the Public Debt Management Division is being created at the MoF to oversee debt management functions.
“We have already conducted organisation and management (O&M) survey for formation of the new division. The survey report has now been forwarded to NRB,” Surya Prasad Acharya, head of Economic Policy Analysis Division at the MoF, told The Himalayan Times.
Once MoF gets the feedback from NRB, it will incorporate the suggestions and forward O&M survey report to finance minister for approval. “The report will then be sent to Ministry of General Administration, before it is forwarded to Cabinet, which will have to give the final nod to establish the division,” Acharya said.
The new MoF division, which will be headed by a joint secretary, will raise domestic debt and also deal with international agencies and institutions to obtain foreign loans.
At present, NRB raises domestic debt on behalf of government based on MoF’s instruction. This year, for instance, government is planning to mobilise domestic loans worth Rs 88 billion by floating instruments such as bonds and treasury bills.
Money collected by the government in this manner is used to finance development projects that range from hydro and irrigation plants to roads and bridges.
“We hope the entire process of transferring NRB’s responsibility to the new MoF division will take two years,” Acharya said, adding, “The new division will comprise a committee headed by an NRB deputy governor which will choose instruments and decide on when to absorb funds from the domestic market.”
Once the task of raising domestic debt is transferred to the MoF, NRB’s Public Debt Management Division will primarily focus on conducting open market operations — a process through which the central bank mops up or injects money from or into the banking system to tame inflation and stimulate growth.
The MoF is working towards handing over all duties related to loan mobilisation to the new division to consolidate debt management functions scattered across the MoF, NRB and the Financial Comptroller General Office (FCGO).
Currently, NRB raises domestic debt and maintains its data, while the International Economic Cooperation Coordination Division (IECCD) at the MoF deals with foreign loans. The FCGO, on the other hand, asks for data on domestic and foreign loans from the two institutions and compiles them.
Once debt management functions are consolidated, the IECCD’s responsibility of arranging foreign loans will also be transferred to the new MoF division, while FCGO will no longer be required to compile data on the country’s debt.
“However, the IECCD will continue to deal with bilateral and multilateral donor agencies to mobilise foreign grants,” Acharya said.
The government has been raising debt since fiscal year 1961-62 to support deficit financing. In that year, it raised debt of Rs 8.2 million, of which Rs seven million was mobilised from domestic market, while Rs 1.2 million was raised from foreign sources.
Since then the government’s debt volume has surged, yet it is still below 30 per cent of the gross domestic product, which means the country still has ample space to acquire loans to pursue development goals.
In this regard, the new debt management division is expected to provide recommendations to the government on how, when and from where to borrow the money to support deficit financing.
A version of this article appears in print on January 12, 2016 of The Himalayan Times.