Plan to set up debt management division in limbo

Kathmandu, May 13

The government’s plan to establish Public Debt Management Division to consolidate debt management functions has hit a roadblock as the Ministry of Finance (MoF) has failed to endorse organisation and management (O&M) survey required to set up the unit.

In January, MoF had conducted O&M survey to establish the new division under the ministry itself. At that time MoF had also decided to depute a joint secretary to lead the division. But, so far, the report has not been endorsed by the MoF.

Since the report also needs to be endorsed by Ministry of General Administration and Cabinet, the delay made by MoF is expected to prolong the plan of setting up the unit, which could play a crucial role in diversifying tools required to raise funds from the market to support the government’s development works.

“Yes, there has been a delay on this front. But lately the MoF has started rethinking on its previous decision to set up the division because the size of country’s debt is comparatively small. So, we don’t want to establish the unit just for the sake of it,” a reliable source at the MoF told The Himalayan Times.

Currently, the country’s debt-GDP ratio hovers at around 25 per cent.

The government had floated the idea of setting up a debt management unit as early as August 2012 to consolidate debt management works scattered across the MoF, Nepal Rastra Bank (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.

After establishment of the new unit, the IECCD’s responsibility of arranging foreign loans was supposed to be transferred to the Public Debt Management Division, while the FCGO was supposed to hand over its task of compiling data on the country’s debt to the unit.

Also, the new division was supposed to conduct studies prior to borrowing money from the market, diversify tools to raise debt and lay suggestions on use of different tools on different occasions. It would also deal with international agencies and institutions to obtain foreign loans.

In this regard, the MoF was even mulling over handing over NRB’s responsibility of raising domestic debt to the new division within two years.

“But we don’t know whether we’d be able to achieve that target as MoF, lately, has not shown keen interest to set up the division,” the source said.

The government has been raising debt since fiscal year 1961-62 to finance budget deficit. In that year, it raised debt of Rs 8.2 million, of which Rs seven million was raised from domestic sources, 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 was expected to provide recommendations to the government on how, when and from where to borrow the money to support deficit financing.