Nepal | June 20, 2019

EDITORIAL: ADB’s novel initiative

The Himalayan Times

How investors abroad react to the Nepali currency bonds will show what needs to be done to raise more funds in the future 

The Asian Development Bank (ADB) must be commended for its initiative to float Nepali currency bonds to the tune of $500 million in the international market to raise funds for construction of physical infrastructure projects in Nepal. The funds raised through the sale of bonds are expected to help support the Manila-based multi-lateral lending institution’s non-sovereign – financing and investment operations that are not guaranteed by the state and mostly covering private sector transactions – operations in Nepal. The ADB had shown interest in issuing the local currency bonds after Nepal’s Finance Minister Yubaraj Khatiwada, who is in Fiji attending the bank’s annual meeting, had reminded the institution of its long overdue plan. In 2015, the government had allowed the ADB and the International Finance Corporation (IFC), the private sector lending arm of the World Bank, to issue local currency bonds worth $500 million each in the domestic market. But given the liquidity crunch caused by rapid credit expansion and slow growth in deposits, the government had asked the ADB to float the securities in the international market. Before things can happen, of course, a lot of details need to be sorted out, and a delegation of the ADB will be arriving in Nepal soon. Now that the ADB has taken the initiative, hopefully, the IFC will follow suit in raising another $500 million in the international market to push through infrastructure projects.

The bonds, according to the finance minister, can be bought by non-resident Nepalis, as well as well wishers of Nepal, in international capital markets. Given the sheer number of Nepalis spread around the globe, the ADB should have little difficulty in mopping up $500 million in the international markets. But this will require educating the investors as it is the first time such bonds in Nepali currency are being issued in the international market. The funds thus raised will be invested in physical infrastructure projects through the private sector and should help the country bridge the investment shortfall to some degree. Many a project promoted by the private sector has fallen through after failing to raise enough capital at home, much to the frustration of the promoters.

Nepal holds high ambition of becoming a developing nation in the next few years and a middle-income country in the next one decade. This means it has a lot of catching up do in infrastructure development, from roads, railways and airports to power plants and industry. This will require long-term capital investment, in which bond market development could play a crucial role. However, the Nepali bond market is not big, and the Nepal Stock Exchange Limited is the only trading floor that buys and sells shares and a few development bonds. Hence, floating securities in the international markets is a viable option for raising money for both public and private infrastructure projects. Actually, many Asian countries do issue bonds in local currency to finance specific projects so that the appreciation of the US dollar does not adversely impact the debt. How investors abroad react to the Nepali currency bonds will show what needs to be done to raise more funds in the future.

Disaster preparedness

The National Council on Disaster Risk Reduction and Management, headed by the Prime Minister, has directed all government bodies, including the provincial and local levels, to ensure disaster preparedness in view of the approaching monsoon. The monsoon, which normally starts from the second week of June and lasts till September-end, is the main cause of floods and landslides that render hundreds of families homeless across the country.

The council has asked the Home Ministry to prepare an umbrella law to reduce duplication in the distribution of relief funds and materials to the affected areas. It has also stressed the need to upgrade data and the information system on disaster preparedness.

Helicopters are to be kept on standby in Itahari, Pokhara and Surkhet with adequate stocks of relief materials. Learning a lesson from the recent Bara tornado, the council has also decided to develop integrated settlements, resilient housing and effectively mobilise the security forces at times of emergency. In addition to these moves, the government should also develop an early warning system, if possible, across the country for impending heavy rains, floods and other natural disasters so that the people can be evacuated to safer areas.

A version of this article appears in print on May 07, 2019 of The Himalayan Times.

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