Govt to allow int'l development partners to issue bonds in local currency

The international development partners, which want to issue bonds in local currency to mobilize financial resources in the domestic market, have to remain under the amount limit, should be synced with the government´s calendar and should be project specific, as per the guideline that is likely to be submitted to the cabinet by mid-August.
"The Ministry of Finance is working on submitting the guideline to the cabinet for approval by mid-August," Baikuntha Aryal, joint secretary at the ministry, told Repuiblica.
The MoF started developing the guideline after two development partners expressed their interests to issue bonds in local currency.
The International Finance Corporation (IFC), the private sector lending arm of the World Bank, and Asian Development Bank (ADB) have expressed interest to issue such bonds in the Nepali market.
"All the development partners can go for issuing bonds in local currency once the government endorses the guideline," Aryal said.
Once the guideline is issued, international financial institutions with top credit ratings will be allowed to issue such bonds in Nepal. The amount thus collected will then be extended in the form of loans to the private sector for long-term investment in sectors ranging from infrastructure and agriculture.
The budget for the fiscal year 2013/14 has also made a provision to allow international development partners to issue bonds in local currency.
"For the long-term investment in large scale infrastructure projects, necessary arrangements will be made to issue bond in local currency for the international agencies that have high ranking credit rating," reads the budget.
The government has envisioned allowing development partners to issue project-specific bonds in local currency to ensure that the liquidity mopped up from the market is utilized for the development of significantly important projects in the country.
According to a source privy to the issue, the development partners are seeking to issue bonds in local currency in basket so that they can mobilize financial resources of the domestic market in the projects that have low risk and high returns.
"The MoF has already shared major points of the guideline with the ADB and IFC," a high-ranking official said, requesting anonymity. "Both the development partners have said that they would consider the government´s policy guidance."
Allowing international development partners to issue bond in local currency in basket might have negative impact on the national economy. "On top of that, no country allows international development partners to issue bond in local currency without amount limit," the official added.
The international development partners, mainly ADB and IFC, are closely watching how the government would come up with the policy to allow them to issue bond in local currency, as per a knowledgeable source close to a development partner.
However, the government believes better yields and guarantee that money invested in the bonds will be returned back will lure funds that have so far remained outside of the banking sector, which, according to estimates, stands at around Rs 20 billion.