Govt to meet borrowing target despite poor spending

Published On: June 23, 2016 11:09 AM NPT By: Sagar Ghimire  | @sagarghi


KATHMANDU, June 22: Despite its poor spending capacity, the government will raise domestic debt as per the target set in Fiscal Year 2015/16.

The government was buoyed by the ultra-low interest rates this year to increase internal borrowing so that the money collected this year could be utilized in financing expenditure in the next fiscal year, according to officials.

Unlike in the earlier fiscal years when domestic borrowing used to remain far below the target set in the budget, the government raised full debt this year. It has already raised Rs 87.67 billion as per its plan of raising Rs 88 billion from the internal market as announced in the budget.

According to the Nepal Rastra Bank (NRB), it is now planning to raise remaining Rs 33 million by selling foreign employment bond which had remained unsubscribed earlier.

NRB -- the central monetary authority -- raises debt for the country on behalf of the government by issuing various instruments like Treasury Bills, Foreign Employment Bonds, Citizens Saving Bonds and Development Bonds.

While the government generally raises domestic debt to finance expenditure when revenue mobilization, foreign grants and foreign loans fall short, it raised the money this year despite having huge cash surplus in its treasury. Many public finance management experts say that the act of raising debt without increasing spending capacity only puts financial burden on the country.

Domestic debt in the current fiscal year is 2.08 of the gross domestic product. In the last fiscal year, the government had raised only Rs 42.42 billion compared to the plan to raise Rs 52.75 billion.

Domestic debt was even lower in 2013/14 when the government raised only Rs 19.98 billion against the plan to borrow Rs 44 billion.

The government has managed to spend only 30.04 percent, or Rs 62.75 billion, of the development budget as of Tuesday which indicates slowdown in government’s spending capacity. It has accumulated cash balance of Rs 216 billion at the NRB as of last week. 

However, Min Bahadur Shrestha, executive director of NRB, told Republica that the government decided to raise the internal debt, which was available at a cheaper cost this year, so that it can be utilized in the next fiscal year.

“Budget size for the coming fiscal year has increased the government has to make huge investment for reconstruction works as well as to revive the economy that was battered by the recent turmoil. This means we need big resources next year and we have decided to use the fiscal space of the current fiscal year,” Shrestha, who heads the Public Debt Management Department of NRB, said.

The government plans to transfer at least Rs 59 billion of cash from the current fiscal year to the upcoming fiscal year.

Shrestha refuted criticism that the move to raise higher debt adds financial burden to the country.

“We got the fund at a very low cost as there is liquidity surplus in the banking system and the interest rates are falling to a very low level. Rates are likely to go up in the coming fiscal year since the central bank also feels that the current rates are not sustainable,” said Shrestha. “So this was a prudent decision as we would have to pay higher rates if we had borrowed this amount in the next fiscal year when we are also bound to limit the internal borrowing at a certain level.”

While Shrestha says that they are yet to calculate the rate the central bank has paid for domestic borrowing in the current fiscal year, he says it has not exceeded an average of 4.5 percent.

The government plans to borrow Rs 111 billion in the coming fiscal year.


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