Government to Raise Additional NPR 10 Billion in Domestic Debt, Completing Development Bond Target

The government is set to raise an additional NPR 10 billion in domestic debt through the auction of development bonds. For the current fiscal year, the government had targeted raising NPR 209 billion through development bonds, of which NPR 199 billion has already been collected. With the sale of this additional NPR 10 billion, the government will achieve its target for development bonds this year.

The Public Debt Management Office issued a 6-year bond named "Development Bond 2087" today (Wednesday) to raise this amount. The bidding for the bond will take place on March 26 (Chaitra 13) from 10 a.m. to 3 p.m., with the issuance scheduled for March 27 (Chaitra 14). Of the total NPR 10 billion, 85% (NPR 8.5 billion) is allocated for competitive bidders, and 15% (NPR 1.5 billion) for non-competitive bidders. If the non-competitive portion is not fully subscribed, the remaining amount will be offered to competitive bidders.

Banks and financial institutions, non-bank financial institutions, insurance companies, organized entities, and Nepali citizens can participate in this debt offering. The interest rate will be determined through the bidding process, and the bond’s interest will be paid semi-annually. The office has stated that interest earned will be subject to tax. Interested parties can invest a minimum of NPR 500,000 up to the total issuance limit, in multiples of NPR 500,000. The bond can be used as collateral for loans or traded in the secondary market.

So far this fiscal year, the government has raised NPR 281.5 billion in domestic debt, including NPR 199 billion from development bonds, NPR 80 billion from treasury bills, NPR 2 billion from citizen savings bonds, and NPR 500 million from foreign employment savings bonds. With today’s issuance, the total domestic debt will reach NPR 291.5 billion.

The government aims to mobilize NPR 330 billion through domestic borrowing this fiscal year. It has already raised NPR 115 billion in the first quarter, NPR 66.5 billion in the second quarter, and plans to raise NPR 113.5 billion in the third quarter (Magh to Chaitra). The fourth quarter target is set at NPR 35 billion.

With excess liquidity in banks and financial institutions, the interest rates on government bonds have been steadily declining. Currently, the average interest rate on development bonds is below 5%. On March 19 (Chaitra 6), the interest rate for an 11-year development bond was fixed at 5%. The average interest rate for the 20 development bonds issued this fiscal year stands at 4.73%, while treasury bill rates also remain low.

The decline in interest rates is attributed to higher deposit growth compared to loan disbursements in banks. The Nepal Rastra Bank has been managing liquidity through deposit collection tools and fixed deposit facilities. Lower interest rates are expected to provide relief to the government.