The government of Nepal has finally decided to allow International Financial Institutions to issue local currency bonds in order to raise funds from the domestic market to finance various development projects. International Financial Institutions having high credit rating from global credit rating agencies can apply to the Ministry of Finance adhering to 10-point guidelines set by Ministry to issue such bonds. The ministry will look into the applications and then forward eligible applications to the cabinet for final approval.
Currently size of bond market is 34% of total debt instruments amounting Rs 207 billion raised from treasury bills and different type of bonds. The decision will envisage helping develop existing bond market. Local currency bond is income tax exempted and subject to tax compliance if they issue the bonds through local agents. They are also allowed to acquire short term loan from the local banks as bridge gap financing provided the fund so raised from local currency bonds is inadequate for the investment in the specified projects.
This is a landmark decision on the part of government to raise the fund from domestic resources in the form of local currency bond through International Financial Institutions primarily targeting national priority projects in stead of completely depending on foreign debt for developing such projects. The decision will open new investment avenue for local institutional investors, support local capital market and create an ample opportunity for commercial Bank to manage their excess liquidity. The decision is believed to be very instrumental in accelerating the pace of economy in the succeeding years.