Nepal’s public debt decreased slightly in the first quarter of the current fiscal year 2021-22 compared to the end of the previous fiscal year, as the government did not take internal loans and instead spent an amount important for repaying domestic loans in the first quarter.

According to the Bureau of Public Debt Management, total government debt fell 0.80% to 1,723.17 billion rupees from 1,737.08 billion rupees at the end of the 2020-21 fiscal year.

During this period [mid July-mid October], the total external debt increased by 15.08 billion rupees while the domestic debt decreased by 29 billion rupees, resulting in an overall decline in the country’s public debt.

This decline in domestic debt is due to the repayment of the principal of treasury bills in the domestic market, said the Bureau of Public Debt Management in its latest quarterly report.

Hira Neupane, chief information officer at the office, told the Post that the government raised internal loans due to the liquidity shortage in the banking system.

“It is expected to increase further once the government starts raising internal loans in accordance with budget arrangements,” he said.

The government had started raising internal borrowing from early October during the last fiscal year 2020-21. But this year is already the fourth week of December, but the government has not started raising internal loans.

The open market operations committee, headed by the vice-governor of the central bank, recommended in October that the finance ministry program a debt increase from mid-November, according to management office officials. of public debt. But the Ministry of Finance has not yet made a decision on this matter.

“There is a shortage of liquidity in the market and the government has sufficient resources in its treasury due to low public spending. So maybe the government didn’t want to increase internal borrowing in such a situation in order to avoid paying higher interest, ”Neupane said.

Speaking at the parliamentary finance committee meeting on December 9, Finance Minister Janardan Sharma also made it clear that the government has no immediate plans to raise internal loans. “Currently, there is no need to raise (internal) loans. We will certainly borrow as and when needed, ”he said.

As of December 20, total government spending stood at 24.55% and capital spending 6.7%, according to the Office of the Comptroller General of Finance, which maintains records of government income and expenditure.

Nara Bahadur Thapa, former executive director of the central bank, said there was no need to raise internal loans immediately as the government is sitting on accumulated resources.

“Government revenue collection has remained good so far in the current fiscal year and a large amount of taxes will be collected by mid-January as taxpayers are required to pay taxes on the returned at that time, “he said. “If the government cannot spend, there is no point in raising more money through internal loans”

He suggested increasing domestic debt in the third quarter of the current fiscal year on a small scale and increasing it in the last quarter.

While the government’s delay in raising internal loans has helped reduce the government’s overall debt, there is a greater need for the government to increase external borrowing due to the depletion of foreign exchange reserves.

In fact, the government has already signed an agreement with the International Monetary Fund to receive $ 400 million under its extended credit facility.

According to the Nepal Rastra Bank, gross foreign exchange reserves fell 11% to Rs1244.85 billion in mid-November against Rs1399.03 billion in mid-July, at the start of the fiscal year.

This is the fourth month in a row that foreign exchange reserves have declined amid rising imports and falling remittances, the main source of foreign exchange earnings for Nepal.

Existing foreign exchange reserves are just sufficient to cover imports of goods and services for 7.2 months, just above the central bank’s target of maintaining such reserves to support imports of goods and services for seven months. .

“In such a situation, borrowing external loans can help the government to maintain foreign exchange reserves at comfortable levels,” Thapa said. “But it also depends on the government’s ability to spend the budget as the foreign currency receivable in the form of loans is provided to Nepal as reimbursement of the budget spent by the government from its own resources.”

During the first quarter of the current fiscal year, the government received external loans amounting to Rs 19.49 billion. As Nepeal repaid the principal of 5.17 billion rupees, net foreign borrowing in the first quarter amounted to 15.08 billion rupees.

But the government has planned to raise up to Rs 283.09 billion through external loans in the current fiscal year, according to the revised August budget.

“The government has already signed agreements with foreign donors to borrow more than the target set for the current fiscal year,” Thapa said. “The government still has the option of borrowing more from donors if it can spend.”