The government has revised its debt collection ceiling for the current fiscal year to Rs90 billion after its savings soared to around Rs269 billion due to failure to expedite capital spending.

The government had proposed to raise Rs111 billion in debt from the domestic market at the start of the fiscal year to cover budget deficit and finance development activities.

“We have now revised the ceiling downwards as treasury surplus has soared [to around Rs269 billion],” said Laxman Aryal, head of the Economic Policy Analysis Division at the Ministry of Finance.

The government has raised Rs63.3 billion in debt from the domestic market so far this fiscal year by issuing treasury bills and development, citizens savings and foreign employment saving bonds.

The remaining Rs26.7 billion in debt will be raised within the Nepali calendar month of Asar (mid-June to mid-July) based on the liquidity situation in the market, according to Aryal. 

The government has been slowing down domestic debt collection since mid-April after revenue collected from various sources could not be properly utilised.

This has continuously raised the stock of idle funds at state coffers. Because of this, the government had even suspended debt collection in the Nepali calendar month of Jestha (mid-May to mid-June).

A big chunk of debt instruments floated by the government is bought by banks and financial institutions. In the current fiscal year, around 90 percent of the securities up for grabs are meant for these institutions and the remaining for the public.

Banks and financial institutions purchase these debt instruments largely to maintain the statutory liquidity ratio (SLR). The Nepal Rastra Bank (NRB), the central monetary authority, has made it mandatory for commercial banks to maintain SLR of 12 percent.

This means 12 percent of the total deposits of banks must either be parked at the central bank, kept in the form of cash in their vaults or invested in securities, like bonds and treasury bills, issued by the government. Since idle cash does not provide any return, banks prefer to invest a big chunk of this money in debt instruments issued by the government to maintain SLR. 

This provision of maintaining SLR is also mandatory for other financial institutions but ratios vary. For instance, development banks have to maintain SLR of 9 percent and finance companies have to maintain SLR of 8 percent, while development banks and finance companies that do not collect current and call deposits have to maintain SLR of 6 percent.

So, the government’s failure to float debt instruments can even hit SLR of banks and financial institutions.

“We have assessed the situation and the government’s plan to revise debt collection plan will not affect banks and financial institutions,” said Nara Bahadur Thapa, head of the Research Department at the NRB, which raises domestic debt on behalf of the government