The Nepal Rastra Bank, the central bank, is floating foreign employment saving bonds worth Rs500 million on Sunday, as a part of the government’s plan to raise domestic debt worth Rs145 billion in the current fiscal year.

 

These securities, which will be on sale till December 15 and allotted to investors on December 20, guarantee a return of 10 percent per annum. Anyone with at least Rs5,000 can invest in these bonds.

 

The foreign employment bonds are exclusively sold to Nepalis working abroad, non-resident Nepalis or those, who returned to Nepal from foreign employment destinations less than four months ago. The money raised from sales of bonds will be used for government’s deficit financing and to fund various development projects in the country.

 

The NRB has appointed nine commercial banks and four remittance companies as agents to sell these bonds abroad. These sales agents have contact persons in most of the countries where large number of Nepalis is working. Some of these countries are Australia, Bahrain, India, Israel, Japan, Korea, Malaysia, Qatar, Saudi Arabia, the UAE, the UK and the US.

 

The NRB has been selling these bonds for almost eight years to inculcate savings habit among Nepalis working abroad and pool their resources to finance various development projects in the country. Those who buy the bonds get a fixed return every six months till the time of the maturity of the securities. These securities carry zero risk and can be used as collateral to obtain loans.

 

NRB has been floating foreign employment savings bonds since July 2010. When these bonds were first introduced, only 0.40 percent of the securities up for grabs were sold. The result was even worse in the next fiscal year, when only 0.07 percent of floated securities were subscribed. Since that year demand for these securities had gradually gone up.

 

In fiscal year 2014-15, for instance, 33.5 percent of foreign employment bonds up for grabs were sold, while subscription rate in 2015-16 hovered around 33 percent. Subscription of these bonds, however, fell in the last fiscal year, with investors buying only 5.2 percent of the bonds up for grabs.

 

One of the reasons for last fiscal year’s lukewarm response, according to NRB officials, was rapid depreciation of Nepali rupee. In the last fiscal year, Nepalis, on average, had to fork out Rs106.7 to purchase each dollar. And over the last one decade Nepali rupee has been weakening by over 3 percent per year vis-a-vis US dollar, except for some blips. This has been eroding the value of Nepali currency in comparison to greenback.

 

Many NRB officials have long been saying a mechanism needs to be introduced to absorb the foreign exchange variation risk to encourage more Nepalis working abroad to invest in these securities.

 

Also, another turnoff factor for prospective investors of foreign employment bonds is higher returns on other assets, such as stocks and real estate. The NRB expects sales of foreign employment bonds to go up this year as stock and real estate markets have started showing signs of cooling down.