For the first time, the government has permitted an international financial institution to issue Nepali-rupee bonds to raise funds from the domestic market to finance mega projects.

The cabinet meeting today gave a nod to International Finance Corporation (IFC) to float local currency bonds worth up to $500 million – around Rs 50 billion – over five years.

IFC – a private sector lending arm of the World Bank – has sought permission in December to issue Nepali-rupee bonds as the government on October 8 had brought a guideline paving the way for international financial institutions with AAA credit rating – from global credit rating agencies – to float such bonds in Nepal.

The IFC is planning to lend money raised from the bond to the private sector for investment in projects ranging from infrastructure, banking and telecommunications to agri-business and tourism.

Apart from pooling financial resources to meet development objectives, the government believes that local currency bonds will reduce country’s reliance on dollar-denominated loans, which tend to raise the debt burden whenever the domestic currency weakens.

The bonds could also be another tool for liquidity management, as they could be useful in mopping up excess funds from the market whenever there is liquidity surplus, apart from being a new investment avenue for retail and institutional investors.

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