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Kathmandu Wednesday September 19, 2001 Ashwin 03, 2058.
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Citizen Savings
Certificates to be issued
By Satyendra Timilsina
KATHMANDU, Sept 18 - With an aim to shore up
the savings of individuals and transfer them to national investments, the government is
preparing to issue Citizen Savings Certificate (CSC), a new monetary instrument of deficit
financing.
The CSC is the fourth monetary instrument
that would be issued by Nepal Rastra Bank (NRB) for internal borrowings. Currently,
National Savings Certificates, Development Bonds and Treasury Bills are issued to collect
internal loans.
The new instrument is targeted at individuals
and non-profit making institutions and is expected to reduce the investment gap between
banking and non-banking sectors of the government securities. Currently, 85 percent of
internal loan is held by banking sector, while the remaining 15 percent by individuals.
The National Savings Certificate, which is
similar to the proposed CSC, is also issued to the individuals along with the issuance to
the banking sectors. According to an official, in the later years the NSC that was issued
to the individuals were ultimately held by the financial institutions due to cross-rate
advantage of NSC’s interest rate over the lending rate of the banks.
"The new instrument is expected to
control the cross-rate advantage taken by the commercial banks while purchasing the
NSCs," says Narayan Silwal, Joint Secretary at Economic Affairs Division of the
Ministry of Finance.
"Unlike the NSC that had an advantage of
pledging facility for a loan, the CSC will not have that feature, and thus could not be
pledged for bank loans. This would reduce the pressure on banking institution," he
adds. The maturity period of the proposed CSC will be five years and will relatively bear
higher interest than the existing instruments.
The high level official at the central banks
also confirmed that the new instrument has already been prepared, but denied to make any
comment on the newly prepared monetary instrument saying it is on the table of the final
authority and is awaiting approval.
"The issuance of this new instrument is
not aimed at collecting higher domestic borrowings because the total loans cannot exceed
the total volume of borrowings approved by the parliament," says Joint Secretary
Siwal.
Government collects internal loans, as per
the Internal Loan Act, which has to be approved by the parliament every year during the
budget session. Though the total volume of internal borrowings for coming fiscal year is
approved by the parliament, the segregation of internal loans to the instrument is decided
by the Open Market Operation Committee (OMOC).
At a time when the internal borrowings is
increasing every year, the issuance of the new instruments is expected to help the
government find new sources of the domestic financing. It is also expected to help
pensioners.
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