Tuesday, July 1, 2014

Re: IFC permitted to issue Rs 50 billion in local currency bonds

Dear colleague

I have learnt that IFC is proposing to “charge” a spread of 5.5% on local currency bond. Which means it will pay about 8-9% to people in Nepal who buy such bond and it will use same money to lend for projects in Nepal at 13.5-14.5%.

It basically mean that those who buy such bond will get 5.5% less than what the borrowers pay or the borrowers will pay 5.5% more than who buy the bond.

It is almost like the Hindi proverb: िजसकी जुती, उसकी सर

I wonder how can an multilateral like IFC justify such a thing. What is more distressing is the fact that ADB is also waiting in the wings to pull wool over eyes of the nepali people, who save their hard earned money, in similar fashion.

With best regards,



Sincerely,



Ratna Sansar Shrestha, FCA

Senior Water Resource Analyst
www.RatnaSansar.com

On Thu, May 8, 2014 at 10:23 PM, Ratna Sansar Shrestha wrote:

Dear colleague

Captioned news was published on 3rd April about granting of approval by GoN to International Finance Corporation (IFC), a member of the World Bank Group, to issue local currency bonds of up to Rs 50 billion (US$ 500 million) for five years (http://www.myrepublica.com/portal/index.php?action=news_details&news_id=72144). Following I had sent my comment on the topic too NNSD which wasn't deemed publishable by its moderator Arjun Dhakal. Therefore, I am sending my following comments to you directly.

As it is a local currency bond, it will not entail foreign exchange risk, due to that very reason only people and agencies from Nepal will “buy” these bonds, as buyers from overseas would be averse to the exposure to foreign exchange risk.

The above “development” is very strange in the backdrop of the fact that policy/decision makers (politicos-bureaucrats) as well as private sector of Nepal proclaim that Nepal is a very poor country and go all over the world armed with begging bowl for financial assistance from bilateral and multilateral agencies. This move flies in the face of the oft repeated statement that Nepal is cash strapped poorest of the poor country.

It is actually appreciable that a multilateral agency like IFC as well as GoN has accepted that Nepal isn’t as poor as have been portrayed by the decision/policy makers as well as bilateral and multilaterals.

The matter of grave concern lies in the fact that a world class institution like IFC is going to charge “spread rate” approved for bank and financial institutions of Nepal by Nepal’s central bank to cover operating cost of IFC. There are two aspects that must be noted. One, IFC is going to “charge” to collect money from Nepali people to invest in Nepal. If policy/decision makers had vision, they would have formulated policy and developed institutional mechanism such that the infrastructure projects in Nepal do not have to pay additional “spread” to IFC; channel fund from people in Nepal for investment in projects directly. Secondly, IFC being populated by people enjoying 5-star facilities, its operational cost will be relatively very high even compared to CEOs of Nepal’s banks who draw salaries in vulgar amounts, will not be in a position to relax the spread that it requires. Therefore, Nepal and Nepali people will get cheated in two ways: the bond purchaser will be afforded relatively low rate and infrastructure projects will be charged interest plus exorbitant “spread” of IFC.

What would have been appreciated by the people below poverty line in Nepal is lending by IFC from its own coffers in local currency at rates that are softer than charged by banks in Nepal.

With best regards,



Sincerely,



Ratna Sansar Shrestha, FCA

Senior Water Resource Analyst
www.RatnaSansar.com

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