The government raised Nu 1.5 billion (B) through issuance of a 7-year sovereign bond yesterday, according to the Royal Monetary Authority (RMA).
This marks the fourth consecutive issuance of sovereign bonds since September 2020.
So far, the government has borrowed Nu 8.2B from the domestic market through the issuance of government bonds to meet the fiscal financing requirements and mobilise funds for Covid-19 purposes.
With expected shortfalls in domestic revenue, the finance ministry expects the government would be short of Nu 17.15B to spend in this fiscal year 2021-22.
The transaction was well received with more than 200 percent oversubscription and orders received at about Nu 4.25B, consisting of 21 subscribers-six financial institutions, and 15 individuals.
The annual coupon rate for the bond, as determined by the auction, was 3 percent which means the subscribers will be paid an annual coupon (interest) rate of 3 percent on a half-yearly basis by the finance ministry.
Bonds are a secure investment option for those who are looking for a regular return.
The ministry will pay the first coupon on October 26 this year and the second on April 26, 2023, into the bank account that a bondholder has registered for receiving the payment.
The maturity date is on April 26, 2029, on which the principal amount and final interest will be paid.
The interest earned from the bonds is non-taxable for personal income tax. However, the interest income from the bond is taxable income (5 percent as tax deducted at source) for the business income tax and corporate income tax-paying entities.
A government bond or sovereign bond is a debt obligation issued by the government to support government spending. It generally includes a commitment to pay periodic interest, called coupon payments, and to repay the face value on the maturity date.
As per Section 126 of the Public Finance Act 2007, the finance ministry can borrow money to finance fiscal budget deficits, refinance maturing debt or a loan paid before the redemption date, maintain credit balances in the bank accounts, and on-lending to state enterprise and other legal entities, on-lending to state enterprises and other legal entities, or any other purposes approved by the Cabinet.