KATHMANDU, June 27: A joint assessment conducted by the International Finance Corporation (IFC) and the Securities Board of Nepal (SEBON) reveals that Nepal's capital market is experiencing significant growth driven primarily by its equity markets. However, the study emphasizes the untapped potential of Nepal's debt markets in supporting the country's immense financing needs and sustainable economic development goals.
Nepal, in its pursuit of graduating from the category of Least Developed Countries and aiming to become a Net Zero nation by 2045, requires substantial financing. Recognizing this, SEBON and IFC have embarked on a comprehensive bond market reform and development program to facilitate corporate bond issuances in Nepal.
While the equity market has flourished, with the Nepal Stock Exchange (NEPSE) boasting a market capitalization of $26.35 billion, accounting for 69.4 percent of the country's GDP, the debt market remains relatively small. Currently, Nepal's debt markets consist of money markets, government debt markets, and corporate debt markets. Government debt markets dominate, representing 87.10 percent, while corporate bond markets are in the early stages, attracting a limited group of institutional investors.
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IFC Country Manager for Nepal, Bangladesh, and Bhutan, Martin Holtmann, stressed the importance of streamlining the bond issuance process, enhancing transparency, and introducing a book building mechanism to attract both domestic and international investors. By implementing these measures, Nepal can create a conducive environment for debt market growth, providing new financing opportunities for businesses and infrastructure development.
To fully unlock the potential of Nepal's debt market, regulatory and operational challenges must be addressed. The current regulatory regime does not fully facilitate offshore bond issuances, hindering international participation and market growth. The bond issuance process itself is often burdensome and manual, resulting in delays and inefficiencies. Introducing a book building mechanism would enhance transparency and efficiency in pricing and allocation.
Furthermore, incentives for issuers to opt for bond issuance are lacking. Restrictions on unlisted companies issuing bonds and insufficient provisions for investment in debentures issued by energy companies in the real sector restrict market development.
SEBON Chairman Ramesh Kumar Hamal acknowledged the significance of a vibrant bond market in meeting Nepal's infrastructure and investment needs. SEBON, in partnership with IFC, is committed to implementing the necessary reforms and addressing fundamental issues impeding the development of a robust bond market.
IFC's Holtmann highlighted their commitment to supporting Nepal's sustainable and inclusive growth trajectory by bringing their expertise and learnings from other markets.
By implementing comprehensive reforms and focused efforts to strengthen the capital market and establish a robust financial ecosystem, Nepal aims to foster a diverse and resilient financial system that supports economic growth, infrastructure development, and enables businesses to access necessary funding for expansion and sustainability.
