KATHMANDU – The World Bankin coordination with the Ministry of Finance held a two-day learning eventlast week on “Managing Risks and Sustainable Finance”. The event was attended by representatives from the Ministry of Finance, the Public Debt Management Office, the Financial Comptroller General Office, Nepal Rastra Bank, Nepal Bankers’ Association, Nepal Insurance Authority, Confederation of Nepalese Industries, and other financial sector professionals.
Participants discussed derivatives instruments and international experiences with the use of financial instruments to address different market risks including interest rate, currency, liquidity, and commodity price risks. They also discussed the benefits of and the critical steps needed to setup a national hedge program from a fiscal risk management perspective.
“The Ministry of Finance is interested in working with the World Bank on a detailed cost-benefit study to evaluate the potential advantages of adopting a hedging mechanism to manage financial risks,” saidRam Pramod Yadav, Under Secretary, Ministry of Finance. “There is a need to implement financial instruments in new projects on a pilot basis to help practitioners and policy makersunderstand the significance of structure approaches in mitigating risks from uncertain market conditions.”
Participants discussed the technical support the World Bank can provide to set up relevant knowledge exchange programs,as well as the Bank’s various lending instruments.
“The World Bank is committed to working with the Government of Nepal to strengthenthe country’s risk management strategies and setup a hedging program to manage financial risks,” said Fabio Aparecido Da Silva, Sr. Financial Officer at the World Bank. Heemphasized the need to develop a regulatory framework and build capacity to ensure that hedging strategies serve as effective tools for managing risks.
“I welcome the idea of implementing hedging mechanisms to address market volatility on commercial terms, which could help prevent undue fiscal pressures on the nation,” said Bam Bahadur Mishra, Deputy Governor of Nepal Rastra Bank. “Endorsing market-driven solutions is key to efficiently managing financial risks, fostering sustainability, and navigating challenges, especially considering the country’s resource limitations.”
“The absence of sovereign ratings is a contributing factor to the high cost of borrowing for Nepal from international financiers.Leveraging the currency peg with India could address the absence of a transactable Nepali Rupeesovereign bondyield curve, as many transactions can be priced based on the long-term Indian Rupee-USD curve,” said Joseph Silvanusof Dolma Consulting.“Hedging serves as a good risk mitigating tool, andNepal stands to gain by accessingthe World Bank’s IDA window to uphold a robust balance of payments.”
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