This document discusses coordination between fiscal policy, monetary policy, and liquidity management in Nepal. It provides details on individual and government budgets, sources of government revenue and expenditure, and why governments issue securities. It describes short-term treasury bills issued by Nepal's central bank, including types of primary issuance mechanisms and secondary market transactions. Treasury bills are used in repurchase agreements and reverse repurchase agreements to manage liquidity. The central bank also uses tools like outright purchases and sales as well as a standing liquidity facility involving treasury bills as collateral for short-term loans to commercial banks.

1. Co-ordination between
Fiscal Policy Monetary Policy&
Liquidity Management
in
Presented By:
March 5, 2014
Himalaya Ban
of Nepal
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2. Individual Vs Government Budget
2-16

3. Individual
Estimation of
Expenses
Earn
Government Estimation of
Expenses
Earning Sources
Individual Budget
Government Budget
3-16

4. Summary of Income and Expenditure
Revenue 216644355
Total Expenditure 337900000
Surplus (+) Deficit (-) (121255645)
Foreign Grant 65344230
Surplus (+) Deficit () ( 55911415 )
Foreign Loan 22231415
Domestic Borrowing 33680000
Why Government issues securities?
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5. Types of Government securities
Short term
security: T-bill
Long term
securities
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6. Short term Government securities issued by NRB
Treasury Bill (T-bill)
 The primary purpose of issuing T-bill is to make fund available to
government whereas secondary purpose is to manage liquidity in
market.
 Treasury bill is a short-dated government security, yielding no interest
but issued at a discount on its redemption price.
 Maturity period of Treasury bill are 28 days, 91 days, 182 days and 364
days in context of Nepal.
 Among them 91 days T-bill is very famous in Nepalese Market.
 NRB issued T-bill on every Monday and made allotment in Tuesday.
 There is proper bidding mechanism in NRB
1. Repo
2. Reverse Repo
3. Outright Purchase
4. Outright sale
Secondary transaction of T-bills
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7. Repo: Repurchase Agreement
Loan (Cash)
T-Bills
NRB
Opening Leg
 A Repo is a sale of securities coupled with an agreement to repurchase
the same securities at a higher price on a later date.
 It arranged for short period, typically ranging from overnight to 4 weeks.
 The ownership of securities is not transferred
 It is designed to inject liquidity
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8. T-Bills
Loan + Interest
NRB
Closing Leg
Repo: Repurchase Agreement
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9. Unissued T-Bills
Cash (Loan)
NRB
Opening Leg
Reverse Repo
 Under Reverse Repo NRB borrows from the Commercial
banks with the objective of moping –up excess liquidity from
the system.
 It is designed to withdrawal liquidity.
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10. T-Bills
NRB
Closing Leg
Reverse Repo
Loan + Interest
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11. Outright purchase
Cash
T-Bills
NRB
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12. UnissuedT-Bills
Cash
NRB
Outright Sale
12-16

13. Standing Liquidity Facility (SLF)
COMMERCIAL
BANKS
NRB
T-Bill, Bond as
Collateral
Short Term
Loan
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14. • SLF rate is determined through weighted
average of 91 days T-Bill + 3% panel rate
determined by OMOC
• NRB always tries to promote that liquidity
problems be solved within the commercial
banks.
• NRB stands as lender of last resort and
SLF is used by NRB as solution for short
term remedy only
• Thus to penalize the bank, it charges extra
3% as penalty rate.
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15. • The primary purpose of issuing the T-Bills
is to implement the fiscal policy.
• The Secondary purpose is to implement
the monetary policy.
• Two types of bond short term and long
term.
• The different type of instrument were used
by NRB to maintain the liquidity in the
market.
Conclusion
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16. 16-16