IMAGE: ALAMY/AP PHOTO/AIJAZ RAHI
IN THE summer of 2010, Nepal’s central bank unveiled a new debt instrument. It offered an interest rate of 9.75%, a handsome premium over the 7.5% then available on a fixed deposit at a commercial bank. The target audience was vast: the millions of Nepalis labouring in the Gulf, Malaysia and beyond. The target subscription was Rs1bn. The actual take-up was Rs4m. For every 250 rupees the government hoped to borrow, it received a single rupee.
This was the debut of the Foreign Employment Savings Bond (FESB), a five-year security created to channel the country’s single largest source of foreign exchange—remittances, which totalled $12.6bn last year—away from flat-screen televisions and motorcycle down-payments and into roads and hydropower. The logic has a certain technocratic elegance. Rather than letting billions in hard currency evaporate into consumption, lock a slice of it inside the Treasury and use the proceeds to build the economy the migrant left behind.
Sixteen years and 34 issuances later, the bond is still waiting for a crowd. In the fiscal year 2022–23, the two bonds on offer closed at 11.34% and 4.49% of the amounts offered—weak demand, though not the worst on record, as earlier issuances had attracted only fractions of a percent. A bond issued in December 2024 managed 10.84% of its target. The most recent issuance in December 2025 reached 33.39%, the strongest uptake in years, yet still leaving roughly two-thirds unsold. Yields have been reduced to around 7.5%, down from a peak of 12.5% in 2022–23 even as demand remains weak. The problem is not the advertised return. The problem is everything that stands between the migrant and the maturity date.
The first barrier is cash flow. A migrant worker who borrows heavily from a local moneylender to secure a visa for Qatar or Saudi Arabia—a common practice—spends the first few years of his contract just extinguishing that debt. According to World Bank surveys, roughly 70% of remittances are consumed immediately by households for food, school fees and electricity. Another 20% services the informal loans that made departure possible. Savings, even in a tax-efficient government bond, are a luxury that arrives only once the original capital has been repaid. By then already many workers have shifted their financial focus to the next job or the flight home.
Second is the corrosive effect of foreign-exchange movements. The FESB is denominated in rupees. A construction supervisor earning Emirati dirhams in Dubai or Saudi riyals in Riyadh does not think in rupees: he thinks in the currency that pays his rent. Over the past five years or so the rupee has depreciated by some 18% against the American dollar, and the Gulf currencies pegged to it. That slide functions as a stealth tax on any rupee-denominated asset. A bond paying 8.5% interest looks anaemic when the underlying currency is losing 3-4% of its external value a year. As one fund manager in Kathmandu says: “You are asking a man who left because of a lack of local opportunity to take a long position on the local currency. That is a difficult trade to sell.”
The third hurdle is trust. The state apparatus that issues the FESB is the same state apparatus many migrants associate with the bureaucratic sclerosis and favoritism that sent them abroad. This is not a problem solved by a glossy brochure. “The migrant sees a pile of bricks in a new airport terminal and wonders if it is his money or a Chinese loan building it,” observes Anil Sharma, an independent analyst who tracks diaspora flows. “There is no clear link between the bond and a specific, visible asset.” Unlike diaspora bonds elsewhere—Israel’s Development Corporation for Israel bonds, for example, which explicitly finance specific infrastructure—the FESB melts into the general pool of government revenue. The investor never sees his name on a dam.
That disconnect underpins a different approach from the ruling Rastriya Swatantra Party. Its manifesto largely sidesteps instruments like the FESB, instead proposing a separate sovereign diaspora fund while focusing first on restoring credibility through rights—such as voting for overseas Nepalis and clearer citizenship provisions.
What might move the needle? Linking each issuance to a specific, named piece of infrastructure could convert an abstract debt obligation into a tangible stake in the country. An FESB tied to the 10,000-megawatt hydroelectric agreement with India, for instance, would give a migrant a clearer sense of where his money has gone.
Another option would be to index returns to a basket of hard currencies,a feature seen in India’s diaspora bonds, and largely absent in Ethiopia’s, where currency risk has deterred investors. That would remove the single largest deterrent for the higher-earning cohort. And shifting from periodic, undersubscribed auctions to a permanent “open tap” would align the instrument with the erratic cash flows of migrant life. A worker should be able to buy a bond on payday in July, not wait for a government window in December.
The FESB survives, for now, as an odd reflection of Nepal’s economic contradictions: a country that sends its workers abroad in vast numbers, yet struggles to bring their savings back home. Balendra Shah’s government has at least recognised that the old way of doing things produces nothing. It has not yet made the bond a good buy, however. ■
