The government plans to boost the country’s moribund bond market to meet the fund requirements for its fiscal deficit.
The move is seen as a major policy shift of the government from the traditional bank borrowing to the Treasury bond.
A bond is a debt instrument issued for a specific period of time for the purpose of raising capital and the bond market is a financial market where participants buy and sell debt securities, usually in the form of bonds.
“Recently enhanced liquidity position in the public sector due mainly to lower development expenditure has led the government to switch over to the long term financing for the fiscal deficit,” said an official of the finance ministry.
He said the measure will also cheer up the country’s bond market. “New products will be introduced to make both the primary and secondary bond markets popular.”
Since 2012, the government has largely been depending on short-term bank borrowing to meet the budget deficits, which caused “crowding-out effect” on the economy.
According to sources, the cash and debt management body of the finance ministry is working on the regulatory framework for increased borrowing through long-term treasury bonds, reflecting determination of the government in promoting the market.
As part of the plan, Bangladesh Bank, which mainly plays an important role in mobilising domestic debt on behalf of the government, has already launched vigorous campaign to attract investors in the Treasury bond.
The bank has already prepared its January-June auction calendar by assuming an equal share of both bills and bonds in the government borrowing.
People are less interested in long-term bonds as other tools including saving certificates are much more attractive in the context of smaller denominations and easy availability.
“That’s why the government is also planning to launch bonds with smaller denominations to attract people,” said an official.
At present, the minimum denomination is Tk100,000 and only banks and financial institutions are the buyers of the government securities.
Duration of the government bond ranges from two to 20 years. Bills range from 91-days to 364 days.
Executive director of Policy Research Institute Ahsan H Mansur said, “It is a good move as it might bring dynamism in the bond market.”
“But the question is whether the government will be succeeded or not. If it is market-based, the move might see success. If it is influenced by the government, it will definitely fail.”
The bond market has played a limited role in Bangladesh economy. It is rather shallow compared to the neighboring countries.
Bangladesh’s bond market represents the ‘smallest’ in South Asia, accounting for only 12% the country’s gross domestic product (GDP), said a World Bank report published in mid-2012.
At US$7.35b, the size of the country’s bond market is far smaller than the banking assets, estimated at nearly $32b – equivalent to more than 50% of GDP – says a WB report on “South Asian domestic debt market.”
