Introducing remittance-backed bonds

Following the fall of the Awami League government, the country saw a massive increase in remittance, reaching $2.4 billion in September 2024-80 per cent rise compared to the same month last year. This increase may be attributed to favourable changes in foreign exchange policies. A new emphasis on remittances as a tool for stabilising the economy may also contribute positively. Thus, the recent political change has allowed exploring innovative financial products like remittance-backed bonds.

Remittance-backed bonds may be an effective tool to leverage the inflow of remittance. It can be a win-win for both the government and expatriate Bangladeshis. Issuing such a bond makes it possible to ensure a steady stream of foreign currency. The country needs more foreign currency now to finance long-term infrastructure projects, repay foreign debts, or enhance reserves. For remitters, the bond can also offer a secure investment vehicle with competitive return. This will also encourage more remittance through the formal channels.

In the short term, a remittance-backed bond could ease the pressure on the country's current foreign exchange reserve. A higher inflow of remittances will also prevent further depreciation of the Bangladeshi taka against the US dollar.

In the long-term, benefits are huge. Establishing a strong remittance-backed bond market can diversify the country's financial portfolio. It will help to reduce the dependency on external borrowings and enhance the Bangladesh's creditworthiness in international markets. The interim government is now focusing on transparent, market-driven exchange rate which has already stated to pay off. Remittance-backed bonds would add a new layer of stability and growth potential.

Arafat Mahmud

Student of North South University

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