First ever medium-term debt strategy readied

Jasim Uddin Haroon | Published: February 13, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

The government has finalised the country's first ever medium-term debt strategy aiming to ensure efficiency in public borrowing.
The strategy is also aimed at mobilising low-cost and risk-free debts for funding budget deficits and other big projects.
The Ministry of Finance (MoF) has prepared the strategy and it expects to get it approved sometime in March next.
"We have finalised the strategy. Now we're just adding the finishing touch to it," said a senior official at the Finance Division.
The Cash and Debt Management Committee (CDMC) under the finance division will submit the strategy to the finance minister and he may place it before the cabinet for its decision.
The finance division official said such a strategy would also help develop the treasury bond market in the country.
A government or treasury bond is a bond issued by a national government, generally with a promise to pay interests periodically, namely six months, and repay the face value on its maturity date. Government bonds are usually denominated in the country's own currency.
"Our debts strategy is lacking proper planning," the finance division official noted.
Whenever a government fails to mobilise debts from external sources, then it resorts to borrowing from the banking sector that often leads to a crowding-out effect on the economy.
However, sources said the strategy would focus mainly on domestic borrowing for the medium terms ranging from three to five years.
It would also focus on new debt instruments of small denominations for general people, they said.
Such a type of strategy will give a planned signal to the market in relation to the government's borrowing from the banking and non-banking sources.
It was important for the government to adopt an integrated approach for economic revival and a debt reduction strategy to spur the economic growth, said Mr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI).
Mr. Mansur, who earlier worked on the issue, told the FE that the strategy should consider bond market development and its diversification.
Mr. Mansur noted that the existing domestic borrowing was not market-based.
Mr. Mansur said there was a need for a separate department or division to handle the debts.
Currently, the Economic Relations Division (ERD) is exploring external debts while the Finance Division handles domestic borrowings.
"I don't understand why two separate wings work for the same purposes," he wondered.
"For effective debt management, there is a need for combination of both the divisions so that they can work under one umbrella," said Mr Mansur, who is also a former official at the International Monetary Fund (IMF), one of the Bretton Woods institutions.
He said the government should go for cheap and risk-free borrowing. "The borrowing options should be broadened to offer choices."
Mr. Mansur noted that as per the existing practices the debt management was not working properly.
Mr Mustafa K Mujeri, director general at the Bangladesh Institute of Development Studies (BIDS), said the debt strategy is an important guideline for a developing country like Bangladesh, as it helps avert the uncertainty regarding availability of debts.
Mr. Mujeri said debt management is also necessary for Bangladesh as the volume of debts is on the rise here.
He said if the debts were not properly handled, it would affect the economy.
"Suppose, we pay much for the debt repayments, then, we'll face resource constraints for economic development. For this reason, we need a well-thought-out strategy," said Mr. Mujeri, who worked as chief economist at the central bank.
Unplanned borrowings might affect the economy aggregately, Mr. Mujeri noted.
He, however, said the opinions from stakeholders and experts should be incorporated in the strategy for making it an effective one.
The government borrows from both domestic and external sources to meet mainly budgetary deficits.
The budget deficit during the fiscal year (FY) 2011-12 was met mainly by borrowings from local banks. The bank borrowing was 71.9 per cent of the total deficit financing in the FY '12. The percentage decreased to 60.4 in the FY '13.
Each year the government's target of borrowing from both domestic and external sources remains around 5.0 per cent of the gross domestic product (GDP).