A new methodology is being devised to streamline lopsided government-liability management against treasuries as the existing system creates an unpredictable financial burden amid maturity of too many bills and bonds together.
The government borrows through treasury bills and bonds and many of which mature in a single year. However, in some years, very few such instruments mature. This leads to a mismatch, overburdening the debt-service provisions in some years.
When a large number of bonds mature in a given year, the government faces high repayment pressure. Conversely, when fewer bonds mature, the repayment burden remains lower.
This inconsistency creates operational challenges for fiscal management, which has drawn attention of Bangladesh's foreign development financiers.
For example, the maturity amount for treasury bills in financial year (FY) 2023-24 accumulated to Tk 2.919 trillion, in a steep increase of nearly 55 per cent from the previous fiscal year (FY 2022-23).
Similarly, bond maturities in FY 2024 totaled Tk 40.680 billion, up nearly 20 per cent year on year.
The Bretton Woods twins--the World Bank (WB) and the International Monetary Fund (IMF)--are pushing for reforms to make the system more predictable and manageable.
Another key objective of the new approach to liability management is to establish benchmark securities.
A WB-IMF joint workshop on January 26-30 brought together relevant stakeholders to discuss how to implement the new system effectively.
Under this proposed framework, the government may consider buybacks of securities to reduce future repayment burdens. Never did the government buy back such sovereign securities in the past.
This correspondent asked if any price surge when government will start buyback, an official said the new management would address this issue also.
People familiar with the matter told the FE that the new system, called Liability Management Operations (LMO), has two primary objectives: smoothing out government liabilities to ensure predictability and creating benchmark securities to improve market efficiency.
"Currently, the government faces a major challenge when multiple bonds mature in the same year, requiring additional borrowing," said one official concerned who had attended the preparatory workshop.
"The proposed system will provide relief for fiscal management."
The new system will also help establish a benchmark for securities, as there is currently no widely-accepted reference point, he went on, wishing anonymity.
He further said: "This reform will improve government planning, particularly in budget preparation."
However, the transition takes time as the WB-IMF duo is preparing a new report assessing the existing system and outlining steps for implementing the revised debt -management framework.
In the FY 2024, the government borrowed Tk 891 billion through a large number of instruments from the banking system, primarily through bonds.
Net financing through treasury bills was Tk 97.65 billion up to the fourth quarter of FY 2024, according to a Finance Division report.
The report further says long-term financing through treasury bonds amounted to Tk 783.35 billion during the same period.
The borrowing with national savings certificates (NSC) is much lower now. During the past fiscal year, the government borrowing by using the NSC was negative, at Tk 211.24billion.
jasimharoon@yahoo.com
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