Govt prepares mid-term debt strategy to minimise cost, risk

The government has prepared a medium-term debt strategy (MTDS) with the objective of minimising its cost and risk involving debt portfolio.
The MTDS is also aimed at meeting the borrowing requirement of the government in time and development of domestic debt market in the country.
The treasury and debt management (TDM) wing under the Finance Division prepared the strategy.
TDM sources said formulation of the MTDS will help the government assess its options to choose an appropriate borrowing mix to optimise the debt portfolio.
It is expected that it (TDM) will help develop capital market by way of revealing to the creditors the plan of borrowing by the government.
The TDM suggested that Bangladesh now needed switching the source of finance from domestic sources to external ones with the reduction of external concessional borrowing.
It said 60 per cent of the public borrowing should come from the external sources with the reduction of concessional loans.
Official sources said Bangladesh is now proceeding towards the target of attaining a middle income country (MIC) status by 2021.
If it attains the MIC status, the volume of concessional loans will decrease gradually, they said.
"We have suggested the best option is to switch the sources of financing to meet budget deficit from domestic to external sources," said a senior official at the Finance Division.
He said the strategy is most favourable in terms of both cost and risk.
The TDM team also found that the rate of interest is very low for the external borrowings. However, maturity of the concessional and semi-concessional external loans are usually long.
"The government may adopt strategy of borrowing mostly  from the external sources for the medium term," the official said.
He, however, said there is a risk for surging inflation if the amount of external borrowing increases in terms of the gross financing requirements.
"There is a possibility that the increased inflow of foreign exchange may increase inflationary pressure," he said.
He said if the inflationary pressure on this account looks excessive, the government may adopt another strategy of keeping the existing borrowing mix the same over the medium term, as a the second best option.
The existing borrowing mix is 40 per cent comprising external sources and the remaining 60 per cent from domestic sources.
It suggested another strategy to raise the external non-concesional loans by floating sovereign bonds in the international market to raise capital for funding large projects.
The Bretton Woods institutions-the World Bank (WB) and the International Monetary Fund (IMF)-have been pressing Bangladesh for formulating the strategy over the last coupe of years.
The MTDS has also suggested for a single database for all public debts as the country does not have any such type of system.
The Economic Relations Division (ERD) maintains record of public external debt data while the Bangladesh Bank (BB) and the National Savings Directorate (NSD) keep record of wholesale and retail domestic public debt data respectively.
The domestic debt instruments may broadly be divided into two categories- marketable debt securities and non-marketable debt securities.
Marketable debt securities are treasury bills and bonds that are regularly issued and auctioned by the government to finance budget deficit.
On the other hand, non-marketable instruments are WMA, ODC, general provident fund and different savings certificates.
The Ways & Means (WMA) and Overdraft Current (ODC) are  not included in the strategy as these items used for cash recording are of ad-hoc provisions made by the Bangladesh Bank to meet cash imbalances by the government.
However, as a least developed country, Bangladesh has access to concessional loan facilities from the International Development Association, the Asian Development Bank etc.
Bangladesh's 80 per cent external loans now are of concessional nature.