Govt, WB in talks to develop bond mkt
Saturday, 1 December 2007
AZM Anas
The World Bank is in talks with the government on improvement of regulations governing Bangladesh's nascent capital market.
"The World Bank has started preliminary talks with us regarding a future project designed to develop Bangladesh's bond market, still in its infancy," a senior finance ministry official said.
"A strong bond market will require policy reform and strengthening of the Securities and Exchange Commission, while also improving the corporate governance of companies," the official added.
The global lender has suggested that the government should hire a pool of talented professionals in the SEC to make the regulatory body more efficient, it is learnt.
The global lender wants Bangladesh to lessen its reliance on bonds to narrow down the budgetary deficit and prefers the government to increase its development spending.
Similarly, the bank has urged the government side to reinforce its vigilance over listed companies and force them to follow international best practices in corporate governance and auditing.
The sources said that lack of confidence in the rating system and unfriendly regulations of investments in life insurance and pension funds in government-backed securities stood in the way of developing a sound debt market.
"Bangladesh's equity market continues to develop, with initial public offerings (IPOs) being oversubscribed by manifold. By contrast, the debt market remains highly under-performed," a finance ministry official said.
Compared to other countries in South Asia, Bangladesh's debt market remains largely underdeveloped, as the size of the local bond market hovers at only 11.9 per cent of GDP (Gross Domestic Product) as of June 2007.
In Sri Lanka, the value of bond market as percentage of GDP is 50 per cent, while those of India and Pakistan account for nearly 36 per cent each.
"Our case is worse than Nepal where the bond market-GDP ratio is 15 per cent," a source at Bangladesh Bank lamented.
Citing examples of the United States, Japan and South Korea, the central bank official pointed out the value of bond market as percentage of GDP is "incredibly higher" in these countries. "Healthy bond markets have shown the developed world a path to prosperity.
"In Japan, its bond market's value is 200 per cent higher in proportion to its GDP, while it is almost double in case of the United States."
Explaining the benefits of a robust debt market, financial analysts say, the depth in the bond market will help decrease a company's overwhelming reliance on bank loans, which often involve higher interest rates, huge paper work and other hassles.
Meanwhile, the World Bank has organised a workshop titled "South Asian Domestic Bond Market Development," slated for December 3-5, in the South Korean capital of Seoul to sensitise the regional policy makers about regulatory reforms and a potential common platform toward a robust South Asian debt market.
Capital market policy makers from Bangladesh, India, Nepal, Pakistan and Sri Lanka will take part in the high-level workshop to be co-hosted by the Korea Securities Research Institute.
The three-day workshop aims at brainstorming on improved regulations and international best practices that could help develop and bolster government and corporate bond markets in five South Asian nations, including Bangladesh.
A four-member delegation, led by AKM Abdullah, financial sector specialist of the World Bank, will take part in the Seoul workshop.
Other members of the delegation include joint secretary of the finance ministry Syed Monjurul Islam, executive director of the Securities and Exchange Commission Abdul Hannan Zoarder and chief executive officer of Dhaka Stock Exchange Salahuddin Ahmed.
The World Bank is in talks with the government on improvement of regulations governing Bangladesh's nascent capital market.
"The World Bank has started preliminary talks with us regarding a future project designed to develop Bangladesh's bond market, still in its infancy," a senior finance ministry official said.
"A strong bond market will require policy reform and strengthening of the Securities and Exchange Commission, while also improving the corporate governance of companies," the official added.
The global lender has suggested that the government should hire a pool of talented professionals in the SEC to make the regulatory body more efficient, it is learnt.
The global lender wants Bangladesh to lessen its reliance on bonds to narrow down the budgetary deficit and prefers the government to increase its development spending.
Similarly, the bank has urged the government side to reinforce its vigilance over listed companies and force them to follow international best practices in corporate governance and auditing.
The sources said that lack of confidence in the rating system and unfriendly regulations of investments in life insurance and pension funds in government-backed securities stood in the way of developing a sound debt market.
"Bangladesh's equity market continues to develop, with initial public offerings (IPOs) being oversubscribed by manifold. By contrast, the debt market remains highly under-performed," a finance ministry official said.
Compared to other countries in South Asia, Bangladesh's debt market remains largely underdeveloped, as the size of the local bond market hovers at only 11.9 per cent of GDP (Gross Domestic Product) as of June 2007.
In Sri Lanka, the value of bond market as percentage of GDP is 50 per cent, while those of India and Pakistan account for nearly 36 per cent each.
"Our case is worse than Nepal where the bond market-GDP ratio is 15 per cent," a source at Bangladesh Bank lamented.
Citing examples of the United States, Japan and South Korea, the central bank official pointed out the value of bond market as percentage of GDP is "incredibly higher" in these countries. "Healthy bond markets have shown the developed world a path to prosperity.
"In Japan, its bond market's value is 200 per cent higher in proportion to its GDP, while it is almost double in case of the United States."
Explaining the benefits of a robust debt market, financial analysts say, the depth in the bond market will help decrease a company's overwhelming reliance on bank loans, which often involve higher interest rates, huge paper work and other hassles.
Meanwhile, the World Bank has organised a workshop titled "South Asian Domestic Bond Market Development," slated for December 3-5, in the South Korean capital of Seoul to sensitise the regional policy makers about regulatory reforms and a potential common platform toward a robust South Asian debt market.
Capital market policy makers from Bangladesh, India, Nepal, Pakistan and Sri Lanka will take part in the high-level workshop to be co-hosted by the Korea Securities Research Institute.
The three-day workshop aims at brainstorming on improved regulations and international best practices that could help develop and bolster government and corporate bond markets in five South Asian nations, including Bangladesh.
A four-member delegation, led by AKM Abdullah, financial sector specialist of the World Bank, will take part in the Seoul workshop.
Other members of the delegation include joint secretary of the finance ministry Syed Monjurul Islam, executive director of the Securities and Exchange Commission Abdul Hannan Zoarder and chief executive officer of Dhaka Stock Exchange Salahuddin Ahmed.