Revamping bond market for economic growth

The bond market in Bangladesh, despite its immense potential, remains largely unexplored. Several factors including weak corporate governance, lack of awareness and data transparency, investor-unfriendly tax structures, and inadequate enforcement of regulations contribute to the underutilisation. The absence of a sustainable bond market has placed undue pressure on the country's banking system as the primary source of financing. This growing reliance on banks enhances the risk of non-performing assets, threatening the overall stability of the financial system. A recent roundtable jointly organised by The Financial Express (FE) and Watermark Inc. highlighted these challenges and the unutilised potential of the bond market. Experts at the event emphasised the need for comprehensive reforms to unlock the economic benefits that a vibrant bond market could offer. Their suggestions included revamping the tax structure, consolidating all regulators and market intermediaries under a single authority, and updating regulations to align with global best practices. These measures, they argued, would help attract both domestic and international investors, including global impact investors.
The bond market, a financial marketplace where buyers and sellers exchange bonds as debt securities, plays a crucial role in the economy. It provides borrowers with a mechanism to finance large-scale projects and operations, while also offering savers and investors a way to diversify their portfolios. Furthermore, bond markets act as an economic barometer, with bond prices typically moving inversely to the stock market. When equity markets rise, bond yields tend to decline, and vice versa. This counter-cyclicality makes bond markets a reliable indicator of economic trends.
In Bangladesh, however, the bond market remains quiescent, and its potential impact on the economy untapped. The keynote speaker Managing Director of UCB Investment at the roundtable pointed out that the ratio of the corporate bond market to GDP in the country is only 0.19 per cent, the lowest among peer nations. He noted that while government treasury bonds offer high yields of 12-13 per cent, the risk-adjusted returns on corporate bonds should be more attractive to investors. To realise this potential, he stressed the importance of fixing the regulatory framework and aligning it with global standards. The development of both debt and equity markets in tandem is essential for a balanced financial ecosystem. A well-disciplined debt market can complement the equity market by providing a safety net for investors, who can offset potential equity losses with stable returns from fixed-income securities. The Editor of The Financial Express observed that bonds, which typically offer reasonable yields, are considered a safe investment by informed savers. He also highlighted the urgent need for a vibrant secondary market for the transaction of both government and private bonds.
With the interim government currently focusing on restructuring the country's financial management, revitalising the bond market should be a top priority. A robust bond market can significantly enhance capital mobilisation, reduce strain on banks, and provide a stable funding source for long-term projects. The time is ripe for Bangladesh to unleash the potential of its bond market aimed at ensuring its contribution to sustained economic development.