Bangladesh's rapid infrastructure expansion has strained fiscal and financial capacity. Public debt reached US$ 174 billion as of June 2025, driven largely by infrastructure financed through budget allocations, bank borrowing, and concessional external loans. At the same time, the banking sector remains structurally weak, with elevated non-performing loans and sustained capital flight limiting its ability to support more large-scale projects. Relying on sovereign-backed, bank-led financing for new megaprojects would further burden the public balance sheet and increase systemic risk.
In this context, the monorail system proposed by the newly elected Prime Minister, Tarique Rahman, is designed to complement Dhaka's existing metro network as a faster, lower-cost transit solution. Beyond improving urban transport, the project creates an opportunity to rethink how infrastructure is financed. It could serve as a pilot to mobilise capital market funding in Bangladesh, reducing reliance on traditional public and bank-led financing.
Benchmarking against comparable regional projects suggests an estimated cost of about US$ 800 million for a 21-22 kilometre alignment. While modest compared to metro rail investments, the scale remains significant given fiscal constraints. We assume that 30 per cent of the total funding, around US$ 240 million, could be raised from the domestic capital market through a mix of project-level debt and equity.
Under the model, 80 per cent of the market-raised portion would be financed through corporate bond issuance, ideally in the form of convertible bonds. This structure enables early-stage funding while limiting immediate equity dilution and reducing refinancing pressure once stable cash flows are established. The remaining 20 per cent could be raised through a public listing of the project company, allowing diversified investor participation in a long-term infrastructure asset. Full government guarantees during the construction phase would further strengthen creditworthiness and enhance investor confidence.
However, mobilising US$ 240 million would require greater market depth and liquidity. Bangladesh's corporate bond market remains shallow, and equity market turnover is too low to absorb large infrastructure issuances without causing volatility. These constraints reflect deeper structural issues. A prolonged IPO drought, lengthy regulatory approvals, heavy reliance on bank financing, limited institutional participation, and insufficient product diversity have all constrained market development. Without addressing these bottlenecks, large-scale infrastructure financing through market instruments will remain challenging. Financing at this scale depends on a credible, coordinated reform agenda to strengthen issuance capacity and improve secondary-market liquidity.
On the fiscal side, widening the corporate tax differential between listed and non-listed companies would restore incentives for public listing. Introducing tax-free dividend thresholds and increasing tax rebates on capital market investments would redirect household savings toward regulated financial instruments, strengthening demand and supply.
Regulatory reforms are equally critical. Streamlining IPO approvals to within six months, digitising disclosure processes, and enforcing higher reporting standards would restore confidence in primary markets. Accelerating bond approvals and enabling product innovation, such as green bonds, sustainability-linked instruments, sukuk, and tranche structures, would diversify funding channels and broaden the investor base.
Institutional strengthening must complement these reforms. Expanding insurance sector participation, encouraging partial listings of profitable state-owned enterprises, and incentivising multinational subsidiaries to float minority stakes would enlarge the universe of high-quality issuers. Setting limits on excessive bank financing for large infrastructure projects would also rebalance the bank-capital market dynamic toward market-based funding. Further measures are necessary to facilitate capital and profit repatriation for foreign investors, integrate remittance flows with capital market access, and strengthen transparency in alternative asset markets to channel savings into regulated instruments. Introducing regulated short selling within a controlled securities lending framework would improve liquidity and price discovery.
Bangladesh now stands at a critical inflexion point in its financing. Continued reliance on sovereign borrowing will increase fiscal pressure and systemic banking risks, while leveraging capital markets to fund commercially viable infrastructure, such as the proposed monorail, can address urban development needs and accelerate structural financial reform. Structuring such a project through market instruments with credible government backing would also create a large, high-quality listed security, strengthening foreign investor confidence and encouraging greater international participation. With coherent policy execution, the capital market could evolve over three to four years into a credible platform for large-scale infrastructure financing, positioning the monorail not just as a transport initiative but as a strategic step toward moving Bangladesh from a public-debt-driven model to a sustainable, market-led financing framework.
Waqar Ahmad Choudhury is Managing Director & CEO, Vanguard Asset Management Ltd.
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