The government is looking for ways to develop its bond market for economic stability, but the major obstacle is the inability to forecast fund requirements through an approximate estimation of revenue income and expenses.
However, it is determined to fix all the problems that come in the way, which is why the Ministry of Finance commissioned a four-member committee of the Bangladesh Institute of Bank Management (BIBM) to figure out how to help the bond market flourish. A report has already been submitted.
"Without having a well-developed bond market, it will not be possible to achieve the targets set in the 2030 Sustainable Development Goals, Vision 2041 and Delta Plan 2100," said the government in its terms of reference (ToR) set for the BIBM report.
The bond market facilitates public sector borrowing at a competitive cost without the risks associated with the foreign currency financing.
If it becomes more active and is strengthened, Bangladesh will depend less on external debts. That in turn will reduce inflationary pressure.
The country has already experienced foreign debts received for infrastructure developments creating extra burden due to the sharp devaluation of the local currency against the dollar.
Large amounts of funds collected through bonds can be used for development projects while the repayment will be done at market-driven interest rates.
That sets bonds apart from non-tradable savings certificates, said Prof Dr. Prashanta Kumar Banerjee who led the BIBM team in the study.
"It's not possible to pool people's idle money on a large scale through National Savings Certificates," he added.
Efficient debt management would ensure a consistent and regular supply of bonds and in that case investors will be able to make investment plans.
On receiving the study report, the finance ministry has already held two meetings where representatives from the government's key organs were present.
The emphasis on the government bond market is long overdue because Bangladesh is far behind other Asian countries when it comes to the size of the market compared to the gross domestic product (GDP).
Bangladesh's government bond market is 9.79 per cent of GDP, whereas India's bond market accounts for 64 per cent of its GDP, Pakistan's 30.01 per cent, Singapore's 36.31 per cent, Thailand's 69.50 per cent, and Malaysia's 50.48 per cent.
The Bangladesh government issues debt securities, such as Treasury bills and Treasury bonds, through auctions to meet its cash requirements where the central bank acts as issue manager, clearing agent and custodian for such securities.
The BIBM report says that the primary market is less effective for mainly two reasons. The first one is that the government fails to maintain an auction calendar for not having a proper estimate of budgetary deficits and the second one is people's lack of awareness about the debt securities.
"A concrete auction calendar with justifiable frequency and volume of trading based on budgetary needs is indispensable," reads the report, for providing transparency and stability to the market.
Presently, the central bank conducts auctions based on a three-month calendar.
Mr. Banerjee, who led the study, however, acknowledged that the primary market of Treasury bonds was now more effective when compared to a few years back.
Bangladesh introduced Treasury bonds in 2003 much later than the Asian countries, which is another reason why its bond market is not that developed.
"The government is very positive in formulating action plans to achieve a well-developed bond market," said Mr. Banerjee.
A vibrant primary market of government debt securities will help the secondary market and the corporate bond market flourish.
Economy will bear the fruits, with local funds available for building infrastructure, and people will get risk-free returns from savings.
The BIBM report insists on formation of a task force to ensure coordination between regulators and policymakers.
A task force, comprising members from the securities regulator, the central bank's revenue board, and the finance ministry, will harmonize efforts to streamline the development of the bond market in the country, it says.
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