ISSUANCE OF SOVEREIGN BOND: BB committee warns govt of risks

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A file photo shows a building of the Bangladesh Bank headquarters in the capital. A government committee has suggested that the government should consider the risks before issuing sovereign bond.

A government committee has suggested that the government should consider the risks before issuing the country’s first ever sovereign bond to raise funds for infrastructure projects from the international money market, officials said.
The committee led by Bangladesh Bank deputy governor Shitangshu Kumar Sur Chowdhury in its interim report has identified the risks including appreciation of the local currency against the dollar and fall in soft loans from the donor agencies.
The report which was sent to the finance ministry recently stated that the prevailing high political tension ahead of the next national elections might affect rate of interest and repayment arrangement for the bond.
The suggestions made by the report are likely to deal a blow to the government’s plan to raise around $1,000 million to meet the foreign currency needs for the infrastructure projects including Pamda Bridge project.
Failed to convince the donor agencies to fund the bridge project because of alleged corruption in the multi-billion infrastructure project across the river Padma the government decided to build the bridge with its own finance.
As part of the plan finance minister Abul Maal Abdul Muhith had announced that there would a buffer of $1.8 billion, a substantial amount of which would be raised from the international market through issuing bond.
SK Sur Chowdhury admitted that the committee submitted the interim report but he did not disclose anything of it.
He told New Age on Saturday over phone that the matter was very sensitive. ‘I need time to talk on the issue,’ he said.
BB governor Atiur Rahman who is now attending an Asian Development Bank programme in New Delhi told IFR Asia of Reuters that looming elections might prevent the county from issuing bond in the current year.
‘A lot of technical work is going on and we will be launching this bond at a very opportune moment, but we are quite far, I would say,’ said Atiur Rahman.
Bangladesh is expected to elect a new parliament within 90 days of expiration of the term of the current one on December 29. The political uncertainty ahead of the polls may make a bond offering this year impractical.
The interim report said issuance of bond would increase the amount of foreign currency in reserve which would make further difficult for the BB to keep the value of the dollar against the local currency stable.
The BB has already purchased big amount of dollars in last one year to keep the value of greenback stable for the sake of export and remittance.
The report pointed out that the export and remittance would be discouraged if the value of the local currency goes up.
It also pointed out that donors’ contribution to development projects through funding at low interest rate would be discouraged. The committee stated that the government’s negotiation with the donors was vital.
Referring to its discussion with the International Monetary Fund the committee said the IMF’s views should be given due consideration.
The IMF suggested to issue bond from a position of strength and to avoid a rush to the market with non-strategic view.
The market prefers low political risk, an important factor in the context of Bangladesh, the IMF said.

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