IMF-BB keen to develop local currency bond market
Staff Reporter :
The International Monetary Fund (IMF) delegation, during a meeting with the Bangladesh Bank, expressed their interest to work on developing government bonds in the secondary market.
The meeting, held with officials of the central bank’s debt management department on Thursday (6 July), was attended by five members of the IMF and two members of the World Bank team, Bangladesh Bank spokesperson Mezbaul Haque said.
“The IMF and World Bank team will also hold a meeting with the Bangladesh Securities and Exchange Commission to discuss the primary objective of promoting government bonds in the secondary market,” he added.
The delegation will hold its concluding meeting with the finance ministry on 17 July.
The technical experts will examine six key building blocks of bond market development-money market, primary market, investor base, secondary market, financial-market infrastructure, and legal and regulatory framework.
Identifying challenges for LCBM development within each building block, preparing a roadmap for LCBM development with sequenced reforms and priorities, assessing the functioning of the primary-dealership arrangement and recommending appropriate reforms are in the scope of their spadework.
The objectives of the mission include deepening and enhancement of liquidity on government securities market.
The IMF on its website says a local-currency bond market can make an economy “more resilient to sudden movements in foreign capital flows”.
But borrowing in foreign currencies in international bond markets can leave these countries exposed to volatile exchange-rate movements.
To avoid risks from currency fluctuations, many have invested large resources in recent years to develop local-currency government bond markets.
These bond markets can have a wide range of benefits. They can form the basis of a robust financial system to support growth, and the productive use and allocation of savings.
Also, they can help finance budget deficits in a non-inflationary way. And, also they can facilitate cutting taxes in tough economic times and support the use of other counter-cyclical fiscal-policy measures.
Moreover, local-currency bond markets can support effective monetary policy and act as an important information source for policymakers. They serve as the cornerstone of the development of domestic financial markets by providing risk-free benchmark rates.
“When they are developed, these markets become more stable and less risky sources of funding-an important factor in making debt more sustainable,” the Fund says about virtues of such local bond, particularly at this hour global financial upheavals.
In September 2021, the International Finance Corporation (IFC) had said it wanted to issue Taka-denominated bond on the Bangladesh market to extend financial support to domestic industries and agencies in need of funds.
The World Bank Group’s private-sector-lending arm had then sought approval from the government of Bangladesh for issuing the bond.
