Foreign investment in govt bonds falters

Taka depreciation, return repatriation problem for dollar dearth discourage investors

| Updated: February 12, 2023 21:54:17

Foreign investment in govt bonds falters

Bangladesh fails to attract foreign investment in treasury bonds as it has stagnated into a zero sum since 2019, according to official count, mainly for two principal financial factors besides the pandemic.

A Bangladesh Bank (BB) publication, released Thursday, said there had been no non-resident investment in Bangladesh in the government treasury bonds since 2019. Both non-resident Bangladeshis and foreigners can invest in the government securities.

Till the end of December 2018, foreign investors had made a net investment of only Tk 230 million, before hitting rock bottom.

Bangladesh has different five-tenure bonds, starting from two-year to 20-year maturity terms. The government borrows with the tools to make up for its fund deficit from the banking system.

Resident and non-resident Bangladeshis and other institutions can invest in the instruments to accrue fixed incomes.

People in the know of the central bank affairs told The Financial Express that such investment remained poor over the past few years together as a result of the covid-19 invasion and its cascading effects.

During the corona carnage worldwide, with economic activity virtually stalled, the banking sector had adequate funds and they used to participate in the treasury auctions held in the BB for investing in government securities. Such investments by local banks, however, led to fall in the yields on the fixed-income instruments.

"The yield was too lower during covid and even until 2021, which discourages investing in government securities," says one official of the Bangladesh Bank.

He, however, pointed out another factor behind such performance: the depreciation of the local currency against the US dollar.

When the local currency depreciates, it weakens the BDT against the US dollar, which also discourages foreign investors from making investment here. The investors get a lesser amount when the BDT is converted to dollar.

"Though the trend of the yield on G-sec has increased so much in the recent fiscal year, it failed to draw attention of foreign investors in recent times," the publication reads.

The central banker, however, said that the yield increased significantly now. So, he hopes, the investment will "resume soon as many foreign banks have been contacting us."

But repatriation of dollars now becomes hard following the decline in foreign-exchange reserves as the banks take time to facilitate outflow although there is no official embargo, industry people said.

Another central bank official told the FE that after the beginning of the secondary trading on the stock market, many foreigners have been showing interest in the securities.

When there is secondary trading, the investors can sell out anytime.

However, foreign investors began to acquire T-bonds in April 2013, and the number had gradually climbed until December 2014.

Following that, it rapidly got reduced as existing T-bonds matured, followed by no new foreign investments.

Since 2019, there has been no foreign investment in Government Securities (G-Sec).

[email protected]

Share if you like

Filter By Topic