Bangladesh bond market, where the government remains the key player, has been more of a non-entity. The corporate bonds are fewer in numbers and funds against those are generally raised through private placement.
The truth is that the prevailing environment in the country's capital market is not that favourable for a bond market to flourish. Yet there have not been serious efforts to put in place a strong and vibrant bond market which could be a viable source of raising funds for investment both by the government and the private sector entrepreneurs.
In fact, getting a strong bond market in place does require a different economic environment and investors' psyche. Even neighbouring India despite being one the major economies in the region does have a small bond market---the bond market was worth only 16 per cent of that country's gross domestic product (GDP) in 2018. Malaysia's bond market was equivalent to 46 per cent of GDP and South Korea's 73 per cent during the same year.
In such a state of bond market development, it is natural for the general population to be widely ignorant of the benefits and risks involved in investment in bonds, government or corporate.
So, it is not at all surprising that the response from the non-resident Bangladeshis (NRBs) and workers employed abroad to foreign exchange bonds floated by the government, at least, on three occasions until now has been rather lukewarm.
A number of factors could be responsible for such a poor response from the expatriates. The non-availability of sufficient investible fund with most expatriate workers might be the prime reason. More than 90 per cent of the Bangladeshi workers are employed in the Middle Eastern countries, Malaysia and Singapore and most of them being unskilled do get unattractive wages. They usually send the lion's share of their earnings back home for sustenance of their families and repay the money that they had borrowed from friends and relatives or rural loan sharks.
Most expatriate workers have the propensity to construct a new house or buy lands while some others tend to save money for starting a small grocery or any other small business on their return home.
Another reason for poor response to US Dollar bonds could be that most of the NRBs and the Bangladeshi workers abroad are not aware of the existence of these dollar-denominated bonds. So, the government, according to a report published in this paper, has asked the central bank and the National Savings Directorate (NSD) to launch campaigns both at home and abroad to motivate the NRBs and the Bangladeshi expatriate workers to invest in forex bonds. The government might try all these at some costs, but the actual outcome remains in doubt.
Barring the Wage Earners Development Bond (WEDB), two other forex bonds for wage earners do carry unattractive interest rates between 6.5 per cent and 7.5 per cent per annum. Moreover the bonds are of high denominations. So, high denominations and low yields have made the bonds unattractive to most NRBs and Bangladeshi workers who sent $16.4 billion back home during the fiscal year 2018-19.
Thus, the government, for lack of policy-focus on strengthening the local currency bond market, has been failing to mobilise funds either for its own large infrastructure projects or for corporate investments. Nor is it being able to divert remittance money for productive investment through the use of forex bonds.
Floatation of sovereign foreign currency bond remains an option for the government to mobilise funds for investment in infrastructure building or for meeting other needs. However, the process is not that easy. The government has not tried the option until now. There was a talk of floating sovereign foreign currency bond in 2014, but the idea was dropped later. While floating the first ever taka bond in the London Stock Exchange (LSE) recently, an influential adviser to the prime minister told the international news agency--Bloomberg--- that the government might float sovereign foreign currency bond to bankroll certain large infrastructure project. However, no action on the part of the government or the central bank has been noticed in this connection until now.
The need for floating such a bond is not felt that strongly since the country's foreign exchange reserve has been at a comfortable level for a considerable period of time. Though export earnings recorded a decline in 2019, the fall in imports coupled with an increased inflow of remittance money has, however, stabilised things. But, there is reason not to be complacent. The forex reserve might come under pressure in the event of a major rise in prices of oil and other commodities in the international market. The ongoing heightening tensions between the US and Iran have given rise to such a possibility.
In such a situation, popularising the wage earners' bonds in foreign currency remains the most viable option for the government to mobilise funds for implementing projects or meeting other needs. However, it is not that easy to accomplish the task, for most of the Bangladeshi migrant workers are unskilled, illiterate and, therefore, not adequately conscious even about their own welfare. So, the sending of skilled manpower in greater numbers might create an opportunity for mobilising funds through an increased sale of dollar-denominated bonds to the migrant workers.