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Seemingly like borrowing from Peter to pay Paul, government authorities move to cut the number treasury bonds to help cure the bearish securities market, subject to bond-investors' responses, sources said.
The interim government, which is pursuing a course of wide-scale reforms, prepares to cut the quantity of such bonds from the next financial year (2025-26).
With the assistance of Bangladesh Bank (BB), finance division is supposed to start liability-management activities in this connection.
The division has already sought technical support from the international lenders like the World Bank and the International Monetary Fund (IMF) regarding the switch.
Earlier, the World Bank and the IMF had suggested a reduction in the volume of bond to expand the transaction volume on Bangladesh's financial market.
Currently, there are 89 bills and 237 treasury bonds. Most of the bonds are not eligible for transaction amid the existing interest rates and tenures, according to a Finance Division document.
Treasury bonds are debt instruments of government that bear a fixed coupon and have a maturity of 2-20 years.
A treasury bill (T-bill) is a short-term debt security with up to one-year tenure of maturity.
Currently, five government bonds, with tenures of two, five, 10, 15 and 20 years respectively, are traded on the market. Treasury bonds are coupon-bearing debt tool. It carries half-yearly coupon payments, and the principal is repaid on maturity.
Both bonds and bills are traded on the secondary market.
But experts are not convinced that reduction in the number of bonds from the existing ones is a solution. They think that financial management of the government bonds should be made more time-befitting.
The government should emphasise the need for improving the existing secondary market so that investors get encouraged to invest in such bonds, they said.
Senior economist and Distinguished Fellow of the Centre for Policy Dialogue (CPD) Mustafizur Rahman sees the move to consolidate the treasury bonds- management system as a "positive initiative".
He, however, says the government should bring its treasury bonds under such an arrangement so it helps ease its debt system.
"For doing so, the government should either close the existing bonds by offering higher yield rates before their maturity and it can put an end to reissuing the same," he adds.
Bangladesh's bond-market capitalisation lags significantly behind that of regional peers. The government's attempt to trade bonds on the stock exchange was not successful at a desired level. Only Tk 3.29 billion transacted on the two exchange markets in the fiscal 2023-24, reads the document.
Earlier on March 27 in 2019, the government issued Tk 5.0 billion worth of Three-Year Floating Rate Treasury Bonds (FRTBs) for the first time.
It issued FRTBs of Tk 2.71 billion, Tk 6.58 billion and Tk 3.0 billion in October, November and December respectively. It has decided to issue FRTBs worth Tk 5.0 billion in January, February and March 2025 each.
In October last, the government borrowed the highest amount of funds through long-term bonds, which are around 65 per cent of set target in the current national budget.
The ministry of finance borrowed Tk 690.54 billion from all the scheduled banks through issuing treasury bills and bonds during the July-December period of the current fiscal year (FY), 2024-25, while Tk 544.14 billion was paid into the central-bank coffer, according to a confidential report prepared by the BB on government borrowings from the banking system.
Earlier, the government issued long-term fixed-income instruments--referred to as special bonds--and banks purchased those to release funds to fertiliser importers and power producers. These bonds, with maturities of seven to eight years, pay interest coupons to banks.
In the 2024025, it issued special treasury bonds worth Tk 69.79 billion and Tk Tk 55.62 billion for subsidy payment to fertilizer and power sectors respectively.
The government has gone for issuing Sukuk bonds since December 2020 in line with the Bangladesh Government Investment Sukuk Guidelines 2020. So far, some Tk 190 billion worth of Sukuk bonds have been issued under four projects, the finance ministry data showed.
The first Sukuk was issued on December 28, 2020 to raise funds for implementing a safe-water-supply project. A number of private-sector conglomerates, including Beximco Group and Pran-RFL, also raised funds through issuing this derivative (Sukuk).
When contacted, a senior official of the finance division said, "The government is working on how to reduce the number of bonds as it cannot forcibly reduce the number. The process involves the decision of the bondholders/investors concerned which should be voluntary by such holders."
He mentions that it has not yet been decided which type of bonds will face the axe.
He, however, adds that in most cases, during auction, investors/bondholders may claim higher interest for leaving voluntarily which can increase government costs significantly. The process also involves buyback issue.