New office under finance ministry to conduct G-sec auctions

The government has planned to separate treasury operations from the Bangladesh Bank (BB) as part of a move to keep the monetary functions of the central bank away from fiscal dominance.

This comes after the International Monetary Fund (IMF) and the World Bank (WB) suggested the split, saying treasury operations often hinder the proper transmission of monetary measures in Bangladesh.

In many developing and developed economies, these two functions remain separate.

Currently, the Debt Management Department of the central bank facilitates the government's domestic bank borrowing on behalf of the Ministry of Finance through the auctions of government securities (G-sec).

It does so in the absence of a designated government entity to conduct the auctions of treasury bills and bonds.

As part of the new plan, a debt management office will be set up under the finance ministry.

It will conduct the auctions of treasury bills and bonds, and generate funds to meet the government's budgetary shortfalls.

The Treasury and Debt Management (TDM) wing of the finance ministry is holding meetings with central bankers concerned to chart the course for a smooth separation.

A ministry official said the complete separation of treasury operations would take time.

In the first step, the central bank's Debt Management Department would continue to facilitate the G-sec auctions under the guidance of the ministry, and everything would be settled in consultation with the banking regulator, he said.

"Ultimately, the ministry will decide on the yields and also the amount of money to be generated using each instrument," he explained.

Later, the debt management office would be set up under an additional secretary of the ministry. Skilled people would be employed to make its operations vibrant, said the official.

"But initially, we may bring some experienced central bankers on deputation. Once we are fully ready, we will deploy officers on our own," he added.

Seeking anonymity, a Bangladesh Bank official said treasury operations should be separated from the central bank for independent functioning of the monetary policy and its transmission.

He said fiscal dominance often creates obstacles for the proper transmission of monetary measures. "I think if implemented properly, it will be a great move in favour of the monetary policy."

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