Borrowing Foreign Funds
Expert body discourages sovereign bonds’ floating
An expert committee on issuance of Sovereign Bonds has strongly discouraged the government on borrowing costly foreign funds through sovereign bonds as the proposed tool would involve wide ranging impacts on economy. The committee, headed by SK Sur Chowdhury, president, sovereign bond transaction execution committee, also deputy governor of Bangladesh Bank, submitted its report to finance minister AMA Muhith last week after the finance minister in August had sought the expert opinion, a senior central bank official said.
The expert committee in its report said once the country embarks on sourcing commercial loans from global markets through the issuance of bonds, its concessional loan borrowing prospect would shrink from both multilateral lending agencies and bilateral donor countries.
The committee comprising officials from BB and finance ministry asked the government to abandon the plan in view of a healthy reserve situation and absence of any specific large project to finance from such costly borrowing.
Sources in the finance ministry said Muhith had sought the stance of the committee after Goldman Sachs, the world’s leading investment bank, last month advised him to borrow between US$ 2 billion and US$ 3 billion through the issuance of sovereign bonds, first of its kind the government has been contemplating to issue for the last three years, but dropped the idea before less than one year.
‘We are not excited by the advice from Goldman Sachs as we need to complete our own course of examining the pros and cons of commercial borrowing through bonds,’ a senior finance official told New Age on Thursday.
He said the investment environment that exists in the country and the reality of contemporary local economy hardly justified any large amount of commercial borrowing right at the moment.
The report said the country’s foreign currency reserve has soared to nearly US$ 22 billion as growth in import has not been noticeable. Despite BB’s intervention in the currency market, Taka kept on appreciating which could be aggravated further in case foreign fund is sourced from global market.
The proposed issuance would impact the export earnings and remittance flows badly as it would risk further appreciation of the local currency, the report highlighted.
Bangladesh could lose its eligibility for low cost soft loans now available from multilateral and bilateral lending and donor agencies, the report warned.
As the government has meanwhile decided to implement Padma bridge projrct from its reserve fund, the costly borrowed foreign currency to be sourced from the proposed sovereign bonds would have no meaningful utilisation for the economy, the committee observed.
The report further discouraging the government said the interest rate from such borrowing could be as high as 6 to 7 per
cent, which is disturbing and exorbitant for the economy.
-With New Age input
