Bangladesh Weighs Bonds to Raise $1 Billion

Bangladesh is exploring a new way to raise foreign funds by considering the issuance of sovereign bonds in international financial markets, with a target of securing the equivalent of US$1 billion. The initiative could allow the country to diversify its borrowing sources at a time when the government is also negotiating a new loan programme with the International Monetary Fund (IMF).

According to information reported by Prothom Alo, the government is considering issuing bonds denominated in US dollars while also examining opportunities to borrow in Japanese yen and Chinese yuan. The proposed options include Samurai bonds in Japan and Panda bonds in China, which would provide access to investors in those countries.

The plan is intended to create alternatives to conventional borrowing from international financial institutions and other lenders. However, the government has yet to make a final decision on which currencies or markets it will choose. The eventual cost of borrowing will depend on several factors, including interest rates, repayment periods, currency movements and Bangladesh’s credit standing among international investors.

Officials from the Finance Division under the Ministry of Finance have been examining the options as part of efforts to broaden the country’s sources of foreign financing. The government is also expected to engage with investors in major financial centres to assess the level of interest in Bangladesh’s proposed bond issuance.

London, New York and Hong Kong are among the locations being considered for investor discussions and promotional events. Such meetings would allow officials to present Bangladesh’s economic prospects, explain the purpose of the proposed borrowing and learn what terms investors might demand before purchasing the bonds.

The government plans to appoint JPMorgan, a US investment bank, and Bridgeworks International, an advisory firm based in Hong Kong, to help manage the process. Their responsibilities are expected to include developing the bond structure, selecting legal advisers and trustees, communicating with investors and coordinating with international credit rating agencies.

A major consideration for Bangladesh will be the currency in which the debt is issued. Although borrowing in US dollars is a familiar option in international finance, the government is also examining whether yen or yuan financing could offer more favourable terms.

Samurai bonds are issued by foreign borrowers in the Japanese domestic market and denominated in Japanese yen. Panda bonds, meanwhile, allow foreign governments and institutions to raise funds in China’s domestic bond market through bonds denominated in Chinese yuan.

The term Eurobond can also be confusing because it does not necessarily mean that the debt is denominated in euros. In the proposal being considered, the government is examining a dollar-denominated international bond. Such bonds are commonly used by borrowers seeking funds from investors outside their home countries.

Borrowing in different currencies could offer access to a wider range of investors, but it would also introduce risks that the government must carefully assess. A loan raised in dollars must be repaid in dollars, while debt issued in yen or yuan must be serviced in the respective currency.

This creates a potential problem if exchange rates move unfavourably before repayment becomes due. Even when a loan carries a comparatively low interest rate, the amount Bangladesh ultimately needs to pay in taka could rise if the borrowed currency strengthens against the local currency.

For example, yen-denominated borrowing might initially appear less expensive than dollar financing. However, if the yen appreciates significantly before repayment, the government could face a larger financial burden when converting taka into yen to meet its obligations. Similar risks apply to borrowing in yuan.

The government may therefore examine financial arrangements such as forward currency contracts to reduce uncertainty arising from future exchange rate movements. These arrangements can help borrowers manage currency exposure, although their effectiveness and cost would depend on the terms available in the market.

Dollar-denominated borrowing also has certain advantages for Bangladesh. A substantial share of the country’s export earnings and remittances arrives in US dollars, making dollar debt repayments more closely aligned with some of its foreign currency income. However, high dollar interest rates or a depreciation of the taka could still make repayment more expensive.

In July, the Finance Division formed an eight-member interministerial committee to examine the proposed bond issuance. The committee is expected to assess the amount to be raised, the choice of currency, repayment periods, interest rates, potential markets and the risks associated with different borrowing options.

The government has also been working to attract international attention to its public debt management strategy. An international conference on public debt, organised jointly with the Asian Development Bank, is scheduled to take place in Cox’s Bazar on 15 and 16 November. The event is expected to bring together around 100 representatives from 30 countries to discuss public borrowing and debt management in a changing global financial environment.

Bangladesh has considered issuing sovereign bonds in international markets on several occasions in the past, but earlier efforts did not progress to completion. Proposals were discussed in 2011, 2013, 2014 and 2016, and the idea resurfaced again in 2021 and subsequent years.

The country does have some experience with internationally marketed bonds denominated in taka. In November 2019, the International Finance Corporation, part of the World Bank Group, issued an 800-million-taka bond equivalent to approximately US$9.5 million. Known as the Bangla Bond, it was intended to support the expansion of PRAN Group’s manufacturing operations and distribution network. It had a three-year maturity and was listed on the London Stock Exchange.

However, a sovereign bond would be different because the government itself would be responsible for meeting the debt obligations. The success of such an initiative would depend not only on investor demand but also on the government’s ability to use the proceeds productively and repay the debt on time.

Economists have emphasised that the purpose of borrowing is just as important as the amount raised. If the money is invested in productive projects that generate sufficient economic returns, it could support growth and help the country meet future repayment obligations. By contrast, spending the funds on projects that do not generate adequate revenue could leave the government struggling to repay both the principal and interest.

Former World Bank Dhaka office lead economist Zahid Hossain has cautioned that Bangladesh must carefully evaluate how the proceeds will be used. He has stressed that commercial borrowing can create risks when the repayment schedule is shorter than the time needed for an investment to produce returns.

The proposed bond issuance is also being considered alongside negotiations for a new US$4.5 billion IMF loan programme. Diversifying financing sources could give Bangladesh more options for managing its external funding requirements. Nevertheless, the bond plan should not be viewed simply as a way to obtain cheaper money, since market-based borrowing can carry higher costs and stricter repayment obligations than some concessional loans.

Ultimately, Bangladesh will need to balance the benefits of accessing international capital markets against the risks of foreign currency debt. The choice between dollars, yen and yuan will depend on borrowing costs, investor demand, exchange rate expectations and the country’s capacity to repay the funds.

If the government proceeds, the proposed US$1 billion issuance could mark an important step in Bangladesh’s efforts to establish a presence in international sovereign bond markets. Its long-term value, however, will depend on whether the borrowed money supports productive economic activity and strengthens the country’s ability to manage its debt responsibly.