Economy
Bangladesh Raises Dollar Bond Rates to Attract Diaspora Investments
The Finance Minister has announced an increase in interest rates for the US Dollar Premium Bond and US Dollar Investment Bond, targeting investments up to $100,000. The move is aimed at attracting funds from the Bangladeshi diaspora and foreign citizens with Bangladeshi origins to bolster the country’s dollar reserves.
As per the recent notification by the Internal Resources Division, interest rates for the premium bond are now 6.50%, 7%, and 7.50% for the 1-year, 2-year, and 3-year terms, respectively. For the investment bond, rates are set at 5.50%, 6%, and 6.50% for the same terms. Buyers can acquire these bonds from authorized dealer branches of banks within the country, Bangladeshi bank branches abroad, and exchange houses.
The finance ministry circular outlines that new investments will be calculated by adding up previous investments, with the interest rate applicable at the time of purchase. Investors can choose to receive reports of their investments in dollars or taka.
Bangladesh Bank data reveals that the net sales of the US Dollar Premium Bond were Tk1.5 crore in FY21, while the US Dollar Investment Bond had a negative net sale of Tk84 crore. During FY22, both bonds showed negative net sales at Tk103 crore and Tk876 crore, respectively. In the July-October period of FY24, the net sales were negative at Tk11 crore and Tk86 crore for the Premium and Investment Bonds, respectively.
Tarek Mohammad Zakaria from the Internal Resources Division explains that the global trend of increasing interest rates, observed in countries like the United States, the United Kingdom, and Europe, has prompted Bangladesh to adjust its rates to attract investment. This move is also aligned with the government’s aim to provide additional benefits to expatriate Bangladeshis.
The Bangladesh Bank had proposed a 2% increase in interest rates on all three bonds, in line with international markets. An expatriate investor mentioned that Bangladesh, contrary to global trends, offered lower rates, contributing to a wider financial account deficit. The investor highlighted that the government’s insufficient marketing efforts and lack of public awareness led to lower-than-expected investments in these bonds.
Despite the potential of the diaspora bonds to alleviate the dollar crisis by encouraging remittances through official channels, inadequate promotion has resulted in less than $1 billion outstanding investment in all three government-issued bonds for non-resident Bangladeshis at the end of FY23, compared to nearly $3 billion in FY22, according to Bangladesh Bank data.
During the eleventh month of the current fiscal year, the country’s foreign currency reserves have fallen below $19 billion for the first time. After paying off some import bills, the reserves have now stood at $18.26 billion on Sunday.
According to the International Monetary Fund (IMF), as of May 8, the total foreign currency reserves of the country were $19.82 billion.
Mohammad Mezbauul Haque, the spokesperson of Bangladesh Bank, informed that through the Asian Clearing Union (ACU), the central bank has paid off import bills totaling $1.63 billion over the past two months.
However, Bangladesh Bank maintains that after paying off the import bills, the foreign currency reserves now stand at $23.71 billion.
According to the Central Bank’s accounts, the reserves were $25.27 billion on May 8.
The Dhaka Stock Exchange (DSE) and the DSE Brokers Association (DBA) have expressed gratitude towards Prime Minister Sheikh Hasina for her directive to list government companies in the capital market, a move hailed as timely and positive.
The directive was issued during the recent meeting of the Executive Committee of the National Economic Council (Ecnec) last Thursday.
Dr. Hafiz Muhammad Hasan Babu, Chairman of DSE, described the directive as a significant step towards enhancing the dynamics of the capital market. He emphasized that besides invigorating the capital market, this move would also attract foreign investment and promote sustainable development.
Despite previous efforts, government institutions had not been listed in the stock exchange, according to a notification issued by the DSE. The Prime Minister’s directive is seen as a pivotal step towards revitalizing and expanding the economy.
Dr. Babu further remarked, “The listing of reputable companies in the capital market, as directed by the Prime Minister, will greatly benefit the country’s economy. It will also enhance investor confidence.”
Similarly, the DBA released a notification applauding the Prime Minister’s directive, terming it as positive and timely for the capital market.
Saiful Islam, President of DBA, expressed optimism about the directive’s potential to accelerate the country’s capital market and overall economy. He pledged support to relevant government departments and regulatory bodies in implementing the directive, ensuring its positive impact on the economy, including the capital market.
India has expressed interest in financing Bangladesh’s Teesta project, announced Foreign Minister Hasan Mahmud. Speaking to reporters after a meeting with Indian Foreign Secretary Vinay Mohan Kwatra, Mahmud stressed the importance of aligning the project with Bangladesh’s needs. He confirmed discussions on the Teesta issue during the meeting. Mahmud also affirmed Prime Minister Sheikh Hasina’s upcoming visit to New Delhi, indicating that the finalization of the date would depend on the formation of the new Indian government following ongoing elections.
Meanwhile, the IMF has approved a $1.15 billion staff-level loan for Bangladesh in its third tranche. Mahmud noted the ongoing elections in India and the subsequent formation of the new government as factors influencing the scheduling of PM Hasina’s visit.
When asked about the sequence of visits to India and China, Mahmud suggested Delhi’s geographical proximity to Bangladesh. Diplomatic sources suggest PM Hasina’s visit to India is planned for early July, following India’s elections.
Pre-election surveys indicate strong prospects for Indian Prime Minister Narendra Modi’s re-election. Modi previously congratulated PM Hasina on her electoral victory in January, expressing optimism about strengthening ties between the two nations.
The last bilateral engagement between the prime ministers occurred during the G-20 Leaders Summit in September 2023. Modi is expected to invite South Asian and BIMSTEC leaders to his swearing-in ceremony, fostering regional cooperation.
Addressing border killings, Mahmud emphasized the government’s commitment to ending such incidents and promoting the use of non-lethal weapons by border forces. Discussions also covered enhancing physical and people-to-people connectivity, including cooperation with India to import hydropower from Nepal and Bhutan through India. Mahmud highlighted the need to further ease visa restrictions to strengthen people-to-people relations.
