Diaspora bond is a promising fund for higher investment: Atiur

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Finance

Saturday, 24 September 2011

Author / Source : independent online report

Dhaka: Bangladesh Bank (BB) Governor Dr. Atiur Rahman, said that Diaspora bond is a promising fund mobilisation option both for the government and the private sector to fulfill the requirement of higher investment in the country, a  BB release  said on Saturday.

"Bangladesh's growth aspirations and the recent sharp pick up in her real sector investments require higher investment levels than can be mobilized from domestic savings; and the Diaspora bond issue is a promising fund mobilization option," he said.

He was addressing  a seminar on `Diaspora Bonds: Operational and Implementation Challenges' held in the World Bank Headquarter in Washington DC on Thursday.

The seminar was chaired by Managing Director of WB Mahmoud Mohieldin,  Dr Atiur Rahman and Governor, Central Bank of Kenya, Prof. Njuguna Ndung'u spoke about the prospects of Diaspora Bonds in Bangladesh and Kenya.

Lead Economist of WB Dilip Ratha presented case studies of the Philippines, Ethiopia, Nepal and India. Otaviano Canuto, Vice President and Head of Network, Poverty Reduction and Economic Management gave an overview of World Bank’s role in promoting diaspora bonds throughout the world.

Speaking about the prospects of Diaspora bonds in Bangladesh, Dr Atiur said that bond issuance abroad is among the options under consideration for financing the government's infrastructure investment projects, (including those in PPPs) in power generation, toll bridges, toll roads that will generate future income streams to pay off debts and other costs.

He said that Bangladesh has emerged as one of the promising avenues for promoting diaspora bonds with steady, resilient economic growth over the past few decades, remittance emerged as the major source of foreign exchange reserves, large pool of economically active younger population group, resilient banking sector, fast growing mobile telephony and so on.

The rationale behind diaspora bonds is twofold. For the countries, Diaspora bonds represent a stable and cheap source of external finance, especially in times of financial stress, he added saying “Furthermore, the worst-case scenario for Diaspora bonds is that debt service payments by the issuer are in local rather than hard currency.”

But because Diaspora investors often have liabilities in their country of origin, they are likely to view the risk of receiving payments in local currency with much less trepidation than would non-diaspora investors, he further added.

BB governor also said that the Government of Bangladesh has two US Dollar bonds (‘USD Premium and Investment bonds’) in issue, mainly targeting the Bangladeshi Diaspora abroad but open also for investment by any non-resident individual or institution regardless of nationality.

Available on tap through banks in Bangladesh authorised to deal in foreign exchange or their branches and correspondents abroad, the three years Premium and Investment Bonds fetch interest in US Dollar respectively at 7.5 and 6.5 per cent annual rate at maturity, the interest on Premium Bond is payable only in equivalent Bangladesh currency, Dr Atiur said.

“Premature redemptions are permissible, at interest rated lowered by 0.5 percent for each year short of maturity” BB governor said adding “Total outstanding balance of the two bonds stood at USD 149.2 million as of end August 2011.”

Bangladesh’s growth aspirations and the recent sharp pick up in her real sector investments require higher investment levels than can be mobilized from domestic savings, and Diaspora bond issue is a promising fund mobilization option both for the government and the private sector, he said.

He observed bond issuance abroad is among the options under consideration for financing the government’s infrastructure investment projects (including those in PPPs) in power generation, toll bridges, toll roads etc. that will generate future income streams to pay off debts and other costs.

“Ring fencing of revenues for debt repayment should make these bonds attractive to the Diaspora and other non-residents, individual and institutional,” Dr Atiur Rahman.

While dealing with license applications for new banks, Bangladesh Bank will consider prioritizing applications proposing external fund raising by issuance of Diaspora bonds for long term financing of local private sector investment projects. Given Bangladesh’s current sovereign rating (BB-) with stable outlook, we expect borrowing costs in external bond issues to be bearable, not far from costs of sovereign borrowing, he noted saying “Bangladesh will of course welcome any help that the World Bank group may offer in issuance of Diaspora bonds.”