Home Bangladesh $100 billion Bangladesh Development Bond coming to market by 2025
Bangladesh - March 31, 2024

$100 billion Bangladesh Development Bond coming to market by 2025

Mahfuz Mahmud with Zarif Mahmud : The Global Economist Forum (GEF) with the support of multi-national investors including the Global Development Bank (GDB) has planned to launch US$100 billion Bangladesh Development Mega Bond by the year 2025 to help facilitate Bangladesh’s transition from the LDCs to an Upper Middle-Income Country. The main objective of the bond is to aid in the development of Bangladesh as an economically sovereign country by the year 2026. It will also help bolster the strong foreign currency reserves of the central bank.
The bond will be utilized for the country’s mega development programs, converting into local currency, while the dollar proceeds will be kept in the central bank as reserves. The duration of the bond will be 10 to 15 years with yearly interest benefit.
Currently, Diaspora Bonds (Wage Earner Development Bond, US Dollar Investment Bond, and US Dollar Premium Bond) are financial instruments/savings schemes introduced by the Internal Resources Division (IRD) and supervised by the National Savings Directorate (NSD) under the IRD, Ministry of Finance. IRD formulates policies related to NRB Savings Schemes entirely as a part of national fiscal policy regulated and implemented by Bangladesh Government.
As the monetary policy authority of Bangladesh and an indispensable organ of the country, the Bangladesh Bank (BB) supports the government in administrative and operational activities, mainly the payment mechanism of NRB Savings Schemes, through its regulatory authority over the entire banking system.
Wage Earner Development Bond (WEDB) is one of Diaspora Bonds issued only in BDT against foreign remittance sent by Wage Earners gainfully employed in abroad. Earned profits of WEDB are only payable in BDT. Invested Fund and earned interests are tax-exempted. Subject to the compliance of WEDB rules, WEDB principal amounts can be repatriated upon maturity as per existing guidelines of Bangladesh Bank.
The Bangladesh Development Mega Bond will be in US dollar and the interest will be paid in the foreign currency, said the sources of the GEF.
A global development bond, sometimes referred to as an international bond, is a type of bond issued and traded outside the country where the currency of the bond is denominated.
Key Features:

  • Global bonds may have a fixed or floating rate with maturities ranging from one to 30 years.
  • Global bonds are grouped into developed country bonds and emerging market bonds.
    Understanding Global Bonds
    When multinational corporations and sovereign entities decide to raise large capital, they may choose to issue global bonds. Global bonds are international bonds that are offered simultaneously in various capital markets including Europe, Asia, and America. These bonds may have a fixed or floating rate with maturities ranging from one to 30 years.
    Some global bonds are denominated in the currency of the company’s country base, such as the yen for Japanese companies and the euro for a German corporation. Other global bonds are denominated in the currency of the country where the bond is issued. Returning to the earlier example the US corporation could sell a bond on a Japanese marketplace and denominate it in yen.
    Due to the fluctuation of exchange rates, investors typically invest in foreign fixed income that brings in modest returns and fluctuates slightly. Global bonds are seen as a way to diversify a portfolio that is limited to a specific denomination or one particular country’s bond, such as a US bond because this bond will have less correlation to the foreign fixed income bond.
    Global bonds are grouped into developed country bonds and emerging market bonds. Bonds issued by corporations and governments from developed countries are issued with differing maturities and credit qualities. Some of these bonds are US dollar-denominated. However, most are denominated in the currencies of their home countries.
    Emerging market bonds are typically issued by a sovereign government, not corporations. These bonds are dollar-denominated and offer high-interest rates due to the perceived higher level of risk of a bond investment issued by an economically unstable country.
    A global bond can be traded and issued simultaneously in the country whose currency is used to value the bond. Drawing from our Eurobond example above, an example of a global bond will be one in which the French company issues bonds denominated in the US dollar but offers the bonds in both Japan and US markets.
    The main purpose of development impact bonds is to attract private investors to subsidize development projects in poor and developing countries. Although the security is called a bond, it lacks most of the features of conventional bonds. The bonds come with a fixed term, but they do not offer a fixed rate of return to the investors.
    The GEF works in every major area of development in partnership with member governments to find sustainable solutions to local and global development challenges. World Bank Sustainable Development Bonds support the financing of a combination of green and social, i.e. “sustainable development”, projects, programs, and activities in member countries.
    In FY23, the World Bank issued $43 billion in bonds in 20 different currencies and 196 transactions to support the financing of sustainable development projects and programs.
    Each project is designed intentionally to achieve both positive social and environmental impacts and outcomes in line with World Bank Group’s twin goals of eliminating extreme poverty and promoting shared prosperity and the Sustainable Development Goals (SDGs).
    Impact bonds are a type of outcomes-based contract between an investor, an outcomes payer, and a service provider, that tackle a social or environmental challenge.
    They are designed to overcome the challenges governments have in investing in prevention and early intervention. They mitigate the risks of failure and bring in impact investors, who want to test innovation and scale successful programmes. Investors provide flexible funding to programmes that are designed to be responsive to the needs of vulnerable groups to improve their lives.
    Social Finance set up the world’s first social impact bond in Peterborough in 2010, which aimed at reducing reoffending among short-sentenced prisoners. While our business has since diversified beyond impact bonds, they remain a key part of our approach.
    A social impact bond – or social outcomes contract, as they are known today – is an innovative way to finance projects where funding is not tied to specific activities and outputs, but to the outcomes it is aiming to deliver. It can support long-term projects and needs three partners:
  1. An impact investor who can provide at risk, upfront funding with no guarantee they’ll get it back – often a private philanthropic organisation or individual
  2. An implementing organisation to deliver the programme – often service providers or charities
  3. An outcomes funder who will pay back the investor if and when the project achieves the desired outcomes – for example a government or commissioner
    Return on investment depends on whether or not the social outcome improves. If it does, the outcome payer repays the investors for their initial investment plus a return for the financial risks they took.
    Development impact bonds (DIBs) are a type of social outcomes contract common in low- and middle-income countries, in which investors advance fund development programmes with returns linked to specific development goals. The outcomes payer in a DIB is not a government, but usually a philanthropic organisation.
    There are currently more than 251 impact bonds in over 35 countries, mobilising more than $700m of capital into tackling complex social issues such as refugee employment support, loneliness among the elderly, rehousing and reskilling homeless youth, and diabetes prevention.
    The GEF hopes to start trading of Bangladesh Development Bond by the year 2025.

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