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Hike in public spending tests NBR's ability,
Issue of foreign bonds increases govt liability. |
Govt seems determined to issue sovereign dollar bond by December this year. The size of the debt will be between $500 million and $1 billion. Government's alternative financing committee is working on the size and terms of the issuance. The initiative to explore foreign capital market for raising funds will come into reality within two to three months.The govt also has plans to issue Panda bond in China. The size of the Panda Bond will be initially $50 million. In addition, govt is also contemplating samurai,sukuk,infrastructure and diaspora bond as alternative financing means.
Leaning towards issuing foreign currency bonds underscores govt's desire to diversify financing sources to meet the budget deficits. Growing non performing loans (NPLs) in the banking sector, low private sector credit due to high public borrowing from banks and less access to soft credit after LDC graduation induce govt to explore foreign capital market.
Meanwhile, Moody's latest revision of credit rating outlook for Bangladesh from "Negative" to "Stable" may help Bangladesh in the endeavor of exploring the foreign capital market. The consistent growth of foreign exchange reserve and remittances inflow contributed to this revision. However, Moody's credit rating for Bangladesh remains B2, which was downgraded from B1 in 2025.
Earlier, S&P Global Ratings had revised Bangladesh's outlook on long-term sovereign credit rating from stable to negative. The agency attributed reasons for the revision to weak banking sector, poor revenue collection, external factors and high likelihood of delayed recovery.
The agency observed that non performing loan in the banking sector reached about 40% of total loans, govt revenue collection accounts for 8%-9% of GDP and interest payments represent 30% of govt revenue.
That means revenue collection is still inadequate and more than a quarter of that revenue goes for paying up the the interest of government debt. In this backdrop, the government is pondering to draw money from foreign debt market.
Government is not increasing the pace of domestic revenue collection to meet the existing debt servicing obligation but embarking on issuing bonds that will require more revenue money to pay the interest/ coupon.
Moody's revision for Bangladesh's credit outlook will have a positive impact on future revision of outlook by other credit rating agencies. But fiscal and governance challenges remain and have the risks to worsen economy.
Foreign investors are often more [concerned] about the fiscal policy, monetary policy and how the money raised through bonds is being spent. I highlighted the issue in the piece "Foreign Currency Bond: The Cart Before The Horse" published here on July 28,2026 (see https://hoquestake.blogspot.com/2026/07/la-semaine-derniere-mes-yeux_01602077096.html?m=1).
Govt recently implemented wage hike for public officials. The decision will cost the govt Tk 1.05 trillion annually. This is a permanent increase in govt spending. Besides, the decision will also hike the minimum urban wage for the private sector. Together the wage hikes will increase the inflationary pressure.
In addition, govt has to increase its revenue collection, which fails to meet the desired target, to finance the added increase in public spending. Is it realistic to expect that NBR will add $8.53 billion worth of extra revenue to govt coffer in the next couple of years? This indicates that govt will borrow more from domestic and foreign sources.
Moreover, recent fuel price hike may further aggravate the inflationary pressure. Particularly increase in diesel price by Tk 20 will push up the prices everywhere. But good thing is that it will either slash the subsidy on fuel prices or remain it same.
If inflation deteriorates due to wage hike and fuel price hike , then central bank will augment the policy rate. As a consequence, government spending on interest will rise. Instead of tight fiscal discipline, what we are seeing is [rising public spending and govt borrowing]. At the same time interest spending is rising with growing govt borrowing. And future increase in revenue collection will go for meeting such spending.
Foreign investors prefer that budget deficits remain at a low level so that it will not have impact on their return on investment.Many countries legally keep budget deficits low. Indonesia after the 1997 financial disaster passed a law requiring govt keep budget deficits below 3% of GDP. Such fiscal prudence made foreign investors confident in investing in Indonesia, including its foreign bonds.
In our [country], transparency of our institutions and projects is not impressive. Newspapers are replete with reports on how infrastructure projects are marred with corruption, inflated costs and cost overrun. Question remains about return on such spending. Apart from that nitty-gritty of the activities (like earning, spending) [is] not regularly published in annual report. Many institutions do not publish regularly annual report or audit report. For instance, few years ago an NBR investigation revealed that BPC made huge profits by depositing money meant to
pay as VAT into several bank accounts while leaving NBR in [the] dark. Had there been regular annual reports of BPC ,this thing would never have
happened.
Regular reporting of projects,institutions gives investors an idea about the projects, risks and future returns. It also exposes management and return issues. And to make regular reporting credible ,independent and objective auditing is a must.
Issuing of foreign currency bond is being considered. But true foreign investors will observe alignment of fiscal and monetary [policies],reform in the banking sector, transparency in public institutions and projects, regular reporting on performances, independent auditing, distinct role for distinct entities and well defined investment policies from govt while buying those bonds. Without improving governance, without checking the public spending, issuing foreign currency bond will not attract genuine foreign investor and will only increase liability of the govt.
