Devolopment of Bond Market in Bangladesh

Topics: Bond, Stock exchange, Financial market Pages: 26 (8355 words) Published: February 18, 2013
Opportunities in Emerging Corporate Bond: Chapter Bangladesh Md. Shahriar Parvez*
Abstract:
Purpose: A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business. The term is usually applied to longerterm debt instruments, generally with a maturity date falling at least a year after their issue date. The study focuses on Bond market development in Bangladesh, an emerging market. The policy environment for bond market development in Bangladesh is studied with the initiatives by various sectors over the past decade (2001 – recent year). This paper also aims at understanding the hurdles Bangladesh is facing in developing its own local currency bond market over last decade. Design/ Methods: The study uses published secondary data from various relevant sources and the researchers have used personal observation and experience regarding the country’s socio economic and political background and their impact on the bond market. Findings: Developing bond markets is more complicated than developing equity markets. They operate best when they have money market and longer-term benchmarks. Numerous factors suggest that Bangladesh could not develop an active, local-currency, and fixed-income market. The obstacles include improper regulations, unwilling investors and borrowers, lack of market confidence and ineffective infrastructure. The market participants in Bangladesh are skeptical whether the government can succeed in this endeavor. Practical Implications: Because of large quantum of long-term fund requirement with the liberalization of the energy and communication sectors, major infrastructure sectors like oil & gas, power, telecommunications, shipping, airlines and port development, the government financing for such sectors would be lesser in the days to come. Existing financial system of the country does not have either the capability or the instruments to support these sectors. The rational alternative appears to be the Capital Market, and it our country there is only one Capital Market is known that is debt market which is not sufficient to cover these types of financial need. Bangladesh must drive to local currency bond market development.

Originality: Viewpoint/ general review/ Finance/ Economics. Key words: bond market, capital market, economic development, intermediaries & Market forces

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*Lecturer, Department of Business Administration, City University, Bangladesh. E mail Address: msparvez_educator@yahoo.co.uk

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INRODUCTION
Developing a local corporate bond market is a relatively new activity for many emerging economies, and insights form experiences are very limited. Development of local bond markets has become much talked about topic for decades in countries like Vietnam, Srilanka, Pakistan and Bangladesh. The current emphasis on local-currency bond market stems mainly from its riskmanagement benefits. A growing number of emerging market countries around the globe are looking into the prospects of building local bond market to reduce the currency, interest rate, and funding exposures. But building a bond market is difficult, it takes a lot of time and not every country those persuaded was able to develop an active market. The reason lies on the fact that bond markets grow from participation by issuers, investors and intermediaries – not just from building the market infrastructure. Participation results when a fairly comprehensive range of economic, technical, as well as political and “behavioral” factors come together. Unfortunately, many of these factors, by definition, are not well developed or are in inappropriate level in emerging markets. In most of them the financial market is controlled by the parts of the government those may care little about developing bond markets, which further complicates the process. In the starting this paper conceptualizes the market forces those play significant role...

References: Kviback, Mikael, 2000, “Bangladesh Survey: Issues in Local Bond Market Development”, Harwood Alison, Building local Bond Markets: An Asian Perspective, IFC, International Financial Corporation 2121 Pennsylvania Avenue, NW Washington, D.C. Chapter 14 pp 254-266.
Bangladesh Quarterly Economic Update ,March 2007, The Asian Development Bank, Bangladesh Quarterly Economic Update, Economics Units of the Bangladesh Resident Mission, Asian Development Bank, Sher-e-Bangla Nagar, Dhaka-1207, Bangladesh. Publication Stock No: 010401. Economic Trends ,September 2009, Bangladesh Bank. Monthly Economic Trends ,Publications, source website. www.bangladesh-bank.org
Scheduled Banks Statistics ,October- December 2008, Bangladesh Bank, Scheduled Banks Statistics ,Publications, source website. www.bangladeshbank.org. Annual Publication, 2006, 2005, Bangladesh Bank. Annual Publication, Publications, source website. www.bangladesh-bank.org. Weekly Market Review, 2001-2007,Asset & Investment Management Services of Bangladesh. Year 2001 – 2007, Weekly Market Review source website. www.aims.bangladesh.com. Annual Publication of Bangladesh Economic ,2007, 2008, Bangladesh Bureau of Statistics. Source website: www.bbs.gov.bd, provided by CMSL, Merchant Bank. Major Economic Indicators: Monthly Update ,April 2010, Bangladesh Bank, Major Economic Indicators: Monthly Update, Monetary Policy Department Bangladesh Bank, Volume 04/2010 Monetary Policy Review , July 2009 , Statistics Department, Bangladesh Bank, Monetary Policy Review. “Annual Report 2007 -2008 Dhaka Stock Exchange Limited” available at: www.dsebd.org, www.dse.com.bd accessed 12 May 2010. The New Nation, 2007, “Activating the secondary bond market” October 28, 2007, available at: http://nation.ittefaq.com/issues/2007/10/28/all0512.htm accessed 07 June 2010.
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Appendix A Bangladesh Economy
The economy has grown 5-6% over the past few years despite inefficient stateowned enterprises, delays in exploiting natural gas resources, insufficient power supplies, and slow implementation of economic reforms. Bangladesh remains a poor, overpopulated, and inefficiently-governed nation. Although more than half of GDP is generated through the service sector, nearly twothirds of Bangladeshis are employed in the agriculture sector, with rice as the single-most-important product. Garment exports and remittances from Bangladeshis working overseas, mainly in the Middle East and East Asia, fuel economic growth.
GDP: GDP growth rate: GDP per capita: GDP composition by sector: $208.3 billion (2007 est.) 6.3% $1,400 agriculture: 19% industry: 28.7% services: 52.3% Labor force: 66.6 million note: extensive export of labor to Saudi Arabia, Kuwait, UAE, Oman, Qatar, and Malaysia; workers ' remittances estimated at $1.71 billion in 1998-99 Labor force by agriculture: 63% occupation: industry: 11% services: 26% Unemployment: 2.5% (includes underemployment) Budget: revenues: $5.993 billion expenditures: $8.598 billion Industries: cotton textiles, jute, garments, tea processing, paper newsprint, cement, chemical fertilizer, light engineering, sugar Electricity production fossil fuel: 93.7% by source: hydro: 6.3% nuclear: 0% other: 0% Agriculture: rice, jute, tea, wheat, sugarcane, potatoes, tobacco, pulses, oilseeds, spices, fruit; beef, milk, poultry Exports: garments, jute and jute goods, leather, frozen fish and seafood Export partners: US 24.2%, Germany 13.2%, UK 10.6%, France 6% Imports: machinery and equipment, chemicals, iron and steel, textiles, foodstuffs, petroleum products, cement Import partners: India 14.7%, China 14.6%, Kuwait 8%, Singapore 6%, Japan 4.4%, Hong Kong 4.1% Economic aid $1.575 billion recipient: Currency: taka (BDT)
SOURCES: The CIA World Fact-book, U.S. Department of State, Area Handbook of the US Library of Congress
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