Dhaka Reopens Debate on Global Bond Market Entry

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Government explores overseas borrowing option; analysts urge caution until credit standing strengthens

Bangladesh's government is once more weighing whether to tap international investors through a sovereign bond, though economic analysts caution the country's current fiscal health, governance gaps, and the expense of foreign borrowing make the timing questionable.

Finance Minister Amir Khosru Mahmud Chowdhury led a session last month with the central bank governor and top officials from the Finance Division and Economic Relations Division to revisit the proposal. Following that meeting, authorities agreed to set up a cross-ministry panel to study whether such a bond is workable and to present findings, according to a finance ministry source, who noted the plan remains in its infancy.

Officials also decided the topic would be folded into forthcoming debt-strategy planning, the yearly borrowing outline, and sustainability reviews, partly as a signal to the investment community. A briefing prepared by the Finance Division laid out the reasoning, upside, and dangers involved, emphasizing that borrowing this way only makes sense if returns from funded projects exceed the full cost of the bond, including interest, spreads, and fees.

Two paths were discussed: a standard dollar Eurobond or a yuan-denominated Panda Bond sold in China's domestic market. One ERD representative noted that both Sri Lanka and Pakistan have already entered global bond markets and suggested Bangladesh could follow suit, though the IMF might object. China, the official added, has signaled openness to backing a Panda Bond if Bangladesh pursues that path. Central bank staff floated a modest starting point—roughly $50 million—to test investor demand without excessive exposure.

A Finance Division source admitted the ministry had previously hesitated on sovereign bonds given the risks, but said shifting economic circumstances justify reconsidering now, provided Bangladesh waits until its credit rating climbs enough to secure reasonable rates. Minister Khosru voiced confidence that Bangladesh would eventually join international capital markets, adding this move could work alongside a planned Hong Kong-based investment fund meant to draw private equity into the country.

Earlier bids to launch sovereign bonds in 2013 and 2021 under the Awami League administration were dropped by the finance ministry, and a comparable push during the interim government stalled largely due to hesitation from then-finance adviser Salehuddin Ahmed. Salehuddin explained there had been little urgent need for such funds at the time, since fiscal strain was limited and many projects were still in early planning. He stressed that any future move requires a detailed review of debt sustainability—covering debt-to-GDP levels, reserves, external exposure, income levels, and broader vulnerabilities—adding that a similar effort had also failed to advance under former finance minister Saifur Rahman, during his own tenure as central bank governor. "Sovereign bonds shouldn't be pursued out of mere financial need," he said.

Sri Lanka's warning example

Salehuddin pointed to Sri Lanka as a case study in the perils of insufficiently analyzed sovereign borrowing, noting that nations like India only proceed after rigorous debt-sustainability checks—an exercise he had begun for Bangladesh but never finished.

Zahid Hussain, formerly the World Bank's lead economist in Dhaka, was blunter, saying he doesn't believe Bangladesh is prepared yet. He cited Sri Lanka's debt meltdown, where heavy sovereign bond repayments deepened external financing strain and triggered a currency crisis. Because of Bangladesh's fragile fundamentals and rating, he said, investors would demand a steep risk premium. Fitch Ratings kept Bangladesh's rating at "B+" in May but shifted its outlook to "Negative" from "Stable," pointing to instability tied to the Middle East conflict. Zahid estimated Bangladesh would likely face dollar borrowing costs of 7–8 percent under present conditions—a heavier burden once converted to taka—compared with Sri Lanka's roughly 5 percent rate at a time of lower global rates, which still ended in crisis.

Concerns over misuse and graft

Zahid said his bigger worry is how bond proceeds would actually be spent. Given weak revenue collection, poor spending oversight, and limited capacity to execute projects, funds could easily be misused or diverted. He argued proceeds should go only toward projects that generate their own revenue—like toll roads or fee-based water treatment facilities—rather than initiatives such as primary schools that can't directly repay the debt. Until Bangladesh strengthens expenditure management, revenue systems, project vetting, and debt oversight, he warned, sovereign bonds risk worsening rather than easing the country's financial pressures.