BB suggests issue of bonds ==>> The move aims to ease stress on balance of payments

Star (July 25, 2011)

The central bank has recommended the government issue bonds on the international market against major public-sector infrastructure projects, including the new Padma Bridge, to reduce pressure on balance of payments (BoP).
Bangladesh Bank last week put forward a set of recommendations to ease pressure on BoP, and its board held an exclusive meeting with Finance Minister AMA Muhith on the matter.
The finance minister while replying to a query from reporters at a meeting with Economic Reporters' Forum at the National Press Club yesterday said they have got such recommendations from the BB and “this has already been acted on”.
He also said the government is trying to ease the conditions for taking loans from abroad which was approved by a government hard term loan committee headed by the central bank governor.
Finance ministry officials said the BB in a report has analysed the external balance situation and observed that heavy import payment financed by domestic credit coupled with declining foreign financing has created pressure on the exchange rate of the taka.
The central bank also said, if foreign resource inflow does not improve to the expected level, the reserve will fall further and depreciation pressure on the taka may continue to worsen, with attendant increase in inflationary pressure.
Though the overall balance of the external sector remained surplus in recent times, there was a deficit of $747 million in the July-May period of the last fiscal year. It was a $2.66 billion surplus in the same period of the previous fiscal year.
The taka is continuously losing ground to the dollar. On July 19, it depreciated around 7 percent and the rate stood at Tk 74.58.
The BB said there may not be much scope of the government's targeting major further increase in foreign financing, the fiscal 2012 budget having already targeted doubling of the fiscal 2011 borrowing from traditional external sources.
The central bank said issuing bond in the external market is a realistic option for easing borrowing pressure on the domestic banking system.
The BB also said, instead of continually adding on numerous new ADP project undertakings reliant solely on domestic financing, completion of the large number of donor supported projects in pipeline should be accorded priority.
This will help ease pressure on the limited foreign exchange liquidity in the domestic market, it said.
The BB and the domestic banking sector can facilitate term borrowing by entrepreneurs of private sector industrial projects for investment needs.
The large difference between borrowing interest rates in the taka and in foreign exchange is now large enough to cover exchange risks, making such borrowing viable for projects with taka income as well as export oriented ones, the BB said.