Published: Thursday, May 9, 2013

Sovereign bonds come with risks

Panel submits interim report to finance ministry

Sovereign bonds come with risksThe government committee on the execution and transaction of sovereign bonds identified a host of risks associated with the issuance of the debt instrument. The possibility of a cutback in concessionary loans from the World Bank is one.
The panel suggested consulting with the donors that provide soft loans before issuing the bond.
The nine-member committee submitted an interim report last week to the finance ministry, where the risk factors were conveyed.
Although the country currently qualifies for soft loans from the WB’s International Development Agency, undertaking high-cost commercial borrowing like the sovereign bond stands to cancel out its eligibility, according to the report.
The committee advised the government to make it clear to the multilateral and bilateral donors that it would not receive such type of loans on a regular basis.
Finance minister AMA Muhith on different occasions told reporters that the primary purpose for issuing sovereign bond is to collect around $1 billion for the Padma bridge project.
“The amount to be raised through sovereign bonds should be determined by the need for funds, and the timing of the issuance should be when the funds have to be used,” the report said, adding that the funds raised should be deposited in a separate account with the BB.
The panel recommended limiting the amount to be raised from bonds in the first stage to $500 million.
It also said the present foreign exchange reserve is sufficient to meet the next two years’ foreign currency expenditure for the construction of Padma Bridge after meeting import bills for more than four months.
The fall in imports and increase in remittance inflow propelled the foreign currency reserves to cross the $15 billion mark for the first time on Tuesday.
The committee also recommended taking into consideration the overall macroeconomic situation before entering the international bond market.
Citing Sri Lanka, Vietnam and Thailand as examples, the committee said the ministry should seek approval of the parliament before issuing sovereign bond.